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How to enter the hosted virtual desktop service market

MSPs looking for a new business venture have a couple of ways to enter the DaaS market: build their own infrastructure or partner with cloud vendors.

New service areas are always top of mind for managed service providers (MSPs), and interest is growing in the hosted virtual desktop, or desktop as a service (DaaS), market due to the benefits it can provide around security, functionality and ease of use.

In fact, DaaS is the top planned virtualization offering by MSPs -- beating out network, storage, virtual desktop infrastructure, data center, application and server virtualization -- according to a 2014 Techaisle survey. In addition, 45% of MSPs are currently offering a hosted virtual desktop service to small and medium-sized businesses and another 27% are planning to offer it this year, according to a Techaisle survey of 684 channel partners, which included 147 MSPs. Half of the respondent MSPs said they are expecting an increase in their desktop virtualization revenue in 2015. TechTarget's North American IT Priorities survey found more modest results, with almost 11% of respondents saying they are planning to adopt DaaS in 2015.

"DaaS is continuing to grow steadily, primarily in the SMB space," observed Kevin Rhone, senior partnering consultant in the Channel Acceleration Practice of Enterprise Strategy Group. "It's all about a lower [total cost of ownership] and the view that managing desktops is not core; it's a 'relatively' low-value task [that] they can and should outsource."

The cloud-orientation of DaaS is a primary driver behind the growth VDC Research is seeing, especially as it delivers on its promise of higher availability, and most importantly, the ability to reduce hardware costs, said Matthew Hopkins, a research associate.

"Another key advantage of DaaS solutions is their ability to provide a very fast desktop experience without the maintenance and cost of an on-site data center -- these efficiencies comes through the availability of more reliable -- and faster -- network connections," he said.

Yet, at the same time, it has not been easy for MSPs to deliver DaaS, since it is a hosted solution and many service providers do not have their own data centers, Hopkins said. As a result, they need to either invest in a data center solution or use one from companies like Amazon Web Services (AWS) or Microsoft, said Anurag Agrawal, an analyst at Techaisle.

Overall for us, with more of these hosted solutions, there's less overhead required.
Kevin Calgrenpartner, Network Medics

So, how can MSPs enter the hosted virtual desktop/DaaS market? According to Rhone, the options are:

  • Continue to support their clients' desktops as a traditional managed service, where the clients continue to own and pay for the IT infrastructure and the partner provides all services and support. While this approach is still common, Rhone sees it declining.
  • Resell DaaS providers such as AWS and VMware that offer a hosted virtual desktop service.
  • Resell DaaS from a vendor and have the app hosted by an independent cloud service provider.
  • Set up their own data center and license DaaS from a vendor, and then hosting the software on their own equipment.

Build your own data center

IT managed services company Network Medics has its own data center and offers two services -- on-premises and hosted DaaS -- but in both cases, it owns the equipment, explained Kevin Calgren, partner. For software, Network Medics uses Horizon FLEX from VMware. The company also provides hardware as a service -- down to the actual unit on the desk, which is now a thin client, he said.

Another consideration is storage and Calgren said Network Medics uses hard disk drives for VMware's virtual storage area network as well as regular hard drives for standard storage.

The amount of personnel needed to administer a DaaS offering will depend on the number of clients an MSP has, he said.

"What's really nice is you need to hire less," thanks to the virtualization aspect, Calgren said. "Overall for us, with more of these hosted solutions, there's less overhead required."

Clients with on-site needs are a different story, he added, so Network Medics spreads the load and has about 20 clients per technician, "which is about right if we're going to provide a good experience. That may sound low, but we would like to make sure that person is there for the client."

Certifications are also important, such as VMware's VMware Certified Professional Data Center Virtualization certification, which Calgren said is "a very difficult certification to get." Other appropriate certifications include Cisco Systems' Cisco Certified Network Associate, storage certifications from vendors such as HP and Dell, and Microsoft's Microsoft Certified Solutions Associate.

Network Medics invested roughly $250,000 to start its Tier 3 data center, he said, but wasn't sure of the exact annual maintenance and data center licensing costs.

Like anything, Calgren said there are pros and cons to building your own data center. Key among the benefits is "having full control when a client has a bad experience," and being able to go into a server and fix it without having to do ticketing and waiting on a response from Microsoft.

"We're super stable and have higher margins for monthly recurring revenue," he added.

The negatives includes having to do more troubleshooting, as well as finding funding for the upfront costs -- not to mention stress. "Without having investors, and being wealthy, that was difficult," Calgren noted.

The other downside is having too few clients to cover your costs.

"If you're using someone else's service, it doesn't matter -- you can start with one or five and the more you add, the bigger the discount the other provider gives you. … That didn't happen for us until [after] almost three years."

Partnering in the DaaS market

Based in Los Angeles, dinCloud, a cloud services provider that works with MSPs, value-added resellers and end-user companies, automates the entire lifecycle of provisioning -- something it maintains is disrupting the traditional sale of services, according to David Graffia, vice president of sales.

