The managed services evolution

"The major value we give clients is the ability to approach a situation in three different ways and help them on that path. We don’t realise how much we know." - Michael van Zoggel, ComputerCorp

NADIA CAMERON, ARN (NC): What constitutes a managed service?

SCOTT ATKINSON, NETFORCE (SA): For us, it’s where we can provide a value service to customers, and get a monthly recurring revenue from that. It doesn’t have to be more complicated than that, and it doesn’t have to be tied to a specific device type or service. Anything that can generate monthly recurring revenue, and provides a solution and service that’s useful in a customers’ business, fi ts the bill.

RYAN SPILLANE, CORRECT SOLUTIONS (RS): I’d agree. A managed service, ultimately, is a fi xed fee for a fi xed set of services, or products every month.

CRAIG BARNETT, CETECH (CB): The definition of managed services has not only evolved over the last 15 years, it’s also evolved depending on who is having the conversation. From a channel perspective, it’s this, but from a customer’s perspective, it can be something completely ifferent. Some might have a router onsite they’re paying a monthly fee for, therefore they’re purchasing a managed service. Or you might have an organisation that has outsourced their entire IT infrastructure and responsibility of it to a business, so that’s their managed service.

NC: Why is managed services today different to traditional outsourcing?

CONRAD HILDER, PK BUSINESS ADVANTAGE (CH): In my mind, traditional outsourcing is replacing what would be an internal IT department with an external department supplied by another organisation. To me, managed services is where you look at what an organisation needs, and then provide it as a service. Whether it’s as simple as a managed router, or providing a complete system or product the business can use with service levels, and it’s your problem to figure out. And that’s part of the risk you take on. When it comes to managed services, there is more judgement of risk, which also means you get closer to an organisation. In traditional outsourcing, you’re swapping like for like.

MICHAEL VAN ZOGGEL, COMPUTERCORP (MVZ): Outsourcing in the past is about buying people “well” to drive savings. What makes managed services tangible to our sales people is to say anything with an SLA and term against it.

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TIM DICKINSON, KASEYA (TD): A lot of people refer to traditional IT outsourcing as taking jobs offshore and doing things cheaper by using a cheaper labour force. Whereas managed services is using that trusted advisordelivering IT services right now, and doing things in a more efficient way. Which means cost reduction, and delivering a better and higher quality of service. To me, IT outsourcing versus managed services is the change from overseas to local.

delivering IT services right now, and doing things in a more effi cient way. Which means cost reduction, and delivering a better and higher quality of service. To me, IT outsourcing versus managed services is the change from overseas to local.

DOMINIC WHITEHAND, WHITEGOLD SOLUTIONS (DW): You could add to that people versus technology. With the advances in technology, a lot of managed services is remote work – people can access systems, confi gure them and provide services remotely far more than they used to. IT outsourcing used to be either shifting more people in-house, if you were one of the big five, or offshoring the work. Now you can use systems and provide services that are easily manageable, and have better return on investment in terms of scalability and capability. From a distribution point of view, Craig [Barnett] hit it on the head when he said a customer will view this differently to a channel person. A channel representative instantly jumps in and talks about revenue, as it’s a fantastic mechanism for us to see forward revenue, guarantee it and get annuity. The fi nancing behind this is also very good, and that’s a key thing the vendor partners certainly need to help enable. From a customer’s point of view, it’s more about the service – take away my IT headache, give me some kind of guarantee/SLA that this is going to be taken care of for me, make sure I don’t have to pay upfront, and I will be willing to pay every month for that.

JASON SERDA, BLUEFIRE (JS): A lot of our clients don’t or won’t understand what goes on underneath the bonnet. At the end of the day, you’re selling them an SLA which guarantees the end result.

NC: Why is managed services the way to go in 2009?

ANDREW MILROY, FROST AND SULLIVAN (AM): It surprises me, because the term has been around for so long. Ten or 15 years ago, when people talked about managed services, they’d associate it with outsourcing. I first started hearing the term used a lot when referring to desktop management – so basically your PC was being looked after by a third party like HP or EDS. The term has re-emerged in the last few years and to me, it’s basically about cloud computing effectively, or the hosting model. I think there’s ambiguity around the term – I think we need to be more specifi c on what we’re talking about.

TD: The alternative, the break/fi x model, is not a good model. If you have something wrong with your computer network, and something breaks down, it’s not a good phone call you then have to have with your service provider.

CRAIG STONES, S CENTRAL (CS): That’s a negative industry to be in.

CB: Those break/fix operators are calling that a managed service as well though. CH: I think the terminology of managed services allows you to have a businessoriented conversation with the customer. If I sit down with the CFO of any organisation and talk about outsourcing, he’s thinking his existing staff and practices cost $10, and I’m now going to do it for $9. When I talk about managed services, it’s not about staff or locations, and potentially not even technology, although we may underpin it with cloud computing. The business owner wants to know about business outcomes, and I’m starting to have that conversation with him. In 2009, where money is becoming tight, it’s a managed services conversation.

