Back in the bad old days of the Internet boom and irrational exuberance, a lot of capital was thrown down a rat hole known as managed services. The basic idea back then was that the Internet would make it possible to remotely manage systems more effectively than a local IT staff could, because the managed service provider would be able to leverage fat networking pipes and a professionally trained staff.
Alas, like most of the great ideas from that age, the companies that pursued that business model mostly failed because of four reasons. The preponderance of desktops were Windows 98 systems that were difficult to manage remotely, most networks inside and outside of the corporation were flaky, companies were awash in cash and didn't feel the need to cut IT head count, and most startups pursuing the MSP model had no existing relationship with the customer to leverage.
But after three years of economic decline, a funny thing has happened as the economy begins to recover. The managed-services business model is back with a vengeance, and there is a war over who is going to control this burgeoning sector of the market.
Rather than being driven by overcapitalized and undermanaged startups burning cash from pension funds, the modern MSP is a traditional solution provider that is adding managed services to its overall portfolio.
And right now, four CEOs of vendor companies that understand how VARs are extending their customer relationships to drive managed services are the people running LPI Level Platforms, SilverBack Technologies, N-Able and Singlestep.
Led by Peter Sandiford, LPI Level Platforms offers a customizable, vendor-independent service that solution providers can resell to manage any set of devices supported by the company's Managed Workplace product. The service is priced at a relatively nominal fee of $60 per month for each customer supported, which means that the return on investment for the solution provider is relatively quick. This may account for why LPI Level Platforms has already signed up over 325 VARs and expects to have deals in place with a total of 1,500 VARs by the end of the year.
Sandiford, whose pedigree includes stints at Systemshouse through its days as a unit of MCI and EDS, has big ambitions in terms of extending his company's service eventually all the way into business process management as part of a general plan to give local VARs an edge in delivering managed services against rival vendors, carriers and global integrators.
Dan Phillips, CEO of SilverBack Technologies, is a veteran of the network hardware wars, having been COO of Concord Communications before joining SilverBack. As a hardcore advocate of local VARs, Phillips argues that VARs that choose to resell managed services created by vendors are ultimately hastening their own demise, because increased competition from the vendors only serves to drive pricing down more rapidly.
N-Able, meanwhile, is led by Mark Scott, a Canadian manifestation of the serial entrepreneur. N-Able is similar to Silverback in that it provides a management platform that is specifically tuned for servicing SMB customers, rather than trying to scale down something like Unicenter or Tivoli to service that type of customer.
Conversely, there is Singlestep, which is leveraging IBM's investment in Tivoli to create a custom system and network management tool that allows VARs to add managed services to their portfolio. According to Chris Noble, this approach allows his small company to avoid having to reinvent the wheel while concentrating on creating more sophisticated tools for managing IT assets on top of the Tivoli platform.
For VARs, these four companies and others like them represent a group of companies that can help rescue their business from the perpetual cycle of falling hardware margins and erratic revenue streams based on installation and integration opportunities. Instead, they can contract with customers to provide a set of desktop, network, security, server and application management services that minimize the amount of capital the customer has to devote to IT, while providing the reseller with a recurring source of high-margin revenue that minimizes their investment in IT personnel.
More importantly, these companies give resellers a hedge against increasingly expansionist service efforts being put forth by vendors, carriers and global integrators. The vendors trying to deliver managed services typically fall into several types. There are Cisco Systems, Hewlett-Packard and Symantec, which would most prefer that customers buy managed services from them directly. Then there is Nortel, which would rather see solution providers resell services it provides. In the middle of those two extremes is IBM, but Big Blue is closer to the Cisco-HP-Symantec model than it is to the Nortel approach.
That brings us to the major carriers and CLECs, all of which have major managed-services efforts under way. The good news is that their ability to deliver these services is spotty at best, but the bad news is that they have a lot of capital on hand to keep trying.
And finally, we have the global system integrators such as EDS, which typically have a cost structure that makes it very hard for them to compete in the SMB space.
But no matter how you look at it, just about everybody seems to have some sort of game in place around managed services that does more to disintermediate the local solution provider than it does to help them.
While it's true that a VAR can choose to resell vendor or carrier services by acting essentially as an agent, most VARs that have the capital and expertise on hand would rather reserve those streams of high-margin managed services revenue for themselves.
The good news for everyone concerned is that the managed services opportunity, particularly in the SMB space, is huge, and whoever has the existing relationship with the customer has the edge. Another edge that local solution providers have is that they can offer a blended set of managed services under which they complement managed services from vendors with their own, more-specialized remote management services.
But in the short term, vendors seem a lot more intent on trying to take the managed services business direct, usually at the expense of the solution provider partners that they profess to love. You can tell this because the amount of money devoted to selling the service direct dwarfs the miniscule amount of money dedicated to lining up solution providers to resell managed services.
Fortunately for solution providers, most of the vendors are basing their services on frameworks originally developed for the enterprise 10 years ago. The requirement most customers have today is for a lightweight management framework, so unless somebody modifies a vendor's software to make it easier to deploy, as Singlestep did with IBM, the vendor's service is going to seem pricey and inflexible to the average SMB customer.
But what they lack in technical agility, vendors can make up for in marketing. That means VARs looking to claim their rightful portion of the burgeoning managed-services market need to act now and, perhaps more importantly, their ability to distinguish between real and fair-weather friends is going to be crucial.