In addition to the capital expense of building from scratch, many companies don't end up with "the latest and greatest infrastructure to host that [DaaS] environment on, and it was probably built by someone doing it for very first time," he maintained. "You spend millions of dollars and the result is a big question mark and users aren't happy."

Users also want redundant data centers, noted Ali Din, senior vice president and chief marketing officer at dinCloud. The company resells a cloud automation console for DaaS that an MSP can decide to give to customers to log in to and manage and provision services or the MSP can assume that control.

In some cases, MSPs layer services such as monitoring and patch management on top of dinCloud's cloud service.

Profit margins for MSPs will vary based on their level of involvement, Din said.

"We have some partners that refer us [to clients] that are one-man consultants and they'll get 5%" for that referral," Din explained. Authorized resellers that provide leads can earn 10%.

"Folks who come in and provide leads, provision the environment and provide ancillary services can make more because we don't have to outsource that and it's nice complement to what they do."

As another partnering approach, Accelera Solutions works with Citrix, to deliver a virtual desktop solution for customers on-premises as well as in a public cloud model, said Joe Brown, president and chief operating officer. It is marketed under its own brand, Accelera Secure Optimized DaaS.

"We built our own capability many years ago by buying our own hardware and standing it up in a data center and now we leverage Microsoft Azure for that service," he said.

Accelera purchased hardware, storage and networking equipment and put it in an Equinix data center, using Citrix as the primary technology to support DaaS from its platform. "Over the years we've transitioned into a fully cloud-based version," leveraging existing cloud infrastructure from Azure and AWS.

Because Accelera already understood virtual desktops, the only personnel the company has hired is for capacity purposes to support customers, he said.

Echoing Calgren, Brown concurred that certifications are important and said the company has staff certified in Citrix XenDesktop and XenApp, as well as VMware vSphere, Azure and AWS.

Upfront expenses were very costly for Accelera's initial hosted virtual desktop service: around $500,000 in hardware to get the base solution up and running.

"I would not do it again, and that's why we're leveraging the cloud," Brown said, in reference to the price tag. "The public cloud wasn't available when we set off on this journey."

Today, they have been able to leverage licensing programs from key software providers like Citrix and VMware, "and you only have to pay for licensing consumed by end users, so it's a very utilitarian structure that enables you to build out your environment without having to buy licenses until you get customers running on it," he explained.

Despite the public cloud transition, Accelera continues to employ its own data center infrastructure in the DaaS market. Brown noted the advantages of the latter approach: In addition to having ultimate control over all components when building your own data center, you can also develop a very customized configuration for customers that might not be possible in the public cloud.

"The investment we made in the past we still have running -- we didn't throw it away," Brown said. "But we put as many new people in the public cloud as we can so we don't have to continue to make hardware investments."

Having your own infrastructure also enables an MSP to segment users for compliance reasons, he added. "You simply can't do that on the public cloud infrastructure."

In terms of economics, "I would say we're seeing fairly equivalent profit margins from our personally owned and public cloud infrastructures after you get past the first couple of years of owning your own," since the capital expenditure is amortized after a couple of years, Brown said.

Accelera has a service desk that consists of three tiers of resources: general support technicians (level 1), senior support technicians (level 2) and subject matter experts (level 3). "Escalation criteria are defined for all types of issues reported and technicians are measured on effectiveness of solving the issues in a timely fashion," Brown said.

Accelera also has the ability to escalate to their software and hardware manufacturer partners when needed. The firm subscribes to industry standard ITIL process for service desk support and has a systems administrator who acts as a customer advocate for tier two and three escalation for issues that they perceived to be related to their DaaS solutions, he said.

ComputerSupport.com, meanwhile, provides managed services wrapped around its DaaS offering, working directly with end-user companies, said Kirill Bensonoff, CEO and managing partner. It built its own cloud platform, ITAnywhereCloud, a few years ago.

ComputerSupport.com opted not to own its own data center and relies instead on AWS. "We, as a lot smaller company, cannot compete with the resources AWS was throwing at their data center," he explained.

In terms of support, the first call is usually handled by an IT person at the customer company. "Then, if it becomes an issue for the MSP it goes to them, and then we act as the third level to close that ticket for them; we're just another extension of what they have."

A customer company does not have to "throw away" what it has already purchased, he stressed. "An end customer can tunnel in to us. We just become a node on their existing environment," and it can use ComputerSupport.com on a consumption-based model, Bensonoff said.

For MSPs looking to enter the DaaS market, it's important to find a provider "that understands and embraces the partner community/channel," he said. They should also "look to a cloud provider that will provide thought-leadership and continuous innovation."

VDC Research's Hopkins agreed. "MSPs looking to enter this market will need support from key participating vendors … specifically around market guidance and sales training. These vendors have put partner programs in place that include training, marketing materials and many other helpful tools that MSPs will need to gain traction with DaaS."

Next Steps

Read about the security risks and rewards of hosted virtual desktop technology.

Learn more about DaaS market providers and pricing.

Do you know the differences between desktop and server virtualization?

This was last published in June 2015

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