Are you prepared for this disruption??
Selling managed services presents a great opportunity for Value Added Resellers (VARs), empowering them to tap into a growing market, build additional revenue streams and improve margins. However, the resellers that embark on this journey are soon confronted with varied challenges.
This whitepaper provides insights into how a VAR can amplify its chances of long-term success in the managed services market.
The managed services market continues to grow at a rapid rate. According to Markets and Markets, the managed services market will grow from $180.5 billion in 2018 to $282 billion by 2023 at a CAGR of 9.3%. The two major drivers of the managed services market include: the increasing dependence of organizations on IT assets to enhance their business productivity and the need for specialized managed service providers who can provide cloud-based managed services.
This rapid growth and the compelling economics of the managed services market have lured many VARs to rush into the managed services ecosystem. According to CompTIA, more than half of all IT solutions providers predict that 75% of their revenue will come from managed services in the next two years.
Reasons Why a VAR Should Transition to a MSP
Today’s VARs need to quickly find a way to adapt to the ever changing business landscape or if not, will quickly become extinct. Looking at the business evolution of VARs, they built their business models around only selling hardware and software products with very little services product mix. Their goal was to develop a solid relationship with OEMs (HP, IBM etc.) and become an extension of the OEM’s sales force.
They teamed with the OEM sales force to go after established accounts or to develop new markets like the SMB channel. The OEM’s strategy was to use multiple channels (both direct and indirect) to go to market and the VAR business model became very lucrative for both the OEMs and VARs. A lot of money was made in the ‘70s through the early 2000s under this business model for both OEMs and VARs.
Fast forward to August 2006 and “cloud computing”, in its modern context, was born through Google CEO, Eric Schmidt. This new paradigm of business computing quickly changed the landscape where on-premise computing was becoming less important while Cloud Computing was quickly accelerating.
Combine this with quickly shrinking revenues, and more importantly shrinking margins from hardware and software sales, and OEMs and VARs quickly realized that their business model had to change. While this was all transpiring, a new business model was quickly taking hold in the SMB market called Managed Service Providers (MSPs). They quickly became the defacto standard to support the local SMB business community for IT support. They grew into the “one stop shop” for all IT needs or the small business owner’s vCIO (Virtual Chief Information Officer). Most SMBs could not afford their own CIO and IT department so they found that outsourcing their needs to a local MSP was very cost effective. The business model grew in popularity and quickly became quite profitable because the MSPs quickly saw the value in the stability of the monthly recurring revenue.
Today’s VARs are now being squeezed in three areas:
- Reduced hardware and software margins from the OEMs
- MSPs who are competing with them at every turn in the SMB market
- Software OEMs going directly to end users with a SaaS business model cutting them out of the lucrative software licensing business model.
Still looking for reasons to transition yourself into a MSP?
Reason #1 – Predictable Revenue Streams
The MSP business model maximizes revenue potential by creating contracts for on-going customer monitoring, maintenance and security, setting up a flow of predictable monthly payments.
Reason #2 – Financial Stability
MSPs have a higher net income providing them a safety net for the accompanying rising expenses.
Reason #3 – Diversified Offerings
VARs provide products that customers can get anywhere, but the addition of managed service offerings help VARs to stand out from their competition.
While the managed services market has grown rapidly, and offers several advantages, it presents its fair share of challenges and uncertainties as well. The following section of the whitepaper discusses the emerging challenges a VAR may face while undertaking this ‘Digital Transformation’
Challenge #1 – Building Expertise and Capabilities
VAR’s often lack the experience to build out new capabilities to deliver managed services. Additionally, building those capabilities takes time and as the technological evolution continues to pick up pace, by the time the VAR builds that capability, a new technological trend appears in the market potentially rendering it obsolete.
When looking at the team required to support a managed services practice, the internal sales team of a VAR is more accustomed to selling products, and is often times not equipped with a compelling value proposition to sell managed services. And with the VARs business model having such razor-thin margins, it can cause a real challenge in their ability to incur the cost of hiring and (re)training additional resources to meet the new demands.
