Kaseya Promotes Rent-to-Own with MSPs

By Megan Santosus  |  Posted 2005-11-07

Kaseya Promotes Rent-to-Own with MSPs

As a software industry veteran who has had a hand in a number of successful startups (such as Platinum Software Corp., for one), Gerald Blackie said he is confident in his ability to spot a winning venture.

For example, in 2003, when he heard about Kaseya Inc.—a company that today develops Web-based managed services software for the desktop—Blackie quickly abandoned his efforts to market a similar product and joined up with the developers at Kaseya.

At the time, he recalled, he hadnt yet launched a product, but Kaseyas software essentially had the same features he was planning to develop.

Indeed, within days of learning about Kaseya on the Web and downloading its available software, Blackie decided to seek a merger of his nascent company, Adivio Software Corp., and Kaseya. Rather than the two companies competing against each other—thereby potentially cannibalizing the market—Blackie thought the best strategy was for them to team up and benefit from their strengths collectively.

The principals at Kaseya agreed. By combining within a single entity the two companies development expertise, technology and business acumen, Kaseya would be better than the sum of its parts, Blackie said.

Today, Blackie is CEO of the San Francisco-based Kaseya and one of the chief architects of its strategy to market an integrated IT framework to MSPs (managed services providers), which, in turn, can rebrand the framework and sell it to their own customers.

Blackie said that when he started working at Kaseya in early 2003, the company was fully entrenched in the software subscription model of doing business. Kaseyas focus was on developing software that would automate critical yet routine IT services, including patch management, software installation and upgrades, and system monitoring. Blackie described it as software that "manages by policy."

While Kaseya sold its software to corporate customers, the company also targeted its products to MSPs. In the latter case, Blackie said Kaseyas strategy has always centered on selling software to local MSPs, which, in turn, used the technology to provide remote IT services to SMBs (small and midsize businesses).

For MSPs, Kaseya charged a monthly subscription price of $10 per license. For the eventual end customers—typically companies with little or no in-house IT resources—Kaseya would remain the unknown developer of the software.

With Blackie coming on board as CEO, original developers Mark Sutherland and Paul Wong settled into their roles as president and chief technology officer, respectively. Although still committed to serving MSPs and remaining in the shadows at least as far as end customers were concerned, Blackie said the subscription model had run its course by the time he joined the company, so Kaseya began the task of revamping its business model.

"We opted to swap back to a more traditional model in which the IT service providers own the software themselves," Blackie said.

Essentially, Kaseya now promotes a "rent to own" strategy, Blackie said. For a flat monthly fee, an MSP buys use of a certain number of licenses, which it will then own in one to five years, depending on the terms of its contract. According to Blackie, MSPs favor the flat-fee structure because their own customers prefer it, and paying a flat fee for software allows the MSPs to charge flat fees for their services. Blackie said that for both MSPs and their customers, the predictable payments made possible by flat fees make everyones lives easier.

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The aim of Kaseyas strategy is the same as the one driving the MSP market: By moving to a monthly fee structure, software vendors and providers alike have predictable and consistent revenue streams and can better plan and assign their internal resources.

Its a fee structure that is particularly well-suited to the kind of machine-automated services that Kaseyas software enables, Blackie said, because many of the functions are routinely scheduled and can be more efficiently handled remotely.

At the beginning of this year, Kaseyas strategy began to gain traction among MSP customers. According to Blackie, Kaseya has signed up more than 150 MSPs in North America. The privately held company wont divulge revenues, but Blackie estimated that contracts for its MSP IT framework will add up to more than $15 million by the end of this year.

"We dont even think were scratching the surface of this market," Blackie said of managed IT services. "In the foreseeable future, we see tremendous growth."

According to Blackie, other companies can take advantage of the growth opportunities, but they may have to change how they do business. The IT services business "is undergoing a dramatic change," he said. "It will be difficult for the traditional IT service providers—those that use the person-based, break/fix model to service their customers—to survive in the world of policy- and process-based management of IT assets."

