As organizations continue to recognize the benefits of moving operations and information to the cloud, companies are beginning to shift into Managed Service models. Utilizing Managed Services allows organizations to leverage more comprehensive, all-in-one versions of their offerings and services for a monthly fee rather than a roster of disparate charges and services.
Before taking the leap into Managed Services, however, companies must understand the ramifications and overall planning process that follows. The move to a managed service model is nothing but easy and in the end, OEMs will discover that their channel, and how it operates will begin to change.
Industry analysts and channel executives share insights on the benefits of Managed Services, as well as key considerations companies must make before moving to an “as-a-Service” model.
In a recent survey of corporate IT use of Managed Service Providers (MSPs), Aberdeen Group explored the market need and overall reports of MSP performance. The report, titled “Managed Service Providers: A Stepping Stone to the Public Cloud,” Aberdeen analyst Dick Csaplar revealed that companies primarily utilize MSPs because they need more flexible infrastructure (58%), or they have overly expensive (51%) and complex (38%) IT infrastructures. Within the channel, OEMs are altering their offerings to reflect the “as-a-Service” mentality of MSPs and cloud, by offering Hardware-as-a-Service models.
“This has been a tidal wave that’s been coming for quite a while,” Craig DeWolf VP of Strategic Development for CCI Channel Management Solutions, told Channel Marketer Report. “When you say managed services to a bunch of people, you get different definitions of what that is because the reality of managed service is it covers a broad range of services; you no longer have to buy individual things. You just sort of rent a solution and everything eventually gets done.”
Kevin Price, CEO of AccuCode, added that while the shift to Managed Services has been gradually building up within the last few years, 2012 has been a landmark year for the strategy. “In my opinion, 2012 is really the first year that every major player in the sector is acknowledging Manages Services,” he said. “Customer demand has indicated that they need to have an ‘as-a-Service strategy. It will still be a small part of the over all market this year, but I expect it to be 80% of the overall market within 5 years and maybe as short as 3 years.”
Despite the growing demand for Managed Services, OEMs are faced with the challenge to efficiently categorize their partners based on their ability to make the necessary transition. A lack of resources and bandwidth may hinder certain VARs from keeping pace with channel developments, quickly changing partner requirements and necessities.
“What’s the big ramification for a lot of vendors is, is it some VARs can’t [keep up],” DeWolf explained. “They just don’t know how. So OEMs are conflicted between whether to go out and recruit new partners who get it, or try to help change the business model of their existing partner base..”
Another hurdle partners must overcome is finalizing specifics of their Managed Services model, such as pricing, channel compensation, and developing subscription models optimal for all parties.
“VARs are used to a sales model where there is a one- time sales engagement that alludes to ‘Here’s what I do. Here’s how much the hardware is. Here’s how much the services are,’” DeWolf said. “Now, they’re shifting over to that subscription model.”
During the transition to Managed Services, many organizations are tripping on making financial and sales shifts, Price noted, making it a hefty obstacle. “Manufacturers really have to architect the entire solution around the managed service approach or it is too expensive and cumbersome to manage,” he said. “The sales model also is completely different. The customer is different and he has a much lower barrier to saying yes because it’s a transaction-based sale versus a big project.”
Price added that most success stories involve new entrant software ISVs that have built solutions from the ground-up via Managed Services, and found a way to bundle hardware into subscription models. This strategy spotlights the growth potential for all-in-one offerings.
During the Managed Services planning and execution process, according to DeWolf, companies need to not only ask but be prepared to put a plan in place that answers these top questions:
1. Who pays for the hardware?
2. What form of agreement will you be rolling out?
3. Who owns the relationship?
4. Who is responsible for billing the end-user every month?
By addressing these questions, OEMs/manufacturers can work with partners to develop solution and bundled offerings that make implementation and maintenance for end-users more seamless. Bundled offerings are coming to the forefront to help partners make an easier transition into Managed Services. These ready-to-go solutions are sent directly to an MSP for easy selling, installation, financing and delivery, DeWolf added. “That’s where a lot of vendors believe they’re seeing their potential moving forward,” he said.
Once you have made the decision to offer managed services or a hardware-as-a service model, the real work begins. While OEMs may be eager to alter channel operations, DeWolf advised that companies must not be catalysts for change. Rather, organizations should be eager to react and adapt to change.
“I don’t think the messaging should be about, ‘You should change your business model to managed services and we’re here to help,’” DeWolf explained. “I think it’s got to be a little bit more focused than that and maybe making programs available to people who finance programs, support programs, etc., for people who are adopting the managed services models. So I think they have to be proactive in adopting it, but I don’t think they should be proactive in forcing change. But I do think they need to assess their partner’s ability to change if the market is moving that direction.”
While it is vital to have useful tools, training programs and marketing materials in place to help capable existing partners make the switch to Managed Services, acquiring partners that are eager and willing to operate under “as-a-Service” also is key, DeWolf explained. This may mean a complete review and overhaul of existing partner programs—from application to qualification and requirements—to ensure all applications and considerations match the need of the Managed Services model.
Despite the emerging debate that Managed Services may completely deplete the channel, DeWolf reaffirms that the concept of operating through a tiered structure is too powerful, and preferred, to die out completely.
“The channel can’t go away,” DeWolf explained. “There has to be somebody there who has the relationship with the client and is able to service the client. There’s always going to be a channel because somebody who is buying managed services wants one throat to choke.”
However, what the channel will look like moving forward will change dramatically, according to Price. To be successful in the competitive marketplace, channel players must be eager to provide customers with the technological solution, as well as a tool-kit of skills and processes.
“In the age of Cloud architectural, multi-tenant applications delivered through millions of smartphones and tablets, a channel partner’s value will be in the expertise in his customer’s business processes and problems,” Price explained. “The technological approach to how the problem will be solved will no longer be the role of the channel. Helping the customer map their problems and their processes to the tool-set will be where all the value is. Those that make the transition will have much more scalable and profitable business than they do today.”