Managed services are among the most highly sought after services in the IT industry. A prosperous market has been created by the increasing demand for solutions that support software deployment, security, disaster recovery and other enterprise needs. The managed service provider is in position to enjoy the most profits by delivering these solutions directly to the client, but this market is so lucrative that it provides a way for others to get in on the action.
The Ticket to Managed Services
Value Added Resellers (VARs) are in a unique position. Unlike a reseller, which merely resells a product or service for a partner company, a VAR resells that product or service with enhancements that hence, increase the value for the customer. So for example, on top of housing server hardware, the vendor may also provide network monitoring, system integration, installation and other offerings that give the client more bang for their buck.
A VAR must generally meet a strict list of criteria in order to get a foot in the door of managed services. The criteria varies depending on the terms and conditions of the company they’re partnering with on that existing product, but may call for the organization to have the infrastructure and expertise to support the services it wants to offer, or to make a certain percentage of their revenue as a provider of professional services and operate within a certain geographic region. Because of these stipulations, some resellers will never go beyond white label solutions they can brand as their own on the surface.
The VAR market is reserved for an elite group of resellers, but once you’re in, you’re in, as the saying goes. In addition to adding a highly sought after offering to your portfolio, a VAR partnership typically comes with benefits such as
- Technical Support
- Product Training
- Access to Company Resources
- Management tools
- Marketing and Promotional Support
From VAR to MSP
The VAR model is ideal for forward-thinking IT companies starving for a slice of the profitable pie that is managed services. However, truly moving forward means to grow and for many vendors, moving up to the MSP arena is the logical step to that next level.
According to an article on Channelpro Network, VARs are moving up to managed services for the following reasons:
1. Audience Demand – More small businesses are finding out how costly it is to keep their IT infrastructure running. The smart ones have realized that they can actually save money by outscouring critical IT management tasks to third-parties who are better equipped to handle them. For a VAR with the infrastructure and expertise to offer server hardware, security, and other items these businesses need, the addition of system management, customer service, and support is often a natural, practical, and affordable extension of their existing services.
2. Predictable Revenue Streams – The VAR business model is a very shaky one. Even if you have access to a world-class infrastructure, you’re not making money if you’re not making sales. It’s as simple as that. As an MSP, you profit from a predictable model that sees you raking in money like clockwork from the clients that paid a monthly subscription to use your services.
3. Improved Customer Relations – When it comes to managed services, the MSP is in position to deliver the most value to the end-user. As a provider, you can typically offer services at a price that is remarkably lower than what a VAR can afford. Combined with the efficient handling of their IT needs, these cost savings can build the type of relationships that drive tremendous value for both the client and the provider.
The Rules of Transition
Making the leap from VAR to MSP is one that less than 10 percent of organizations make without failing. It’s challenging, but shouldn’t be intimidating enough to prevent a prepared vendor from making the move. Aspiring service providers can better their chances of a smooth transition by following a few simple rules.
Spend wisely. In most cases, becoming an MSP means operating a data center complete with the hardware, software, monitoring, security and personnel resources to make sure it all runs smoothly. These components will take a sizable chunk out of your budget, so be careful that it doesn’t take a big enough piece to ground your flight into transition before it even gets out of the gate.
Offer the right services. Some MSPs try to sell as many services as possible to maximize their profits. That’s fine and dandy as long as you can provide those services effectively. Sacrificing quality for the sake of profits could come back to bite you in the ‘you know what’ when dissatisfied customers start generating negative press and fleeing for the competition.
Step your game up. As an MSP, how you honor your SLAs can either make or break you. You might be putting more weight on your shoulders if you’re making big promises that come with bigger consequences should you fail to live up to them. These promises will only grow more complex as your business evolves to meeting the demands of growing IT environments, so you need to make sure those service levels are updated and upheld accordingly.
A Future Up in the Clouds
For a VAR, becoming a managed service provider is akin to breaking into the big leagues. But while there is much to be gained on that next level, research suggests that a good portion of the reseller segment may be taking a wait and see approach to scaling the ladder. According to a study by CompTIA, four out of 10 IT companies are monitoring the impact cloud computing has on the MSP market before deciding to offer managed services. Profit potential aside, there is something to be said about staying in that zone that keeps us most comfortable.