Case Study: As some VARs discover the hard way, the shift to managed services requires reinventing the business.
The marketing buzz around managed services is pretty seductive for the thousands of VARs burned out on low-margin, product-centric selling, unpredictable project-based revenue and break-fix maintenance gigs that can turn into nightmares with the flip of a switch.
Managed services is one of the fastest-growing segments of the IT and networking markets, said Jeff Kaplan, managing director of ThinkStrategies, a strategic consulting services company in Wellesley, Mass.
MSP (managed services provider) sales revenues grew 80 percent in the past year, according to a ThinkStrategies industry benchmark survey done with the MSP Alliance in 2005.
VARs are falling for the siren song of higher margins, recurring revenue, strong differentiation, fantastic account control, the low cost of acquiring new accounts and the Midas-like opportunity to have a closer touch point with the customer. But is it all too good to be true?
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The laundry list of benefits is enough to suck even the most cynical of VARs into believing it is about to enter reseller nirvana.
Of course, some tire-kicking and due diligence may reveal that the transition into managed services is a little more complicated than just getting behind the wheel.
"Many VARs attempting to convert themselves into MSPs have discovered that achieving success in the managed services business is far from a slam-dunk," said Kaplan. "They need to find out what managed services are, what the risks and rewards are, and educate themselves about a business model that is very different from one based on selling products."
"To make managed services work, youve got to be committed to changing your business," said Jennifer Roback, vice president of sales at Praxis Computing, in Marina Del Ray, Calif. "And youve got to understand that you are not buying a product or a service, but youre buying into a service methodology. Word to the wise: Know what youre buying."
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Roback paid dearly to acquire her wisdom. A few years ago, when managed services was in its infancy, she invested thousands in an N-able Technologies platform she said fell short of delivering.
Her company spent months getting the platform to do what Praxis expected it to do, and that included retraining salespeople to sell services with low (albeit recurring) margins compared with those of high-end networking sales.
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