The full monty

To provide service or not to provide service - that is the question.Simon Meredith talks to some of the industry's service experts and chairsthe value-add debate.

Everyone talks about services these days, but many resellers still make their bread and butter from selling hardware.

So is the clarion call to services just another scheme dreamed up by vendors to draw attention away from their profits? Perhaps it's a marketing ploy to move the spotlight away from declining margins in the channel.

Or do we genuinely have to move towards a service model in the channel?

A number of experts in the service arena have come together to discuss the merits of the service ethos.

The participants

Shane Gallagher, managing director, First Stop Computer Group

Julia Jones, director of training and services, Ilion

David Burrows, group manager technical services development, Microsoft

Ann Zitterkopf, vice president of European business operations, Interliant

Elaine Hewitt, managing director, Interface Systems International

Nick Cloot, product marketing manager, Hewlett Packard

Gallagher: 'The word services really needs to be defined. I don't share the belief that selling computers and tin, as everyone seems to calls it these days, is a dirty word - it's not.

'Providing services is only one part of the whole offering. If you're not selling hardware, you're not selling peripherals and you're not selling software, then you're not providing the whole offering to large corporate customers. What they are after is a total solution - someone who can integrate the whole thing. That could mean delivery to 120 places within 24 hours - that's service.'

Meredith: 'But where is it that you make your money? Surely not out of delivering the kit.'

Gallagher: 'We make our money out of high-end applications, technical training and also out of integrating kit. And again - don't think it's a dirty word - we make it out of selling kit.

'There are ways of making good money out of selling kit, and that's because you're adding service.

'When you deliver kit, and it has got service wrapped all around it, no one asks questions about price.'

Meredith: 'So, we are thinking about services in the wrong way then.

We can't talk about it as being training, maintenance or installation.'

Gallagher: 'It's not a sea-change approach. Everybody has been talking about getting rid of the salesman or the van - if you've got a van you're considered some sort of barrow-boy. It's not about a massive turnabout, it's about enhancing the whole offering and making sure that you are delivering the goods.'

Meredith: 'But is First Stop a typical reseller? Are all resellers doing this?'

Jones: 'Some of them are doing it, and doing it really well, and some are doing it badly.'

Commentary

It's clear that no one sees services as something you can package up and sell in a simple way. Service is part and parcel of the offering you make to the customer. We've already made the transition - the channel is a service business.

Meredith: 'But aren't you always coming up with campaigns to get resellers to increase the level of services they offer?'

Jones: 'No. We are trying to get resellers to increase the level of skill sets they have so that they don't rely on us so much to support them when they're trying to bid.

'We encourage them to skill-up on products.'

Meredith: 'Do most of them do that though?'

Jones: 'Some do and some don't. It depends on the commitment from the reseller and the nature of their business, what their demands are and what their requirements are for technical expertise.

'I think the best example, at the moment, is Cisco. Resellers are stumbling into opportunities but don't necessarily have a Cisco in-house expertise.

So they use the distributor - which is what we're here for - to help them win that business. Then they rent the expertise from us to complete the project.

'They may only get one Cisco opportunity a year and could not possibly skill-up to that level of expertise. That's why we need to provide the skillsets.'

Burrows: 'I agree with Julia. One of the challenges for vendors and distributors is to see what the critical mass areas are that we should invest in and how we can help them skill-up.

'Equally, there are a lot of opportunistic deals where they may just divest themselves and want to pull in skills from a partner. Or they may want to sub-contract skills.

'One of the interesting things from the supply side is going back to the business of asking what kind of service model is appropriate.

'There is a "to" model, services from the vendor or distributor to the channel. There's a "with" model which says we will help you deliver it, like the Cisco example. And there's a "through" model, where all the reseller does is resell the professional or technical services of the partner or vendor on a margin basis.

'One of the challenges the channel faces is getting its mindset around the opportunities that vendors on the supply side are creating for the channel, and decide which ones they want to go into.'

Commentary

Burrows' comments define the choices facing resellers. Should they work on their own, with partners, or just sell the service offering? Which model is best depends on the type of business you want to become. Services are available throughout the channel. It's not necessary to provide your own, but to protect your business you might need to do so in the long term.

