Heading onwards and upwards in online
There looks to be a number of lucrative channel opportunities emerging in the web hosting space at the moment, but what is the best way for resellers to take advantage? Gareth Kershaw explains how, in part four of our five-part series
The hosting market has something of a habit of reinventing itself, but without really looking any different afterwards. While the outward appearance may alter slightly with each incarnation, everything else stays pretty much the same.
For example, what is now called a Managed Service Provider or a hosting company, was six years ago loosely known as an ASP. Ten years before that the sector went under the vague pseudonym of ‘bureau providers’.
But the reason for the continual reinvention of the hosting sector is because there are always those looking to divest some of the management of their IT infrastructures to a third party. More pertinently: there is always a third party willing to take on the job.
Today, ‘renting’ dedicated space on a server is substantially cheaper, quicker and easier than buying one and building a suitable environment in which to house it. But how can resellers use the hosting model to their advantage this time around?
Michael Frisby, business development director at Cobweb Solutions, says: “Reselling hosted and managed services provides a predictable recurring revenue model, which in turn provides stability and certainty. And it helps knowing that you will have £X thousand per month in revenue before you sell anything new.”
Frisby says that one of the biggest challenges facing resellers new to the hosting space is exactly this: the transition from one-off revenue sales to recurring monthly revenues.
“VARs must first understand what hosting is as a revenue-generating proposition. It’s all about building recurring revenues, selling a service rather than a one-off solution with a predictable cash flow each month,” he says.
Entering this market requires some changes in approach to the way sales people are compensated, for example. Some resellers have had their share of problems adjusting.
Hosting is a discipline resellers have to get used to, according to Jon Rodmell, operations director at Eurotel. He says that more and more channel opportunities are emerging as the larger, more established hosting players warm up to the idea of working with channel companies to extend their client touchbases.
“Following the movement towards Hosted Exchange products in the US, tier-one suppliers are becoming far more open to the opportunities available to them through working with resellers. This has led to a greater supply in partnership offerings and white-labelled products for the reseller to take advantage of,” he says.
However, for resellers to be able to sell, buyers must want to buy. For the larger hosting incumbents to be farming sales opportunities out to partner businesses, buying habits must also be changing.
Martin Painter, international channel sales director at NetSuite, sees three distinct levels of hosting customer: level one – small start-ups and small visionaries that want to grow; level two – smaller companies or ambitious companies that want to grow and have outgrown other systems; and level three – large multi nationals that want to roll out applications quickly and efficiently.
Jon Ryan, managing director of hosting reseller Bluebridge, confirms a marked uptake in the SME sector, and in the wholesale distribution and services segments in particular. He cites the main reasons as being cost and resource advantages. He also points to applications on-demand as a growing area.
Ryan says: “The on-demand application seems to fit best with organisations that survive on a lot of inter- actions with external parties such as suppliers, customers and remote workers. The web-delivered on-demand application provides a cost-efficient way for SME organisations to extend their systems to include these remote parties, which ultimately makes their business more efficient.”
Eurotel is also seeing substantial demand from SMEs, according to Rodmell. He says SMEs quite rightly see hosting as a means to achieving a corporate standard IT infrastructure without the initial outlay in terms of cash, time and expertise. There is also demand from Hosted Exchange-savvy businesses via the internet, although this isn’t their preferred sales route.
However, corporates are a different story, says Rodmell. He claims that most are still operating under the misconception that their size makes it non cost-effective to use third-party hosted IT suppliers.
Christian Eckley, sales and marketing director at Globix UK, agrees. “We see stronger demand [for full outsourcing of web hosting] in the SME sector, while in the enterprise sector there is more a tendency to in-source due to the size of their IT departments,” he says.
However, Rodmell believes that this could be changing, at least in certain reaches of the US market, where there is a trend towards contracting the services of specialist third-party suppliers for converged IT/communications requirements.
“What they all have in common is a realisation that they can access products which were previously unavailable because of the cost,” he says.
There would appear to be several areas of potential for VARs. But how can they take advantage in what has become a competitive and hugely commoditised space?
Ryan says the reseller market is a relatively new one for hosted services, so there are a lot of areas in which resellers should be able to find a niche. This is especially true in the on-demand sector, where there is a lot to be gained from developing verticals by industry sector and by geographic region. There is also an opportunity to develop what Ryan terms a “technical know-how niche”. This is data migration for customers moving to on-demand applications for instance.
A reseller’s underlying business model can be a vital factor, according to Frisby, who cites facilities provider Regus as an example. It provides Cobweb’s ‘Managed Exchange’ service to tenants as a complementary solution to its core offerings.
Such partnering set-ups are seen by many as an ideal and margin-rich entry point for resellers: a route into the market without the burden of having to build their own solutions sets.
“When selecting an outsourced solution, the customer’s priorities are based around the security of their data and the availability of the service. To provide both of these elements with certainty requires considerable investment in people, processes and technology,” Frisby says.
The easiest way to tap into this market lies in partnering with established providers of hosted and managed services, rather than trying to build their own, he adds.
Eckley agrees, adding that taking the partnership approach adds value in other areas too. “The provision of web hosting services enables resellers to move up the value chain and have conversations with customers they would otherwise not have. This provides the reseller with a better understanding of their customer’s business and allows a more ‘sticky’ relationship to be established,” he says.
“However, the choice of web hosting partner is vital. A clear strategy of where you want to take web hosting as a service, and how far up the stack you want to go, is very important.”
