'Margins are now coming from people, not products' - Connectwise CEO

Arnie Bellini claims margins can be boosted by better customer services

VARs need to boost their customer services to survive in a public cloud world and retain margins, according to ConnectWise CEO Arnie Bellini.

Speaking at IT Nation in Orlando, FL this month, Bellini said that VARs must be able to make margin not off product, but off their people, skills and services. The CEO also noted that cloud is the reason for this.

"A lot of their meat-and-potato business is infrastructure, and much of that is now migrating to cloud-based solutions and IaaS and public cloud," Bellini said.

"They are literally competing with Amazon and others for the infrastructure products that they used to sell under the roof - switches, routers, servers.

"That's where all the high margin was in the VAR marketplace, and as people move to the cloud, the margin's gone, so they have no choice but to start selling the substitute, which is cloud-based solutions, and now they've got to find a way to make money off of it."

Bellini noted that "the only way" for VARs to make money off such solutions is not by putting a mark-up on the product, but via services.

"[They need to deliver] with their people and their talent to get a market, meaning it's product plus solutions plus their services [and] their labor. How they're putting their special touch on it that gets them their mark up. So they have to get good at customer service is what it comes down to."

VARs with horizontal infrastructure practices are under particular pressure, Bellini noted.

He recommended they start thinking about building "high-value, high-margin, high-growth services", the best of which are cybersecurity, he said.

But those VARs that are looking to go down the cybersecurity route need to ensure they build a successful managed services practice first, he added.

"I would encourage VARs first to build their managed services practice, because a good cybersecurity practice must be built on top of a good managed services practice.

"It must be built on top of it, and I'm being very declarative there. People think they can do it the other way, but I say no. If I had to tell you what to learn first, what's the 101 version versus the 201, it's managed services, then it's cybersecurity."

He noted that it would be "silly not to" become a cyber security player in today's channel, because of the rate of growth in the security sector.

"It's the fastest-growing part of the market, growing at 17 percent cumulative annual growth rate, versus the rest of managed services, which is only growing at 12 percent cumulative annual growth rate," he pointed out.