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VARs: How to become a managed services provider

On the road to becoming a managed services provider, VARs find they have options ranging from building their own systems to reselling services from distributors and vendors. Which is right for you?

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 services 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.

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
Application Complexity New Technology
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
  • Security
  • 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

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.

About the author:
Katherine Trost is a research analyst at Nemertes Research, where she focuses primarily on professional services.

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