Jones: 'The most important thing at the moment is to close this skills gap. There's a tremendous skills gap.'

Meredith: 'That's a real problem, isn't it? But how do you address it?'

Jones: 'We're trying to address it and it is getting better. We are coming up with more creative ideas and working towards having fully trained contractors, so we provide weekend training. That's starting to help, but there's a massive skills gap and, as fast as we try to fill it, it just gets bigger and bigger.'

Meredith: 'Doesn't it make sense to adopt the "with" model more? It doesn't make sense to duplicate skills in the channel, does it?'

Jones: 'On things like NT which the reseller installs day-in and day-out, then obviously they need in-house expertise. But when it comes to the high-end stuff, they don't necessarily need to skill-up. They can still add that 30 or 40 per cent margin straight to the bottom line, without carrying any fixed costs.'

Zitterkopf: 'Ultimately, I think customers want one-stop shopping. They don't want to have to speak to 20 different companies just to get a service solution. They want to be able to select a group of suppliers and sub-contract for the support, the communications, the applications and all the other different tiers that are not modular.

'It's like building a pyramid so you can't just say: "I want the third and the fifth." Instead, it's a packaged solution.'

Jones: 'That's what the reseller does. It pulls our expertise and maybe some other vendor's expertise together.'

Gallagher: 'We front the deal.'

Jones: 'And it's transparent to the user.'

Gallagher: 'Well it should be. We'll work with companies that are experts in communications and we'll take on the position of lead contractor and, ultimately, give customers what they want.

'It's supposed to be transparent, but it doesn't always have to be - customers sometimes love the idea of getting experts in every area.'

Meredith: 'So to customers it looks like one service provider.'

Jones: 'Customers don't care about that, as long as it works and that's what they want.'

Zitterkopf: 'Yes, someone else will chase down a problem if there's a glitch, but most people don't want to do the leg-work themselves. They want someone else to be responsible for it.'

Meredith: 'So this is basically a change in the structure of the channel, isn't it?'

Gallagher: 'Not necessarily. If you're selected to be the lead contractor for a large user, what you're usually signing up to is the management of any sub-contractor that's used. So you're taking responsibility, not just talking about individuals.'

Meredith: 'Would you expect to provide most of the services?'

Gallagher: 'Yes, we would like the lion's share. Often what you will find is that there are other bits that are bigger than ours, but you're still managing it. You almost become project managers rather than just straight resellers.'

Meredith: 'You're working with other organisations all the time. Are we going to see situations where you have to start partnering with specific distributors or service providers because your rivals in the bid are partnering with their rivals? Or what happens if it goes the other way?'

Gallagher: 'Well, let's look at training, for example. We used to be technical training - we made the mistake of getting into it - and had a situation similar to what Julia was describing with the Cisco knowledge.

'As a reseller, it's hard to cope with different versions of NT and Novell and all the different hardware. You just wouldn't be able to cope with it.

'So we pulled out of technical training and partnered with Azlan. We find it's now a very effective way of doing things because we can deliver everything to our customer in terms of applications and technical training.

'They (Azlan) fill up their training rooms and pass on applications training leads to us in those areas where we can provide a better than they can.

It's a perfect example of a distributor and dealer working together for everyone's benefit. At the end of the day, the customers really don't give a monkey's that they are going to an Azlan training centre.'

Hewitt: 'We're very much a hardware distributor, so it is very different for us. But one of the things we've found is that working with the vendor to train the resellers in their products works well. For instance, on Toshiba, we are authorised to train and re-license Toshiba resellers.

So the people doing the selling know their products and the reseller has a flag which says they are trained and fully licensed.

'And we're also working with Toshiba on their Total Quality Plus Programme, so anyone who has got a Toshiba can ring us and get a response within 30 minutes.

'As a service, I think that works right the way through to the user.'

Commentary

Gallagher's testimony suggests that the 'with' model can work well. But resellers have to be prepared to work with more than one partner, take the burden of responsibility from the user and adopt the position of project manager.

Meredith: 'But let's face it, training has become, on products like NetWare or NT, a commodity. As a user, if I know Azlan is providing training, why shouldn't I just go back there next time?'

Gallagher: 'Because Azlan is apparently not supposed to supply users.

