SKUs and Services

As they test the waters with varying approaches, some distributors are likely to form contractual relationships with MSPs, offering their services like any other product. Others, like Synnex, are putting skin in the game. In January, after joining JP Morgan Chase and ICICI Venture in pumping a reported $7.3 million into Microland Ltd., a Bangalore, India-based remote management services company, Synnex took a seat on the Microland board while Microland employees took up residency at Synnex&s Fremont, Calif., headquarters. By July, the companies rolled out MicroLite Portal, which offers solution providers realtime reports on their clients& networks, servers, security devices, e-mail applications and service requests, among other things.

“It&s an enabling tool. It enables our resellers to have greater flexibility and control over their own destiny and their ability to attract and retain accounts,” said John Paget, COO of Synnex and president of North American operations, who spearheaded the move.

As with other value-added services, distribution executives say their fledgling managed services offerings are primarily driven by an effort to support their customers and augment their core mission of selling and shipping products. But this time around, distributors are also enticed by the prospect that managed services could become a substantial business, given its capital-intensive nature and potential economies of scale.

Synnex certainly sees it that way. While services revenue remains a small part of distribution income today, Paget notes that revenue from integration, channel manufacturing and leasing are all more profitable than hardware and software sales alone. “I would expect [services revenue] to grow over time,” he said.

Other distributors also are getting into the managed services game. ScanSource, Greenville, S.C., in July rolled out a specialized remote monitoring service targeting POS solution providers, and Avnet, Phoenix, introduced a hosted managed services offering at a recent IBM partner conference. Ingram Micro&s managed services group, to date, has focused on lining up technology vendors such as N-able Technologies, Level Platforms and Reality Check to help solution providers establish their own managed services practices, but has larger plans.

“We don&t believe that&s our long-term play in this space,” said Justin Crotty, vice president of channel marketing at Ingram Micro, Santa Ana, Calif. “If we believe that managed services is a big part of the future … then we&ve got a responsibility to stay relevant in that model, and we&re looking at our options.”

While coy about its plans, Ingram Micro is rumored to be getting ready to SKU up offerings from third-party MSPs. Tech Data, meanwhile, is evaluating tools vendors, but has no current plans to distribute turnkey services. “It&s not necessarily a direction we are pursuing at this time, but we are looking at it,” said Annette Taber, director of the Clearwater, Fla., distributor&s TechSelect solution provider network.

Charlie Babb, vice president and general manager of Avnet Managed Technologies Group, the unit that is offering managed hosting services to the channel by utilizing excess capacity in its own data centers, said he also expects services revenue to grow. “I think this is the tip of the iceberg,” Babb said. “There are a lot of opportunities to it. It&s another revenue stream, an annuity and it&s good margin.”

Still, he quickly added that, for distributors, services will always play a supporting role to product sales. And that, perhaps, is where distributors may have a competitive advantage over third-party MSPs attempting to sell through the channel. “I think we have an advantage because we already have the [reseller] network in place,” Babb said. “And, plus, our focus is through the reseller community. We do not have a sales force that is going out and looking for direct opportunities.”

Distribution executives also contend that the cost of building and maintaining managed services infrastructures makes it tough for many solution providers to make the investment. To the degree the services are scalable, distributors can leverage economies of scale across the channel.

Crotty noted that many solution providers once maintained their own warehouses until it become more cost-effective to turn inventory management over to distributors, and he thinks the same will occur with managed services infrastructure. “The question we&re asking is, ‘Does it make sense for all of these VARs to be investing in a duplicative manner in all their locations?& ” he said.

Another question is if they build it, will solution providers come?

Maybe. The ill-fated channel assembly initiatives of the early 1990s may provide a note of caution. While many solution providers have opted to turn system building over to distributors and system builders, others have persisted in building their own systems, finding it a core piece of their service to customers. Managed services could follow a similar pattern.

Solution providers that have built their own managed services infrastructures say remote monitoring and hosting—the two most easily scalable aspects of the business—are only pieces of the equation and not the most profitable ones. “Monitoring in and of itself doesn&t solve any problems,” said Oli Thordarson, president of Alvaka Networks, Huntington Beach, Calif. “The best way we pick up business is from people who are just monitoring.”