One early customer of the Web-based IT framework is IT Solutions Consulting Inc., a network and managed services provider that signed up with Kaseya last year. Like most of Kaseyas MSP customers, the Jenkintown, Pa., company has fewer than 5,000 seats under management. IT Solutions currently has a deal that calls for 1,000 licenses each year for the next five years. At the end of that time, IT Solutions will own the software.

IT Solutions President Ted Swanson said the company currently has approximately 600 seats under management. IT Solutions pays $2,000 per month for Kaseyas framework, which it offers to its customers as part of its SharedVision service. Among the functions that IT Solutions relies on from Kaseyas software are patch management, spyware removal and live chat to the help desk, Swanson said.

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With just about a years worth of experience working with Kaseya, Swanson said he is very satisfied with the arrangement. His company has approximately $5 million in revenues, and the deal with Kaseya is already a money-making venture, he said.

As for the remote management of services, Swanson said it has made life easier for his company and staff. He said that he likes the idea of paying Kaseya a set payment each month and that he has found the company easy to work with.

Swanson said he speaks with Blackie at least once a month, and his company is a beta site for Kaseyas upcoming monitoring tool. The process of setting up the services is straightforward and reliable, he said.

"We set up agents on the client machines to run every night, and we write our own scripts," Swanson said.

Swanson said the biggest difference hes seen in terms of internal benefits is in time to resolution. "Before, we may have had a scheduled service call on the customers site every Friday, at which time wed have to fix three things," he said. "Now we get a call from the client and can fix a problem remotely on the day we hear about it."

As for options other than Kaseya, Swanson said he explored developing managed services software internally. However, he ruled that idea out when he got a look at some of the commercial products available. Swanson evaluated products from Ipswitch Inc. and SilverBack Technologies Inc. but chose Kaseyas technology.

"With patching, remote control and application management, Kaseyas software was more complete," Swanson said.

In a nod to caution, Swanson said he initially marketed the managed services using Kaseyas technology only to new clients because he wasnt sure the technology would work. Now satisfied with the software, Swanson is pitching managed services to all customers. Hes conducting road shows, making one-on-one presentations and touting the benefits in a newsletter.

So far, Swanson said, the concept of flat fees rather than the traditional practice of billing for time and materials is hitting a chord with customers.

As for Kaseya, Blackie said he is doing some aggressive marketing as well. At first, he looked for potential partners among MSPs in much the same manner as when he discovered Kaseya: through Web research. Now that the concept of flat-fee managed services has gained some momentum, and Kaseya has signed up a fair number of MSPs, Blackie said he is using that network of customers to find new customers.

Its an approach that has already proved successful. In the case of IT Solutions, Swanson said he first heard about Kaseya through a trade group; fellow member Steve Bender of InhouseIT, an MSP in Newport Beach, Calif., introduced Kaseya at a meeting.

According to Swanson, at least 10 of the trade groups 15 members have signed on with Kaseya. For Blackie, that kind of word-of-mouth marketing offers further evidence that he—and Kaseya—are on to something.

Megan Santosus is a free-lance writer based in Natick, Mass. She can be reached at megan.santosus@gmail.com.

Case file

  • Customer Kaseya
  • Location San Francisco
  • Organizational snapshot Founded in 2000, Kaseya today is the result of a merger between two startups: the original Kaseya, a software company that focused on private- and public-key encryption, and Adivio, a company launched by Gerald Blackie to develop software for managed services.
  • Business need Kaseya is a provider of software to MSPs. The software is sold as a private label to MSPs that then brand it and use the software to provide such remote services as patch management, system monitoring and software upgrades.
  • Technology partner IT Solutions Consulting, Jenkintown, Pa.
  • Recommended solution To provide its customers with remote managed services, IT Solutions selected Kaseyas software. For a predictable monthly fee, IT Solutions has purchased 1,000 licenses from Kaseya, with an option to own 5,000 licenses at the end of a five-year term. IT Solutions relies on Kaseyas software as part of its SharedVision service to provide customers with patch management, spyware removal and help desk live chat.
  • Lessons learned From Kaseyas perspective, focus on the needs of customers even though the target customers are MSPs. In addition, change business models as dictated by the market—in Kaseyas case, that meant changing from a subscription-based model to a flat-fee structure.

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