But actually, it's naive to think that distribution does not sell direct.'

Jones: 'We don't on product. We do on services.'

Gallagher: 'But we have never had conflict. I know they've got a corporate arm, I know they may be bidding for the same things, but bear in mind we are not of such massive size.

'We may spend a quarter of a million with Azlan - that's a drop in the ocean. First Stop will turnover about £11 million this year.

'We tend not be coming up against the same companies. But bear in mind it's also the value-added service to our existing customers. So we are not winning bids on our ability to supply through Azlan. We are supplying large corporates, and because of the relationship we have we can push them through an accredited training programme with a company we trust.

An they push back applications training leads to us.'

Meredith: 'You mentioned that getting into technical training was a mistake, but why? Do we find that dealers get into the wrong areas?'

Jones: 'It depends what sort of training you're talking about. If you're talking about a one-to-one session with a technical person and a user, then the resellers that go in, go through the installation and show them how to configure the system.

'That's fine, but if you've got users who are looking to do Microsoft Certification then that's not fine, because that's not going to provide everything they need to pass the test.

'They need to be looking at courseware. But putting a course together can become a disaster since the investment in courseware marketing is too high to justify the volume of training you do.'

Meredith: 'So are there service areas that resellers should stay away from?'

Burrows: 'I think there are, but you've either got to get all the way in or all the way out.'

Meredith: 'So you can't just dip your toe in the water.'

Burrows: 'Well you can, but ...'

Meredith: 'But you do need all this investment to get your skills levels up - to get the resources. That's very nice for the distributor or the vendor to provide all that but maybe one day, I'd like to provide that as well.

'I mean, how is a dealer going to grow its business if it doesn't start providing more of these services?'

Burrows: 'Well, there is always an entry cost to any market.'

Jones: 'You need £80,000 worth of kit just to equip a classroom.'

Meredith: 'Well maybe there will be more companies like Ann's springing up. Maybe you are the model for the reseller business of the future.'

Zitterkopf: 'We have built our entire business around offering services as well as working with distributors to provide all the necessary services to customers.'

Jones: 'There are others which are services only that have been around for a very long time, like IT Workshop.

'That's a brilliant concept - a services-only company that has done remarkably well.'

Meredith: 'Is that the model of the future?'

Burrows: 'When Jane Grant set up IT Workshop about five years ago, her view was to get into services.

It's a reasonable-sized business with a reasonable turnover now and very healthy margins.'

Meredith: 'What do they do exactly?'

Burrows: 'They are a services company - they did some stuff in training, installation, programme management, change management and also training the technical people within the user to support the product.'

Meredith: 'Is the reseller business of the future a service business essentially? Even if we talk about services being provisional fulfilment?'

Jones: 'I think it always has been, but it's not really service - it's more like delivering customer care.'

Meredith: 'But do you think resellers really think about it in that way?'

Zitterkopf: 'Anyone can bring the pieces in, but can they make them all fit together? That's the real question.'

Gallagher: 'I'm confused about this IT Workshop concept because, by the sound of it, that's just one part of what a reseller can do.'

Jones: 'Yes, but they have become absolute specialists in that area and they are available for anyone to rent if they want to.'

Meredith: 'But you see, you are doing it at First Stop, aren't you? You are essentially becoming a kind of agency for services.'

Gallagher: 'I think that if you are purely service, and all of a sudden it goes wrong, then what do you say? "Ah, I can't help you with that.

You go out and get that fixed, then call me in a week and I'll come back." '

Jones: 'They don't do that. But what they do have - because they are not involved in product supply - is their value to a user. If they recommend a solution, they're making a margin out of that.'

Meredith: 'They are acting as a consultancy.'

Gallagher: 'Yes, but consultancies have been doing that sort of thing for years and often recommending the wrong things. I have visited some users who have had a consultant that does not have the information needed.

'You only get that when you try to buy it and the specification has changed or the price has come down.

'I've been to companies where they've had consultants in that have said: "It's going to cost £200" for something. You know, I couldn't make something cost £200 if I tried.

'I just don't think that consultants are doing anybody a favour.'

Commentary

Gallagher raises the point that pure services companies can't actually do anything if there's a physical problem - if a machine breaks down or the network cable needs replacing.