Challenge #2 – Building Competitive Differentiation
Buyers of managed services are confronted with a vast array of choices in the market. As a result, it’s critical more than even ever that VARs converting to MSPs have to build competitive differentiation for its managed service offering in the market. As it is a new area for them, VARs often lack experiences that can help them to stay on top of trends and thereby enable them to keep evolving their offerings to stay competitive. When adding this to the limited resources mentioned above, these hurdles become real deterrents for VARs turned MSPs to embrace and adopt new trends quickly and efficiently.
Challenge #3 – Meeting SLAs
The MSP business model predominantly relies on meeting Service Level Agreements (SLAs) with their customers. How MSPs honor SLAs, or miss them, can either make or break their business. They may feel the pressure to make big promises that come with bigger consequences if not met. These promises will only grow more complex as the business evolves to meeting the demands of growing IT environments. So it is essential to ensure that SLAs are stringently updated and upheld. This should also be an important part of the training and onboarding process, ensuring that new sales team members and existing employees are well-versed enough to appropriately clarify things to customers and ensure they are themselves adhering to the agreed SLAs. However, with the challenge noted above in the area of experience with selling services it can be extremely difficult for the VAR and their team to understand the right tradeoff between competitive and realistic SLAs which could put them in a compromised position.
Challenge #4 – Providing Support 24/7/365
Becoming an MSP means addressing a much wider range of service-related issues. To keep their customers satisfied, they need a robust and efficient back-end network operations center (NOC) and 24/7 helpdesk support services team specifically engineered for managed services. However, the newly converted MSP often does not have in-house capabilities to offer 24/7/365 support and faces unexpectedly high expenses in order to get to that point.
The transformation from a VAR to MSP is challenging but shouldn’t be intimidating enough to thwart a prepared vendor from making the move.
In reality VARs have three choices to survive:
To remain competitive and position themselves for growth, it is time for VARs to look outside the traditional business model and expand their service offerings to include managed services.
A recognized market leader in MSP business transformation solutions, Quatrro has a distinctive strategy to help VARs seamlessly transition to the managed services model.
Case Study: How Quatrro enabled a large regional VAR to transform its business and earn recurring revenue by embracing managed services
For our client, one-time sales was making it hard for them to predict their business, staffing and cash flow needs. Market evolutions, as well as the introduction of public cloud, was also causing our client to rethink their go-to-market strategy. As a result, our client decided to add to their hardware-only sales model and move towards a Managed Services Provider (MSP) model. Our client realized that they required the expertise of a knowledgeable partner that could help them complete the transformation from a VAR to MSP.
Quatrro provided strategic solutions to over 24 identified gaps in the client’s As-Is state; such as, no consolidated customer portal for all incoming incidents and service requests, no professional services automation software, no coverage for service desk and inadequately trained resources. Quatrro was able to bridge these gaps through a customized solution that included the following:
- Complete insight to overall processes to support the partner’s clients.
- Partner-branded self-help portal for end users, wherein they can login and create/track their incidents and requests.
- 24/7/365 coverage for service desk with availability of Tier 1 and Tier 2 resources with ability to scale up and down based on the partner’s forecast.
Initially, Quatrro supported the partner’s sales team with joint sales calls to assist in solution selling the managed services to their customers.
Quatrro has successfully helped this client transition from being a VAR to a MSP, allowing them to focus time on growing their business and revenues with new premium managed services. In addition, Quatrro has initiated various quality improvement projects to ensure faster turnaround times and achievement of the agreed upon Service Level Agreements (SLA’s).
About Quatrro Business Support Services
Quatrro is the preferred channel friendly partner for VARs/MSPs and committed to Service Levels across multiple service parameters. Leveraging Quattro’s technology, services and support will help MSPs/VARs build a reliable and scalable business for themselves. This empowers resellers to deliver Office 365 and Azure services with end-to-end management of the customer lifecycle. From the initial assessment to deployment, Quatrro can manage your workload, enabling you to stay focused on your core business. Our white-label, partner-branded offers can be provisioned and branded under the resellers company name and specifications enabling them to scale, go-to-market quickly, and increase their revenue without incremental investments. Our scope of services include billing and revenue management services, SMB Helpdesk, Server Management, Network Management, Desktop Management and NOC services.
Quatrro is a channel friendly transformation partner that accelerates your go-to-market managed cloud and managed services strategy through immediate scalability and comprehensive expertise.