IN THIS GUIDE:
- How to become a managed services provider
- How to sell managed VoIP services
- How to offer hosted unified communications and collaboration services
VARs, like the technology vendors they partner with, are under increased pressure to find new revenue streams as their customers are stuck with flat IT budgets. So it's no surprise that a growing number of VARs are considering the transition to managed service provider (MSP).
Whether by building out new technology to offer remote network and application management or reselling a distributor's managed services, VARs are working to launch annuities-based businesses as quickly as possible.
The good news for VARs is that despite the fact that today's macro-economic indicators are distressing to most businesses, MSPs find this economy to be unusually favorable. As IT organizations downsize or are expected to do more with the same staff, they have no choice but to turn to third parties to help them accomplish their requirements.
But VARs have to approach the market swiftly and strategically since the MSP business model is attracting more and more companies, and competition is becoming more intense. It's crucial for successful MSPs to stand out from the crowd by offering a full suite of services, from the most basic to the most advanced.
In this guide, we'll take a look at the reasons for becoming a managed services provider and some advice for adding managed services to your offering, then drill down into some specific advice for offering managed VoIP and hosted UCC.
How to become a managed services provider
Business drivers for becoming a managed services provider
The transformation from VAR to managed service provider can seem daunting, especially for the smaller, more specialized reseller. Before considering the move, VARs need to understand the business drivers behind an organization's decision to use managed services and which services are in demand (read "most profitable").
There are common triggers and business drivers that lead companies down the managed services path. One major trigger is the need to control costs in response to decreasing budgets and staffs. Companies are scrutinizing IT expenses and find benefit with the predictability of managed services.
Managed Services Triggers
Reduction in Staff
Reduction in Budget
Increased Number of Virtual Workers
Change in Management
New Business Initiative
Hardware End of Life
Merger or Acquisition
Increased Regulatory Requirements
Figure 1: Managed Services Triggers (Source: Nemertes Research, 2009)
What managed services are customers seeking?
Nemertes Research recently conducted a benchmark study in which we spoke with more than 200 IT practitioners regarding their organizations' plans for managed services. Among those using managed services, the top five services of interest were:
- Storage, back-up and disaster recovery
- Network monitoring
- IP telephony
- Software as a Service (SaaS)
Other services of interest were managed desktop/help desk support, managed UC, and managed network optimization.
We've watched adoption of managed services rise dramatically over the last few years, to 33% of companies in 2008 from 6% in 2005, 14% in 2006 and 22% in 2007. Organizations that would not have considered outsourcing even a year ago are evaluating, and those that were using these services are extending them to more of the organization. Also, many companies using managed services have grown to use an average of four services.
Turning to your vendor for help in becoming a managed services provider
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Hosted options for unified communications 'evolving'
Until now, various managed services have fallen to specific segments of providers, usually for technical reasons -- or sometimes because they seemed a better business model fit. Carriers, for example, frequently offer network-based services such as router management, WAN management and implementation. System integrators focus heavily on design and implementation, whereas outsourcers address network, security or application management. Vendors and their resellers typically offer assessment, installation, training, break/fix/truck rolls and ongoing management.
But as VARs look to expand into offering a variety of managed services, they may be able to turn to their existing vendors for help. Some vendors such as Cisco and Microsoft have partner incentive programs specifically based around offering managed services.
Others, including Cisco, Avaya, Juniper and Microsoft, have strong programs in place to help MSPs with training, marketing and financing. Training focuses on both technical (often including certifications) and sales. These vendors also offer marketing funds typically based on volume. More recently, some vendors have extended financing programs beyond hardware and software, to include services. That way the MSP is able to extend various finance options to its customers.
Reselling services: An easier transition to becoming a managed services provider
Distributors and master MSPs also offer programs to ease the transition from VAR to MSP. Ingram Micro Corp. offers the Seismic Managed Services program, an online platform and back-up service that MSPs can use for remote desktop monitoring, management and other select services. Synnex also offers an on-demand solution for multiple areas -- business continuity and disaster recovery, security, VoIP, managed help desk, and more.
These solutions and others like them are an easier, turnkey way of getting started with little up-front investment because they offer a monthly pay-as-you-go subscription model. Normally, with this type of partnership, VARs pay the standard license costs for use of the application, along with an additional monthly hosting fee. VAR markups then vary widely but typically range anywhere from 20% to 80%.
In another business model, Do IT Smarter offers an Instant-MSP program that allows VARs to sell managed services to their customers while Do IT Smarter runs the backend infrastructure. When partnering with a master MSP, VARs typically manage their daily customer relationships and handle situations that call for onsite remediation. This allows them to build up trust as they build out their offerings. This type of relationship is similar to working with a distributor, as the MSP will pay a monthly fee that it will mark up when passing along to the end customer. Also, some master MSPs will charge a onetime sign-up fee.
Building out your own system to become a managed services provider
VARs that choose to independently pursue managed services need to select a delivery platform. These platforms consist of the hardware and software used to deliver network-based services and applications and allow providers to remotely monitor and manage hardware and software (including upgrades and patching). They also often include very detailed reporting capabilities that allow customers to easily access reports via the Web.