Still, many solution providers think there is a role for distributors as trusted partners to those offering managed services. Ted Swanson, president of IT Solutions Consulting, Jenkintown, Pa., said there is no excuse for a solution provider of his size—about $5 million in sales and 35 employees—not to make the “$100,000 or so” investment in a network operations center. But he thinks the vast majority of small solution providers will find the distributor offerings essential.

“If you don&t have a managed services offering in the next 12 months, you&re going to be in trouble, especially if Dell and Microsoft get into the act because they&re going to seed the field,” he said.

Thordarson, too, said distributors could find success in distributing managed services from companies such as his. But he thinks it makes no more sense for distributors to try to build the services themselves than it would be for them to buy a technology vendor. “All of a sudden they&ll be getting into a business that&s not their core competency,” he said. “They&re not operational professionals.”

Synnex&s Paget begs to differ. He argues that services and the ability to manage repeatable processes are core competencies for distributors. “This is not a product manufacturing company that we are buying and then trying to sell a manufactured product,” he said. “Service is something that is fluid and requires close attention to the marketplace, and when you get down to what a distributor is, it&s a managed services company,” he said.

On the other hand, Paget agrees that Synnex&s services offering is not for everyone. It will make sense for many solution providers to develop their own capacity and others to outsource it. “We do a tremendous amount of integration, as do our competitors, and yet there [is] still a significant amount of resellers that prefer to do their own integration,” he said.

He believes remote management services eventually will migrate to the greatest point of efficiency. And Synnex can use its experience in managing offshore resources—it already has 100 developers in China for its internal operations—to tap into low-cost, quality offshore resources on behalf of its solution providers. Solution providers, meanwhile, are best equipped to interact with customers, provide implementation and design services and deliver support.

“Remote monitoring and management is one of those things best done in fewer locations; customer management is one of those things that is best done in many locations,” Paget said.

It is not necessarily an all-or-nothing proposition, though. There is another scenario: Solution providers can build and manage their own services, augmented by third-party services and specialized offerings in a mix-and-match fashion, depending on what makes sense for their businesses.

IT Solutions Consulting uses an intrusion-detection service but does not outsource anything that requires remediation work. “I would say monitoring is the one place I would do it,” Swanson said. “I would not outsource my help desk. It&s too personal a thing.”

Having their own services offerings and help desk is a requirement for POS solution providers wanting to take advantage of a remote management service called VirtualTechnician, which ScanSource rolled out in July. The speciality distributor spent more than a year developing the offering with hosting partner Vigilix, also in Greenville.

By tapping into the service, solution providers can monitor their customers& POS hardware and software down to the device level from their own help desks. They can tell if a credit card transaction failed to settle at close of day or a scanner at a particular check-out lane is acting up and needs replacing.

One ScanSource customer that is planning to quickly jump on the offering is POSitive Technology, Rockville, Md., a large, full-service provider of Microsoft&s retail management applications. Mike Henderson, COO of POSitive, expects pricing for the service to be about $75 per terminal per year, and he figures that is a bargain, considering what it costs to send technicians on-site and the fact that he&s getting 24x7 monitoring.

Henderson said he can probably resell the service to some customers that want to monitor their own devices, but mostly he can use it to improve the company&s own service levels. “It&s a win-win on both sides because it gives us a look at what&s happening at the machine level and it allows us to roll it out as a customer self-help service,” he said.

Does ScanSource see this as potentially new and profitable business? Paul Constantine, vice president of solutions and services at ScanSource, said the distributor&s overall services strategy is cost recoupment with the goal of pulling through more product sales for vendors. “We&re not getting away from our core mission,” he said. But, he added, “We&ll see where the future will take us.”

That is a sentiment shared by other distributors. As they move cautiously toward carving out their role in supporting the channel&s shift toward managed services, they are wondering where the future will take them—and thinking that adding a little bit of recurring services revenue to their transactional businesses could be a good future indeed.