There’s a sea change happening in the world of value-added resellers. While there’s still a market for traditional VAR services, many companies are beginning to feel pressure to redefine their offerings and emerge as managed service providers (MSPs).“VARs have been struggling to add value to the customer,” says IDC Canada senior analyst Leslie Rosenblood. “A number of them have been moving from the typical one-to-one VAR relationship, making an investment in infrastructure to go to a one-to-many model. It’s a very different way of dealing with customers, and they can create a suite of services that they can offer to a range of customers.”
An initial infrastructure investment is required, but the advantage is MSP-based services can be a much more efficient way of doing business than traditional resellers.
Mark Scott, CEO of N-Able Technologies Inc. of Ottawa, which provides hosted MSP solutions for resellers, believes VARs that haven’t made the transition know that they’re going to have to.
“Customers who want to stay on a break-fix basis tend to get fired by VARs that have made the transition to MSP,” he says. “If you’d told me two years ago that VARs would be firing their customers, I would have said you were crazy.”
Virtual IT department
Unlike traditional VARs, which tend to do most of their work in fits and starts at the client’s premises, MSPs deliver IT services over the Internet on a subscription basis. Service providers manage and often host their clients’ systems on an on-going basis, as a kind of virtual IT department, collecting a regular fee for their services.
The barrier to entry to the business is actually quite low. It’s not quite zero, because there’s an up-front investment in hardware and software, but it only has to be done once, says Scott.
Part of the pressure for resellers to add the service comes from the vendors. Some of the biggest players in enterprise hardware are making a transition to service-based models. And that means that erstwhile VAR allies are increasingly becoming competitors, Rosenblood says.
“We’re seeing VARs that are trying to scale up their offerings while, at the same time, large vendors are trying to scale down,” he says. “So there’s a lot of competition.”
However, the MSP model has positive attractions for VARs as well. One is that it doesn’t require the labour-intensive handholding that VARs are used to providing. It shifts the location of activity from multiple customer premises to a single, consolidated IT department serving a large number of customers. “It’s the same premise that companies like IBM and EDS had in mainframes twenty years ago,” says George Kerns, president and CEO of Fusepoint Managed Services Inc., a Mississauga, Ont.-based security provider with offices in Vancouver, Montreal and Quebec City. “They had economies of scale that they could really leverage.”
Indeed, the MSP model is all about economies of scale, and that’s what makes it such a natural fit for VARs.
“The ability to do the work once and repeat it many times across customers hasn’t been a toolset available to VARs in the past,” Rosenblood says. “But if you’re a large service vendor, that’s the key to being profitable.”
Nevertheless, according to Scott, the growth of MSPs is being driven in part by market demand and partly by a realignment of the IT industry. “In the past, vendors tended to define how the channel worked,” he says. “The pendulum has swung back to the buyers, and that has begun to influence the whole value chain.”
Companies have also become more comfortable with the idea of outsourcing part or even all of their IT operations. Part of that is due to the demystification of technology itself, says George Moutsos, president of Dynamix Solutions, a long-time VAR that has made the transition to offering MSP services. If IT isn’t a big deal, then it isn’t a big deal for customers to outsource it to someone who might be able to do it better.
“End-users are getting smart,” Moutsos says. “They understand that, for the technology to function, you have to do things like patch management and all of those day-to-day maintenance things.”
Those things take time – time that few IT departments have to spare. Time, after all, is the scarcest commodity that most companies have. “If you can do what you’re doing – and even do it better – without spending time on it, that’s money,” Rosenblood says. “The real appeal is that MSPs can do the job better, while spending less employee time.”
That’s particularly true among the small- and medium-sized companies that make up the vast majority of Canadian businesses. “It’s a fairly simple sell going in and explaining to them that what we’re offering is really like an IT department without the expense,” Moutsos says. “We can do 90 per cent of what IT guys do at half the cost. By doing all of that proactive maintenance for them, they know their servers won’t go down.”
While, in the past, conventional wisdom held that a company could outsource anything except its mission critical systems, they are often the main reason small and medium businesses turn to MSPs.
“It’s about peace of mind,” Scott says. “If you’re a professional services firm, then you’re not an IT company. Do you really have all the expertise you need in-house? Do you want to take all of that liability and risk on internally when you could outsource it?”
Expertise is, of course, the foundation in which the VAR and system integration businesses are based. The wrinkle that MSPs add is the possibility of having continuous access to IT expertise without having to make the investment in direct hiring and training.
Driven by security
“Mid-market companies are looking for the same things that large companies have,” Kerns says. “But they don’t have the depth in their organizations, so it can be hard to keep people in the mid-market. So it makes a lot of sense to outsource these systems and processes to a provider who specializes in IT.”
One of the hottest growth areas of the MSP business is security. The increase in the volume and severity of online threats and tough Canadian and American regulations protecting consumer and corporate privacy have brought it to the top of the IT agenda. If you’re doing business in the United States, you have to comply with the Sarbanes-Oxley regulations. If you don’t, and you get attacked, you’ll be in for a whole world of trouble.
“Security is hot today because there’s a lot of talk about it, so people really have to be concerned,” Kerns says. “It’s something you always have to keep up with, and companies are realizing that it isn’t just technology; it’s all about people who are integrated with the technology. By definition, an SMB just might not have the right people.”
Helps meet demand
And, to be brutally frank, keeping up with technology can be a bit of a headache.
Networking, in particular, has undergone some significant transformations in the last few years. A three-year old infrastructure is now obsolete thanks to advanced network applications like voice over IP (VoIP). And even VoIP itself is rapidly changing.
“VoIP is actually interesting because managed services play a huge role in the technology,” Scott says.
“Unless you’re talking about a
really big company, outsourcing is really mandatory if you’re going to adopt VoIP.”
Though it appears that the smart money is saying that manag