But such needs could be covered by other services, of course. There is, it seems, a place for the pure services business and one that works almost exclusively with partners in the channel.

Meredith: 'The key seems to be to have the right skills in understanding business needs and knowing where to find the services and how to manage them.

'Users still need someone to make recommendations, someone who they can blame if the specification does not deliver the results.

'Does doing that make you a consultant? No, not if you are providing the services as well or, at the very least, acting as the project leader.'

Zitterkopf: 'You mentioned that the deal only becomes real when you buy the equipment. I think it becomes real when you turn the system on and when the customer begins running their pilot or doing the full-scale implementation.

'In the service industry, where you are responsible not only for helping formulate the original specifications but also choosing the solution and supporting it on an on-going basis, you have a vested interest in making sure that all those pieces fit together and operate efficiently.'

Gallagher: 'I totally agree and that's the reality of every deal we do, every day of the week. The reality is that we do have to please people from day one.'

Meredith: 'Are resellers thinking of themselves in the right way? Do they think of themselves as services businesses?'

Burrows: 'I think it comes back to greyscale - there are some who definitely do and some who definitely don't, and there are a whole lot in the middle who have not decided how far they are going to go.

'What you have to look at is the customer profile where your value is recognised by them. Some companies are making a reasonable living out of the logistics and warehousing and that is a service'

Cloot: 'That's why I don't think it should necessarily be looked down on because logistics is an art. There are different types of resellers out there - service aware resellers that know they can't just sell the boxes anymore, they have got to provide all the on-going support and they have got to sell all the other services.

'But there are still a large number of resellers that are far more interested in shifting boxes. Those reseller will sell packaged services that they can sell alongside the box.

'They are not, as a company, interested in providing services themselves.

And we see everybody from the dealer, that sees services as a necessary evil right, right through to the higher end reseller that sees the importance of services and will call in experts to help when required.'

Meredith: 'Is it wrong to see it as a necessary evil?'

Cloot: 'If you want to maintain a healthy customer base, yes. But I think that's probably the wrong attitude.'

Zitterkopf: 'If you are trying to develop loyalty and keep your customer base and a competitor comes out and says, "well I can sell it to you for this much less, or get it to you this much faster," then what incentive do you have to keep that customer tied to you - that's where the services come in.'

Burrows: 'The point is that it only works if the customer recognises the value and wants it from you.

'One of the interesting things that happens in the channel is the attachment rate of service to the product.

'Right now you have got something tangible to which you can attach the service proposition.

'What you start to realise as a reseller business is that it is easier to go and sell to your installed base by an order of magnitude than it is to acquire a new customer.

'So services as a differentiator have to happen at the point of sale.

'What you do by leading as a service management supplier and backing training, fulfilment or whatever, is that you are trying to capture the customer. But the customer has to have the profile that you want and, again, some customers do and some don't.'

Commentary

What Burrows says here is the essence of the services dilemma for the reseller. Many reseller businesses have been accustomed to being, fundamentally, IT products suppliers - the services go along with the products. But in order for services to make a real difference to the customer - to actually affect the buying decision - the profile of the reseller business has to match the profile of the user business and its requirements.

You can't be all things to all companies anymore in IT.

Zitterkopf: 'One of the real challenges we had as a company when we started up was that people were coming to us and looking at us alone providing the communications. So many would say: "OK, this is what we want, so how much would you charge us?"

'We really had to work to explain the value proposition and all of these services - the management, the reliability, the availability and the knowledge base.

'It seems that the more we have been able to shift from that product-oriented to service-based business model, the more successful our business has been.

'But we have had to work to educate them.'

Gallagher: 'You know we talk about dealers providing services as if it's the road to Damascus, but why do dealers exist? Why do they still exist? What do dealers deliver?

'The reason they are here is because they offer service from the minute they pick the phone up. They are delivering knowledge and it goes on from there. If it was just about buying product, then they would never have existed.'

Commentary

Dealers do exist and as much to provide services as they do to provide product. But they are clearly becoming more important and the dynamics of the channel are changing dramatically and rapidly.

Resellers need to think about what kind of services they provide more than ever. They need to make certain their customers understand what they are providing is a real service and that that service has a real value.