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More VARs are selling managed services as vendor strife spreads

Selling managed services helps VARs promote their own brand and value versus that of their vendor partners.

VARs are selling managed services to promote their own brand versus that of their tech suppliers, especially as those suppliers try to bypass the channel to sell more products direct.

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Selling managed services lets the VAR cement its own relationship with the customer, said Mont Phelps, CEO of NWN Corp., based in Waltham, Mass.

"[With managed services] a relationship develops that is really deep, where they can't live without you and vice versa. And when [that happens] they view you as an extension of their own business," Phelps said.

While managed services are not new, they're becoming increasingly important as VAR-vendor relationships grow more contentious.

When selling managed services, the VAR must understand what the customer needs and what it takes to operate and maintain their systems. That means a lot of conversations with that customer. Those talks, in turn, lead to cross-selling and up-selling opportunities. In some cases, the VAR ends up understanding the customer's system better than the customer does, and that's where managed services become invaluable, according to Phelps.

Some VARs use third-party managed services tools and platforms from Level Platforms, Kaseya and others, while other VARs build their own.

"From a managed services perspective, we always believed in a hybrid model. Our hybrid model grew out of Ingram Micro being our primary distributor. Their Seismic offering allows us to create our own blend of managed services offerings combined with our own on-premise support. That's definitely helped us to create a brand that's specific to our company," said Luke Wignall, managing partner at Common Knowledge Technology LLC, in Englewood, Colo.

Ingram Micro's Seismic MSP services integrate technologies from several platform suppliers into a centralized dashboard.

Vendor competition as driving force for managed services

Some partners were moving to selling managed services anyway, but others were motivated because they saw their product sales business under fire from their own vendor partners.

One large Oracle VAR said he typically sells millions of dollars in Oracle licenses per year. Now? "I'm not trying to sell Oracle any more. Looking for license sales opportunities is the furthest thing from my mind. We realized we can go after managed services where the gross margins are better and we're not fighting with Oracle and -- perhaps most importantly -- they're not slandering our reputation anymore."

He said Oracle sales people have bad-mouthed his company to joint customers in order to take the sale direct.

"If I [deal with] XYX Inc. and they want licenses, I talk to them. They want pricing on the product, so [we] go in, and the Oracle rep is there along with another Oracle partner. Immediately, you know you're competing with at least two other guys. Oracle will question our financial stability and tell the customer that if the sale goes direct, it'll be cheaper, because it won't include our margin."

In a managed services model, customers source the hardware and software however they see fit. Oracle will sell them all sorts of stuff -- the database, Real Application Clusters [RAC], SOA, content management -- and once it's all sold and the customer tries to install it themselves, we'll get a phone call, the Oracle VAR said. "That's when we find business. We'll install it and customize it. We'll host it ourselves or manage it for them."

Managed services still a drop in the revenue bucket

Despite the value that managed services can bring to a VAR's brand, most VARs said that managed services remain a small part of their revenue.

"We do Web hosting, but you can't make it on that alone. … Now we do managed services. It's growing but still a small part of our overall business. …We grew [more] than 50% last year, and we want that to be a million dollars this year," said Rick Chernick, CEO of Camera Corner/Connecting Point, based in Green Bay, Wis.

Chernick cautioned that managed services is not cheap. A managed service provider needs good personnel, help desk and support lines, and must have engineers who can go on customer sites when needed.

Other VARs agreed. "The challenge in offering managed services is the numbers. If I hire 'x' employees, I have to offer them incentives and raises and put the cost of that onto the customer. And that is tough when the economy is on the rebound. But [managed services] is growing and so is the economy. It currently accounts for about a third of our business, and we're working harder at getting more managed services, because that's where the long-term relationship is with customers," Wignall said.

Still the benefits are undeniable. If Microsoft hosts Exchange Servers, and customers are on a subscription rate, and "we know that the underlying technology is stable, that means less maintenance time for us," Wignall said. He's able to handle more customers, which means more revenue, and the customer also benefits from a lower, more manageable monthly rate.

Managed services aren't vendor replacements

To some degree, managed services can remove the vendor from the deal, some VARs said. If the data center is humming along, no one cares if it's a Dell, HP or Cisco server that's inside.

"Managed services does abstract the vendor out of the equation a bit in some cases -- but also it's good for the [hardware] vendors because their equipment is updated every three years [if we provide it] … or the customer can buy [the equipment] and we manage it," Chernick said.

Some VARs pointed out that it's important to ally with quality vendors, but not so many that it's impossible to develop expertise across their product lines. The VAR has to recognize that there are certain areas in which they don't have expertise.

"We can't and don't do everything … no matter who you are. If [you are] a manufacturer or a VAR, the industry is broader than your capabilities. … You have to understand where those edges are," NWN's Phelps said.

The role of the cloud

At least one VAR sees public and private clouds as playing a big role in helping VARs be the jack of all trades and in helping to provide easily accessible expertise.

"Our world is changing. There's no way you can be everything to everyone," Wignall said. "If a customer needs 'x,' I can try to find 'x,' help them deploy and integrate it into systems and then back off. But if I can't find 'x,' then I need to be well-connected to an expert or be able to pull in external resources when needed. The cloud is a great facilitator in providing resources."

A year ago, Wignall thought that SMBs would never support the cloud, but he now finds customers ask for it without even knowing. "A customer will say, 'I want all the functionalities of an Exchange Server but don't want to buy a server. Is there some way to do that on the Internet?' With the cloud, you can spend little money and get a lot of functionality and efficiency," he said.

Chernick disagreed, drawing a strong distinction between managed services, where a known entity manages and perhaps hosts specified applications and is accountable for any miscues versus cloud deliverables like Google Apps.

"I don't trust the cloud," Chernick said. "I have no reason not to, but how do I call someone in the cloud for support? Where is my local support, my after-hours human voice? I don't know who to call."

Let us know what you think about the story; email Barbara Darrow, Senior News Director at bdarrow@techtarget.com, or follow us on twitter.

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