AM: Wouldn’t you be better off talking about more specific services, such as managed security services for example?

JS: It’s the business problem, rather than the technology. Even managed services is confusing to businesses. They want reliable email, security – it’s the panacea you’re painting for commercial people as to what they want. How we market that product is a different exercise. But managed services is defi nitely a challenge because it means a lot of different things to different people. I know plenty of integrators that call onsite services a managed service.

MVZ: When you talk to a business person who isn’t technology-centric, they need to understand they out-task services throughout their business already – their businesses are underpinned by managed services, per se. So to give them the ability to relate that to the harder stuff we purport to do, is an important and tangible link. It could be a simple as saying ‘you don’t employ cleaners anymore, you outsource that to someone who comes in every Friday’.

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DW: They’re also buying your expertise. In security for example, they’re buying something that would not only be expensive in terms of initial resources, it’s also not their standard IT operation. They need an expert, and you get that by buying into managed services.

SA: What’s behind this is the current way good IT infrastructure and other services are provided. It’s 2009, we’re not back 20 years ago where break/fix is when you hope that when you plug it in, it works. It shouldn’t be too much for a customer to expect their mail to work. They should be focusing on their business, not worrying if the fundamentals are working.

TD: 10 years ago, if you talked to business owners about uptime and productivity, they didn’t have time to talk about it – they just wanted a website. But when you talk about uptime availability now, they’ve work out they have 50 employees and it’s $20 per hour, so they know one hour of downtime is costing $1000.

JS: Typically as well, the average company does this very badly. They’d have one critical outage per year, and it’s had a business impact. They’d have non-redundant equipment, many single points of failure. People also make decisions on technology they know, versus what’s best for the business. As a result, you don’t have to go far in the corporate world to find one company that’s got an IT horror story. When someone comes up to tell them about technology, the natural feeling is to distrust and question it. It brings it back to why you need to have a commercial discussion.

KLASIE HOLTZHAUSEN, CA (KH): For a small organisation, it’s a large investment to make exploring these areas. It’s easier to leverage someone with that experience and best practices already in place.

CH: It’s a good point. In the mid-market and SMB space, these organisations are large enough to want to get expertise around cloud computing, or virtualisation. Yet the reality is, these organisations might not be able to afford several IT staff, even if they’re multi-state. How do you get the skills inside your staff base? They can’t. If you can provide that access to skills with managed services, you’re there.

NC: Do you sell the same managed services practice to every customer?

FRANK FALCONE, DATACOM (FF): Our model is designed around flexibility. One concern we have is customers see managed services as a way of reducing costs in their business. Typically, that can be the case on some occasions, but often when we engage with a client who has that as their primary goal on the outset, success is not there. Overall, we need to align our thoughts more closely. So, yes, we do have different models for different segments as the enterprise model doesn’t necessarily fi t well in the SMB space.

SA: Being able to offer that level of fl exibility as well is important. You don’t want to have one or two packages you’re forcing on every potential customer. You’ve got to put together what they need. It’s not so much having a tool - in the past, that has been more the driver as the technologies have not been available. It’s really what the business needs and bundling the right components for the package.

CH: With PKBA, we look at managed services more as how you go about it, versus what is it going to do. If I’m talking to someone with national car dealerships for example, really what keeps them going is the systems with parts. The difference then is industry by industry, the managed services approach is the consistent part.

GAVIN MATTHEWS, SECCOM GLOBAL (GM): With regards to smaller companies, managed services allows them to move into those enterprise-type products like cloud and virtualisation. At the same time, they can get it at a cost which allows them to remain competitive without huge capital investments. Usually, smaller organisations take a tier-two vendor on, as opposed to a tier-one. Managed services allows them to walk straight into that tier-one space. They also have the scalability, which means they can have a clear focus on how they grow.

KH: SMBs want the same security and solution you offer an enterprise client.But they don’t want to pay the same money. Managed services is probably the only way you can deliver that same functionality, with best practices and in a cost-effective manner that can scale from small to larger enterprises.

RAY MCINTYRE, KASEYA (RM): It’s not just product; they can’t pay for the people to run the products for them. That’s what a good MSP [managed services provider] does for small businesses. CB: These are the organisations who don’t understand the managed services offering. Down the line, it causes us a real problem when we walk into a business and try to tell them about the real value of managed services, because they don’t understand the meaning of it.

