Kaseya Promotes Rent-to-Own with MSPs

Case Study: Adivio Software and Kaseya merge to promote an integrated IT framework with a monthly fee structure.

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.

Next Page: After a year, remote management is working out.