Carriers and larger systems integrators typically use their own platforms for remote monitoring and management, whereas thousands of local and regional VARs tend to use management products from the vendor-manufacturers, as well as third-party management tools and platforms from companies such as Kaseya, N-able and Level Platforms. These tools can provide information on multiple vendors.
Depending on the types of managed services offered, MSPs may use a third-party platform along with a combination of specialty management tools. For example, MSPs often have a standard platform they will use for basic remote desktop/server management, and they will then add additional specialty tools for VoIP management, optimization, and so on.
Understanding the differences between platforms and assessing which will best suit your needs will take time and effort, but you don't have to go it alone. There are numerous excellent resources for MSPs, including the MSP Alliance and MSP Partners, which offer training, certification and guidance to VARs making the leap to managed services.
The keys to success as an MSP include solid customer service, technology expertise, fair pricing and flexibility. Never assume that a one-size-fits-all approach will go very far. While it's acceptable to package some common service types, it's imperative to be flexible and customized in the service offerings available.
The market is ripe, and it will become more competitive as it continues to grow. The cream of the crop will focus on differentiating their service offerings by providing a full menu of options, from the most basic service to the most advanced mix of services. Be sure to reach out to vendors, distributors and master MSPs for assistance with partnerships, training, certifications and support.
How to sell managed VoIP services
The past year has been a growth year for managed service providers (MSPs) despite the troubled economy. In fact, unlike vendors and pure-play hardware resellers, many MSPs experienced growth because of current macroeconomic trends.
One of the top growth areas for MSPs is offering managed VoIP services. Among organizations using MSPs, 33% used them for VoIP services, up from 22% last year, 14% in 2007, and 6% in 2006.
Why the need for managed VoIP services?
Most businesses are in the process of evaluating, implementing, or operating IP telephony systems and VoIP throughout their WANs. But while they're aggressively rolling systems out, they face huge challenges when it comes to effective monitoring and management. That's because as enterprise demand for communications support increases, IT budgets remain flat or even decrease. What's more, headcount within the overall IT department is stagnant or decreasing, forcing companies to do more with less.
The problem is that when it comes to VoIP, there must be telephony-style quality of service (QoS). There is no time for lost packets and stalled communications. Previously, companies addressed IP telephony performance problems by assigning more staffers to monitoring and management. That was when these companies had budgets to hire experts and staff to troubleshoot problems.
With flat budgets, companies generally adopt one of two approaches: Some buy specialty IP telephony management tools to make sure the existing staff can isolate and resolve problems accurately and efficiently. Others rely on third-party MSPs to monitor and manage the system and troubleshoot user problems.
MSPs are in a particularly good spot now because many enterprises are realizing it's not so easy to manage VoIP networks and applications in-house. Network managers are often shocked to discover how many tools are required. Companies typically buy anywhere from one to six additional monitoring products (with the average being two) to effectively manage their IP telephony services. These include tools to address configuration, network and application performance, asset and change management, and event correlation.
What's more, network managers find that while many IP PBX vendors such as Alcatel-Lucent, Avaya, Cisco, Mitel, Nortel, ShoreTel, and Siemens offer varying levels of management and monitoring with their products, customers must still supplement these with third-party tools. Making matters worse, customers often come to this realization 24 to 36 months after going into production.
What kind of MSP do customers want for managed VoIP services?
That's when customers tend to turn to MSPs. And they tend to depend on smaller, regional MSPs to deliver managed VoIP services. In fact, 60% of organizations with fewer than 1,000 employees turn to regional MSPs. Why? They prefer the local presence and security of knowing an expert can be on site quickly. Furthermore, they view the MSP as an extension of their IT staff -- which isn't always the case with large, global MSPs.
MSPs must offer diverse tools to manage multi-vendor networks
Regardless of whether MSPs are regional or global, they must be able to monitor and manage multi-vendor networks and applications.
Many MSPs, including global carriers such as AT&T, BT, Orange Business Services and Verizon, as well as large systems integrators such as EDS and IBM, use their own platforms to remotely monitor and manage IP telephony and unified communications (UC) systems. For example, Verizon uses its own Impact platform to remotely monitor and manage not only the WAN, but customers' UC systems.
Often, they augment those systems with third-party tools from vendors such as Fluke Networks, Infovista, Integrated Research (Prognosis), NetIQ, and NetQoS. Smaller local and regional VARs tend to use management products from the vendor-manufacturers, as well as some of the third-party management tools that can provide information on multiple vendors.
The ability to monitor multiple vendors' systems will become critical, as it is unlikely that businesses will use only one vendor's system forever. Also, large organizations may never have a single vendor. Though some companies are staunch single-vendor shops, as IP telephony becomes only one component of vast unified-communications architecture, multi-vendor systems will become unavoidable. In addition, mergers and acquisitions often bring along a new set of vendors, and while they may be supplanted by the standard platform, the next acquisition just restarts the cycle.