DW: I do think there’s a massive branding issue for the channel and customers. Everyone around this table using a vendor platform will want to brand that for themselves and/or pass on that brand capability to the end-user. For example, they might be working with Channel Seven who wants its own ‘Channel Seven spam filtering service’. But we come back to the issue of who is servicing these customers. Many, especially those who aren’t in city areas, see things like cloud computing, and there’s a perception issue – it sounds good, but they don’t know if it’s different to managed services, and that’s where the confusion starts. Branding is strong for everyone around the table.

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GARY O’SULLIVAN, VASCO (GOS): From a vendor’s perspective, the resellers here are the ones selling managed services to end users. It’s your service offering that’s important. So we look at what we can do to attach ourselves to your service offering to support your model, not ‘we have a managed services model and that’s the way we’ll cookie cut it’. You are offering a service your competitor is not, so customers are going to benchmark against that.

CH: The consistent thing is to be able to say you’ve made the investment to use certain tools, and in a certifi ed manner. All of us have spent the bucks internally in getting the systems. And that differentiates us from the rest of the market place.

TD: The other thing that really drives SMBs is trialling the service. They have been burnt in the past, their service levels have been very low.

GM: And they don’t just want to hear what you have to say – they want reports, or to hear what your other clients are saying and how they are using your tools. There need to be checks and measures regarding ongoing performance and delivery. An auditing process needs to exist. NC: What is the biggest challenge getting customers on-board?

CB: It’s a good question. Credit crunch is the buzzword this year, there’s an economic downturn, and people are watching what they’re doing with their money. What they’re doing is collectively investing in technology, and smart technology at that. The dilemma in selling is sometimes they see the credit crunch and have the attitude of ‘how do I know you won’t go into receivership if I invest in you as my technology partner?’.

DW: How much are you seeing more uptake from people wanting to use OpEx instead of CapEx? Also from a vendor’s perspective, how does that kick in?

JS: We do financial modelling in a way and have some clients with a propensity to do zero builds upfront. We also have 10 software companies under service provider pricing models. We have been big advocates from day one. Some of the software vendors are atrocious at it – it’s very hard to get any business to suddenly change when they’ve been used to selling in a certain way. I don’t want to have a leasing discussion either.

CH: I disagree from the point of view that a lot of companies up until December or January, were happy to pass on fi nancing from HP, Microsoft and Cisco. I do have to admit the wheels fell off in January and February, when they started to push back on the software and services component. What we’re also finding is we do a lot of telco, and anything to do with OpEx, is really picking up. People who were against managed services for love or money are now not so against it. They want to see an OpEx-based service.

JS: I’m not selling products, licences and technology as such, and that’s part of the problem with just wrapping up a fi nancial lease. That’s the IT integration of old, not the managed services model. Our clients defi nitely have more pressure on CapEx. The challenge though with fi nancing some of the things is typically when you finance, you have to use the hardware or assets within the technology you’re selling. But as a managed services provider, we own the hardware and sell services on that back to the clients.

CB: Part of this is the vendor has to be as nimble as we are to work in this model.

GM: Vendors are faced with a traditionalist model. Especially in the security space, it’s very much appliance driven and from a vendor’s perspective, they are driven by analysts who say how much tin they move each month. It’s all unit based and delivery. The model doesn’t exist in vendor land to pay for this over a period of time.

KH: It’s very challenging. A lot of vendors like us recognise revenue upfront when you sign the contract and that’s the model existing today. We do offer multiple types of licensing, some more flexible than others, but it comes down to the fi nancing model you put around it and the payments stream to support that. The model doesn’t allow you not to get that upfront commitment for the investment.

SA: Why do you need that? It’s software, you just download it from somewhere.

MVZ: IBM, CA and Microsoft are sold on an annuity payment – it’s a yearly payment, or a quarterly payment. All you’re doing [with managed services] is pulling that annuity down to an nth degree. In essence, it should give you better visibility in your business because you also get the ability to pull cash flows up and down as per your wants and needs.

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GOS: Working for a vendor, the last day of the quarter is the last day of your life.

JS: A lot of us have gone through the same pain a vendor needs to, which is accepting the fact that you are taking monthly fees instead of large upfront fees. We’ve moved from that conventional IT integrator model, where you survived day-to-day on the projects you delivered. And it takes time to build the recurring revenue to balance that out. There’s a bell curve involved in becoming a managed services provider because in that fi rst year, you’re either investing in infrastructure or getting less money off your customers. That’s why it’s hard to change.

DW: It’s going to affect the whole channel. If you move to monthly billing, I have to do 12 invoices instead of one. The admin is 12 times what it was before. As a business owner, you’ve geared your business with commissions to be paid to sales people, there’s financing of what you’re putting on the table and then what you’re putting in for the customer. You can’t do it straight away, it’s too hard, you’d have to shed people and resources.

KH: Managed services have become far more of a focus, and vendors are recognising the people driving these solutions are using a different licensing model, and fi nancial models.

