Returning to your roots

06 Dec 2012

Doug Woodburn

News that Calyx is to begin punting hardware again underlines just how tough the journey from the traditional resell model to the promised land of annuity services can be.

Calyx is the archetypal example of a big hardware reseller that has strived over the past few years to abandon its roots and reinvent itself as a managed services specialist that can handle its customers' complete outsourced IT needs.

And the firm - which was bought out of administration two years ago by Better Capital - has been quick to turn the tanker: for its financial year ending this month it expects £23m of its £30m sales to be recurring in nature.evolution33

It's not hard to understand why - like moths to a flame - resellers are attracted to the bright lights of managed services projects that yield annuity-based revenues. Not only do subscription-based revenues offer more predictability, they also tend to yield higher margin than the upfront hardware projects of old.

And most importantly, subscription-based services are where the market is moving as customers move more of their spending from a Capex to an Opex model.

But it is a transition not without pain.

Firstly - although they might add up to the same value over five years - it is harder to generate cashflow from subscription-based services than hardware projects, a thorny issue in a market where cash is king.

Secondly, as Calyx has concluded, the relationship between a supplier and end user runs much deeper in a managed services relationship than a simple hardware deal. Calyx was finding it hard to go in cold with new customers on managed services engagements without first having proved its worth on more hardware-oriented projects.

And this is not to mention the staff training and shift in sales incentives that are needed to transition the workforce to selling services.

Selling hardware for Calyx may be a means to an end, but its change in tack does emphasise that shifting lock, stock to a services model is fraught with difficulties.

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