The slippery slope of the services sector
Resellers are always being glibly advised that selling managed services, not products, will differentiate them from rivals. But no one ever warns them just how many potential pitfalls there are. Nick Booth explains how to get ahead in this tricky market
The problem with any managed service, whether you’re hiring someone to secure your IT or to protect your brand integrity, is that rarely do both customer and provider understand what the other does.
Resellers often despair of their client’s unrealistic expectations. And yet they themselves don’t seem to understand what to expect from the service providers they hire. For example, if they hire a PR company, they expect to make the front page of the Financial Times every time they hire a new salesman.
Mismatched expectations are at the root of all failed managed service arrangements. This is partly because resellers, much like the PR companies they complain about, are guilty of over-promising the future.
Another contributory factor is that customers very rarely actually understand how the service works. Frequently there are some very odd assumptions about where responsibilities lie. People think that once you hire a service provider to carry out some function of your business, you can just sit back and relax.
In fact the opposite is true. You really have to pester them. And closely managing a managed service provider is something that many people just aren’t prepared for.
Perhaps there is a gap in the market for some enterprising reseller to plug. You could provide a managed service to manage the service offered by managed service providers.
If that sounds flippant, it is no worse than the glib advice routinely dished out to the channel on how to make their businesses more profitable. Whenever new market conditions conspire to make it hard for resellers to maintain their profit margins, there’s always a channel manager advising them to change their
business model. This must be particularly galling for resellers for a number of reasons.
First, many of them will have helped that vendor to become as successful as they now are. Their mood won’t be improved by patronising advice from someone who wasn’t even working when they were pioneering this market.
Second, most channel managers, having been employed by a company their whole life, and enjoyed the luxury of a cushy job and company car, have no idea just how painful it is for a reseller to restructure themselves and adopt a brand new business model. It is easy to advise others to launch themselves into unchartered waters, while you’ve got your feet under the table in a safe middle management position.
The service market is the future, according to vendors. It is where all the margins are, they tell the channel. What they don’t tell you – a lesson only experience can teach – is that potentially it can also bring with it huge problems.
One reseller has very bad memories of being a service provider.
Rory Fidler, managing director of Magenta Solutions, said: “We deci-ded to give the whole thing up around this time last year, because managed services are an absolute nightmare, especially in the SME market.”
According to Fidler it is a case of unrealistic expectations. The so-called managed service is perceived as being nothing but an insurance policy by customers, he added.
“If they have not had to call on you in a given month, they do not see why they should pay the bill,” Fidler said.
He identified two keys areas of contention. First, in service areas such as managed storage, users don’t really understand what they are getting into. They receive a free subscription for a very small amount of data, but as soon as they go over the limit of their data ‘package’ the rising costs can be quite hefty.
The biggest problem with data backup is liability. The service provider might confirm that a VAR’s customer’s data is encrypted, while being transported to the data centre and at the data centre. But the whole question of liability gets complicated as soon as any problem occurs (the very sort of problem that resellers think they are insuring customers against).
“If somebody has been paying you £10 each month for two years and the day they need to recover their data you realise it has not been backing up for the past nine months, then you have a severe liability issue and not just for the value of the subscription,” Fidler said.
Desktop support has other potential pitfalls. At corporate level this works quite well, because big company employees are familiar with well-defined processes, and with regular changes to the way in which processes are handled. Third-party management is not alien to them. But this doesn’t happen among SMEs. This wouldn’t be a problem, except that SMEs are exactly the types of customer that many vendors are trying to get their resellers to service.
To borrow the military metaphors that many IT marketing managers seem to speak in, resellers are the humble foot soldiers of IT. If they are despatched to some hostile territory, such as the SME landscape, it is often at the behest of some desktop general channel manager, who knows nothing of the experience of being on the front line. In the harsh conditions of the service market, many a reseller has perished. Look what happened in the ASP market.
However, even experienced service veterans such as Fidler concede that there is money to be made in the managed service channel.
Network support works, he conceded, probably because it is easy to track. You can get software that ensures a reaction to a problem is automated. So the minute a router disconnects, the system generates an alert. These ‘self-healing’ networks, as Cisco calls them, make it easy to provide a managed service.
Similarly, security is relatively easy to offer managed services on. Resellers such as Synetrix, for example, can offer managed services on intrusion detection quite successfully, mainly because they deploy similarly intelligent systems that can automatically respond. Synetrix uses Countersnipe intrusion detection software to offer a pro-active managed security service to local authorities and schools connected to the National Grid for Learning.
For example, if the system detects an unusual pattern of behaviour on the network, such as a router that has suddenly started frantically sending out a high quantity of messages, the intelligent management system will recognise this as a characteristic of a network node that has been hacked into. The system can then either take that part of the network down and reboot the devices, or elevate the response by reporting this as an urgent matter needing human intervention.
Amar Rathore, sales manager at Countersnipe, told CRN: “Managed services are going to work only if you can respond to customers quickly. A lot of resellers have found, to their cost, that there are few systems where they can do that.
“You need to look for a sector where there is intelligent software that can monitor, analyse and respond to problems. If you take on other people’s problems, you need to have more resources than them. If you haven’t got the bodies, you need the intelligence.”
With convergence bringing IT and comms closer together, perhaps the model for service provision will improve. Telecoms companies seem to have a more defined role for their reseller partners.
Hosted comms service providers are making inroads into the SME market, where IT vendors have traditionally failed, claimed Mike Murphy, manager of channels at Aspect Software.
“The biggest impact is in giving smaller organisations access to the same advanced IP-delivered technologies that previously only larger organisations could afford,” he said.The reason they can do this is that comms are better understood and easier to implement. Ultimately, if you want to offer SMEs a managed IT service, you might as well move in. Service VAR 81G, for example, will run the entire IT function for a med-ium sized company, and even supply a de facto IT director to give the rest of the board direction on IT strategy.
Steven Agar-Hutty, chief executive at 81G, said: “We can run a medium-sized company’s IT entirely: it’s the only way to do it. However, even then you have to be careful who you work with,” he said.
“We don’t do the ‘S’ in SME. They’re impossible,” Agar-Hutty added.
James Byrne, managing director of VAR JCom, said it is crucial that VARs trust the provider that they are working with if they are providing someone elses services, especially if they are SME resellers.
"SME VARs will eventually catch on to do this. We are doing managed support and asset management, and there are a lot of other resellers looking at this, because services is a lot more profitable than just selling hardware or software.
"The hardest thing is that managed services have a long sales cycle; but they are great to get some recurring revenue into a VAR. Resellers should make sure that their sales people are motivated to sell them, and give sales people the right commission structure, because sales people naturally prefer the quick hardware sales they can make instant commission on."
Contacts
81G (02380) 768850
Aspect (020) 8589 1000
Butler Group (01482) 586149
Countersnipe (0845) 226 8502
Digital IP (0845) 270 0484
IDC (0208) 541 5825
Magenta (020) 7043 8273
Totem (08000) 190190
Visual Nexus (01483) 549470