GOS: Every one of you go to market with a managed service that’s different. So if we just listen to one or two partners and drive it that way, the next person is going to come along and want to do it differently. You have to be flexible, nimble and accommodate the managed services portfolio in the channel.

TD: I don’t want to oversimplify things, but in managed services, your revenue is based on your customers paying you monthly. What we do is have our customers pay for our product monthly. It’s not a complex situation.

DW: It’s not complex for you, because that’s how you started. It’s complex for an organisation that hasn’t sold in that way before and who has to flip.

KH: One of the bigger challenges is our software is just one component of the larger MSP offerings in the market. Every one of those vendors has a different licensing structure, and the MSP has to manage all those at the back-end.

RM: I’ve worked for 3-4 vendors who have transitioned from direct to indirect models and the hardest thing to change is the culture. They can change systems at the drop of the hat if the revenue opportunity is there. But if you really want to change the way they do business, it’s not until they transition out an entire sales force that you see something happen.

NC: Is scalability an issue with managed services?

SA: It is an issue, but it’s a lot more scaleable than the break/fi x model: When you put on 10 more customers, you’ll need two more engineers. At least this way you can leverage competencies you’ve put in place and utilise those at a much better ratio.

GM: In the security space, I’m yet to see a platform from any vendor that can be vendor-agnostic. We built our own and today, we still need that. If you sign a client with 2500 devices out there, you’re going to need to do a forklift upgrade in your datacentre because it won’t cope. Whereas if you have a flexible platform to accommodate that growth through virtualisation, it’s a great story.

JS: We use a number of different technologies. It’s not easy, but that’s what we do – it’s complex stuff. You have to put the right technology in, fi t for purpose,to solve a specific problem.

GM: You can do all the planning yourself, but then the fi rst customer you see is going to blow that out of the water because they want something different. If you do not accommodate that with scalability, you have to take that on as a cost.

CB: There are two sides to this question: How do I scale for a new client, and how do we scale existing infrastructure to provide services for existing client growth. That goes back to why our vendors need to be as nimble as us. For example: A client logs onto our website and orders five more users at $300 each and they get Microsoft Office or whatever is it delivered to them, or I hit my capacity when I need more hardware and I log onto Vasco website and order five more tokens and they get delivered out. The flexibility on that side and my side, need to link up somewhere in the middle.

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NC: How you do show customers they’ve made the right choice?

SA: You have to explain to your customers that the reason they don’t have any problems, is because you’re doing such a good job keeping it all running smoothly.

GM: We use the insurance analogy: If you’re not interested in managed services, why are you paying for insurance? You are selling an intangible, and it is difficult to demonstrate value pfront, but the proposition is very strong for someone who gets it.

FF: We also sell that way. Some customers get it, some don’t. And for some of them, something has to go wrong before they’ll buy into it.

DW: The other side of the coin is using technology to report well. Part of a managed service is telling the customers about upgrading firmware, and giving them a report every month to get visibility into what’s happening on the network every month, the gateway, and what employees are doing.

RS: We contact the client, and regularly speak to them. We do client service meetings as often as possible. Nine times out of 10, you work out with more work, or more billable work. And normally those meetings are with business owners or C-level, so you can fi nd out where that business is going. You can become the trusted business advisor and understand more about their company than even they do.

MVZ: What we don’t realise is that we see, as professionals, so many other businesses. The major value we give clients is the ability to approach a situation in three different ways and help them on that path. We don’t realise how much we know.

NC: What’s your advice to the break/fix guys?

JS: They have to choose vendors correctly, and be aware of what’s possible. It’s no longer okay to pay a lot of money to get an ordinary outcome. If you take the time upfront to plan it out and solve these problems, you’re taking a proactive approach to managing. We’re about building a highly scaleable, bigger business that’s not just limited by selling labour. The onus is on us – if we do it any other way, then we will lose money.

CH: It is a fundamental change in business thinking. As a break/fix operator, your product is time onsite. Our product is that an organisation’s IT stays up. The fact that I can do that with less and less cost on my side, is a good thing for me.

SA: The ability to do managed services has also changed.

TD: With the economic downturn, what we’ve seen is that IT service providers are looking for smarter ways to do business. Two years ago, everyone was making money – they didn’t have the time to go to managed services and it was all good, so why change? Now, the phone has stopped ringing and with break/fix there’s no contract or guarantee. People are looking more seriously at our product and managed services now.

JS: The IT manager of today is different to what it was before. He used to be in a small offi ce, buried in PCs and literally is carrying a screwdriver. The IT manager of new is someone who adds value to the business and is seen as a business person, rather than a technical person. They develop relationships, invest in software and other means to help the business commercially. MVZ: Organisations are employing IT managers who are not only business people, but also manage contracts really well. They are the people deciding on what can make and break a business.