Bundling VoIP and unified communications services
Because VoIP is such an integral part of UC, it is likely that MSPs will do well by combining service offerings for the two sets of applications. We expect more organizations to rely on service partners to assist with the monitoring and management of their UC infrastructures. In fact, half of the IT professionals we work with state that UC-professional services are vitally important because UC adds more network complexity, and real-time applications bring along requirements for increased bandwidth and stringent QoS guarantees.
MSPs have the opportunity to create competitive advantage by exceeding enterprise management and reporting requirements for VoIP and UC. To do so, they should promote and bundle network services to support collaborative applications and application optimization.
The bottom line is that providers should be comfortable with multiple vendors that arm themselves with tools allowing them to offer better QoS to improve the experience for users. Their offerings should enhance services, not just manage the application.
How to offer hosted UCC services
Offering hosted unified communications and collaboration services is a strong opportunity for MSPs as they evolve their portfolios, but there are challenges too. MSPs often must scale hosted unified communications and collaboration (UCC) services to the large enterprise and provide the kind of customizable applications available through on-premise solutions.
What's clear is the potential demand for hosted UCC. Recent research from Nemertes shows that 52% of organizations are interested in Software as a Service (SaaS), suggesting that now is the perfect time for MSPs to expand their hosted offerings.
Companies looking to save money will turn to hosted UCC services since they offer all the technical advantages of on-premise UCC applications without the large capital investment. In the hosted scenario, the hardware and applications software sit at the provider's data center, where all of the management and monitoring also take place. For customers, that means no need to purchase equipment except for VoIP phones or cameras for video conferencing. Even then, some service providers lease all the hardware.
What's more, hosted UC services enable enterprise users to take advantage of redundancy and backup that would be costly to maintain on premise. As the service provider, you handle implementation, configuration and customization, and then updates and enhancements over time. Your customers simply pay the monthly bill.
Hosted unified communications and collaboration services for the large enterprise
In the past, Nemertes saw primarily small and medium-sized businesses (SMBs) under 1,000 seats buying hosted UCC services. This wasn't for lack of demand from large enterprises but because most of the hosted services available didn't scale to meet their demands. Those that did provide services to the enterprise often did not have the global coverage required. We expect that to change and already see more large enterprises evaluating and adopting services as providers expand their offerings and global reach.
Conferencing leads the way in collaboration services
Although organizations of all sizes can be slow to adopt some hosted services, such as VoIP, that is not the case when it comes to audio, video and Web conferencing. Sixty-one percent of the organizations that Nemertes works with use hosted Web conferencing. There is also much interest in hosted audio and video conferencing.
An organization's decision to use a hosted Web conferencing tool instead of operating its own Web conferencing server is often based on cost and the ability to easily support external participants. This is especially true for SMBs that may have limited staff and budget to manage an internal server.
Easy roads to hosted unified communications and collaboration services
Within the past couple of years, software-centric providers began making forays into offering hosted UCC applications -- and asking partners to drive sales. Microsoft, IBM and Google have expanded their collaborative email and calendaring offerings to include additional communication services. To attract and assist resellers, they've designed strong training programs. All three companies have developed on-line tools and resources and offer training to support MSP sales efforts.
The problem with hosted VoIP
There has been strong enterprise interest in hosted conferencing and other collaboration/communications services, but we still haven't seen anywhere near that level of interest in hosted VoIP. Hosted VoIP is used by only about 12.2% of organizations overall, while about 20% of SMBs say they're using the services.
SMB uptake may be flat because of an increased number of VoIP-technology vendors that now have in-house solutions aimed at smaller companies. SMBs that were once scared off by the seemingly complex VoIP systems now have choices that are almost plug-and-play solutions.
For larger enterprises, cost is often the biggest drawback to using hosted VoIP, followed by lack of service in their geographical locations. The average cost per user per month for hosted VoIP is $45. When comparing that with the cost of purchasing and operating an on-premise solution, it becomes apparent why most large organizations do not find it cost effective.
For that reason, many regional MSPs do not sell hosted VoIP solutions, nor do they want to. The bigger moneymaker for them is selling an on-premise solution and wrapping managed services around it.
Best practices in offering hosted unified communications and collaboration services
MSPs that want to offer hosted UCC services for both the SMB and enterprise market must understand user concerns and the perceived drawbacks of SaaS. Nemertes recommends using the following best practices to address these concerns up front with potential clients:
- Flexibility and customization: Often a hosted service has less flexibility and fewer options in configuring the system. Also, upgrades usually wait until the provider is prepared to offer them. Differentiate yourself with customization and integration services.
- Global coverage: Many hosted providers (especially VoIP providers) still do not offer the coverage area required for companies with global locations. Success with dispersed organizations will depend on your ability to offer services for all locations.
- Security: Concern regarding security is still cited as one of the primary drawbacks to a hosted solution. As the customer's trusted adviser, an MSP needs to build customer confidence and ensure the reliability of the SaaS applications, while also ensuring data security and availability.
Whether you're new to managed services or ready to expand, remember this: The successful MSP will build on the SaaS offering to develop solutions for implementation, integration, customization, migration and training, as well as provide ongoing management to build recurring revenue opportunities.
Katherine Trost is a research analyst at Nemertes Research, where she focuses primarily on professional services.
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