In this respect, on-demand hosting again looks like a promising option. Moving into on-premise hosting is costly, whereas the on-demand arena is reasonably straight forward, says Ryan.
“Obviously there are costs and certification requirements, but there are no hardware infrastructure costs and it’s easy to get started. At the moment there are a limited number of resellers addressing the on-demand space, primarily because it is so new. Now is as good a time as any to jump on the bandwagon,” he says.
“In addition, the model is web based. Most work can be done remotely by the reseller. This makes for a more efficient consulting services delivery model. The roll out to users, remote or on-site, is also substantially easier with the hosted model.”
Baiting prospects with strong value-adds is vital too, says Nigel Cannings, managing director of Kinomi. He says: “In a market dominated by price, it is the value-adds that can set a reseller apart. Recently, there has been a greater move into providing value-added services in the email sphere, allowing managed email connectivity on mobile devices as part of a hosted email service.
“Email will be the next big area, probably in the sphere of easy-to-use collaboration, archiving and data mining tools. These are areas that are of great benefit to the type of organisation that relies on hosted email services, and yet usually attract an enormous price tag,” Cannings added.
The allure for resellers, he says, is that some of the newer players in email software offer it in an easy-to-use, non-proprietary, web-based environment. This enables VARs to deliver rich functionality and enhanced value to a customer, for a small price.
Offering to manage part, rather than all, of a company’s applications like this is an increasingly popular route, says Richard George, managing director of Goss. His company manages the online processes of Brittany Ferries, which comprises 60 per cent of its business, but none of the rest of its infrastructure.
But it is not good enough to simply promise uptime, says George.
“Simply having uptime on a rack of kit is too risky. You don’t need to be a big player to get it wrong. Business continuity planning and capabilities are vital,” he says.
In sector-specific terms, Rodmell sees the benefits and the opportunity as falling into three main categories: security, back-up and communications. All of these may present challenges that companies might rather not take on in-house.
This is also a strong up-sell opportunity for the channel, and a chance for specialists to diversify into areas that would ordinarily be beyond their reach.
“Once the customer accepts the hosted model and experiences the benefits, there are undoubtedly up-sell opportunities to either sell other hosted applications or additional user licences,” Ryan says.
The customer may simply want an on-demand CRM application. But this requirement could easily expand to include on-demand ERP, web store, and more users as the usefulness gathers momentum.
There is also a good chance to up-sell to anyone whose business takes them away from their desk. Eckley cites SMB Networks, a Globix partner, as a good example of a reseller that has benefited from grabbing such an up-selling opportunity. Having started life out as a network specialist, it now provides a range of both shared and dedicated hosting services.
The ability to scale a solution in line with the customer’s own growth can be another profitable area, he says. “Basic packages are available for either small web-hosting projects in their infancy, or for those that don’t anticipate a huge numbers of hits. But should demand increase, other services can be added on. For instance, to help guarantee service level provisions, customers may wish to upgrade to a high availability infrastructure, such as one with no single point of failure,” Eckley says.
However, resellers thinking about moving into the hosted sector should be cautious. The need for dedicated sales and marketing resources is cited as a must by several channel players, as is a thorough understanding of the business market. It is also prudent to have a supplementary revenue stream, or another source of sufficient funds to cover any ramp-up period.
Neither should resellers assume that the customer’s expectations have changed because they are considering say, an on-demand solution, which can tend to make resellers lazy and end-users nervous.
“The tendency [for the reseller] is often to try and do as much remotely as possible, while the end-user expects the same level of on-site service and general hand-holding they have been used to with traditional business-critical applications,” says Ryan.
Another obstacle has been trying to convince end-users that their data will be safe offsite, and that there are significant cost advantages of having a hosted application. This is becoming less of an issue as people become used to the concept and see larger enterprises and larger numbers of end-users adopting the model with success.
Administration can also become an issue if resellers aren’t careful, warns Rodmell.
“An initial investment in management billing systems is a prerequisite,” he says. “This is a small and painless step for those who already offer billed services perhaps, but something a single payment transaction retailer may want to consider. While, at a cursory glance, there seems to be no real downside for the reseller that wants to offer a hosted services product, it is important that a certain amount of initial research is carried out to find the correct solution to fit the reseller’s existing customer profile.”
This, the reseller’s existing customer profile, is noted as a key factor in itself.
Keeping tabs on what is and is not profitable has to be an ongoing, never-ending process, insists George. “The only thing that doesn’t change is that ‘everything changes’,” he says.
However, he believes that the real revenue opportunity lies in managing the full business process. A structured approach delivers much greater return on investment than simply saying: “here’s my IT budget, please go and take all the pain away.”
“In our experience, Big Bang is not the most cost-effective way of doing things,” says George. “Resentment builds fast. We tend to see the benefit in supporting the customer’s IT infrastructure rather than taking it over.”
It is a view echoed by Frisby and Eckley. “For a reseller to maximise the opportunity, they have to be seen by their customers as adding value,” says Frisby. “We bear witness to this every day and see that resellers that add the most value are also the most successful, with the happiest customers.”
Eckley also feels that VARs must be transparent in the value they purport to offer.
“The days of smoke and mirrors have long disappeared. The focus today is more on services than technology offerings,” he says.
CONTACTS:
Bluebridge (01932) 300000
Cobweb Solutions (0800) 731731
Eurotel (0800) 980 2345
Globix UK (020) 7611 3007
Kinomi (020) 7745 2575
NetSuite (01628) 774400