Out In Front

Two years ago, Ted Swanson, president of IT Solutions Consulting, an 11-year-old VAR in Jenkintown, Pa., and his executive team attended one of the most comprehensive and polished MSP partner programs available, N-able University. At this program from well-known Ottawa-based MSP platform vendor N-able Technologies, the VAR execs took MSP business and sales courses and studied marketing techniques and technology approaches. But it wasn&t long before Swanson said he realized something essential was missing. For all its efforts, N-able U. remained focused on pricing schemes and growing a customer base but didn&t spend nearly enough time addressing more important issues, like the cultural changes that occur when a VAR transitions to an MSP or potential business-busting issues such as changes in supplier relationships.

“We leaned on [N-able] really hard to get us up to speed,” said Swanson. “They tried real hard. But in the end, it took us a couple of months to realize we had to turn ourselves into an MSP.”

Many solution providers adopting the managed service business model appear to have come to the same conclusion. They see themselves as way out in front of vendors when it comes to understanding what MSP partner programs should be all about. And with more VARs getting into the game, those with MSP survival stories say vendors could, and should, step up their efforts to train and prepare this next wave of MSPs. In today&s hotbed of MSP activity, solution providers find they can create recurring revenue and strengthen midsize customer relationships by offering remotely managed, pre-emptive IT services like security, data backup and patch management. But there are greater challenges than just pricing and installation.

Questions that need addressing, they say, include: What are the best practices when transitioning customers from project-based relationships to preventative maintenance relationships? What are some of the best ways to shepherd sales teams accustomed to closing near-term deals to the finer points of long-term accrual? There are also other staff-related issues, they say. Even if a solution provider can leverage a managed service model to grow its customer base with fewer outside IT service technicians than required under traditional approaches, what changes have to be made concerning how a VAR assigns its employee head count?

MSP partner programs could also benefit, they say, by spending a little more time addressing the critical issues of supplier and distributor relationships.

Transition Troubles
No vendor warned San Francisco-based VAR I-Span Services that changes to supplier billing contracts needed to be hashed out, said Konstantin Vilk, managing consultant at I-Span, which began offering managed services a few years ago. If, say, a vendor wants you to cough it up for 100, $330-per-seat licenses for technology you plan to offer that will be repaid in increments over a two-year period, you might have a cash flow problem, said Vilk. I-Span had the presence of mind to see this possibility and address it out of the gate. Vilk said most every vendor was receptive to making concessions. Good Technologies, a wireless middleware vendor whose services I-Span resells as managed mobile e-mail access, agreed to work with I-Span to soften the blow by requiring I-Span only to buy its server and then cover licensing costs using a payment plan in line with I-Span&s own MSP revenue, said Vilk. I-Span had to do this same thing with several of its vendors, including its MSP platform vendor, San Francisco-based Cittio. “We had to finalize contracts that made sense as an MSP,” he said.

Vendors also could improve their MSP partner programs by helping solution providers deal with institutional friction, said Oli Thordarson, president of Alvaka Networks, an MSP in Huntington Beach, Calif.

For instance, traditional sales compensation packages are designed to compensate on total sales volume for a given period. Under this model, sales representatives, managers and everyone up and down the bonus chain need to hit a sales quota. But introduce managed services and suddenly you have a whole new ball game, said Thordarson. The MSP model bills customers over time, he explained, so when the model shifts from booking hardware and software sales at 100 percent to one that appears to discount sales volume by spreading the cost of IT sales and services over lengthy periods of time, salespeople are going to have trouble hitting the original targets.

If sales commissions and revenue projections are left unadjusted, a solution provider can find itself in stormy waters. Sales bonuses will shrink, and if the fledgling MSP is a publicly traded company, the contraction in revenue runs all the way to the boardroom as CEOs struggle to impress analysts watching earnings fall. Without adequate preparation, “a switch in revenue models will have a negative impact on earnings,” said Thordarson.

More Than Monitoring
At InHouseIT, Newport Beach, Calif., founding partner Steve Bender and Director Chad Gniffke said they had to bear the brunt of their customers& dissatisfaction when the direction they were given by their MSP platform vendor partner fell short of their customers& expectations.

An eight-year-old shop, InhouseIT caught the MSP bug in 2000 and started offering hourly blocks of IT maintenance services at monthly rates. Then, about two years ago, InHouseIT ventured into remote site monitoring through a partnership with N-able. The vendor&s monitoring platform was stellar, but InHouseIT customers simply didn&t see the value of being told their Exchange server was down when most of the time they already knew about it. “Unlike what we were told, it&s not just about monitoring,” said Gniffke.

Business took a hit as InHouseIT customers began to turn away from the monitoring service, and things got scary, said Bender. To salvage customer relationships, InHouseIT realized it had to reach out and answer customer cries for deeper, more proactive managed services. Bender and his team took their Netmanager offering, which was based solely on the N-able platform, and grew it into Sitemanager, the solution provider&s comprehensive managed service offering. Sitemanager is based on N-able and the complementary MSP platforms of ConnectWise, Kaseya and others. Now, instead of just monitoring network alarms, InHouseIT looks for possible problems in order to avoid them—making network inquiries regarding things like the completion of storage backups, pushing antispyware tools into networks before threats appear, being proactive.

“We were told that with monitoring we&d know what was happening before the customer did, but that wasn&t the case,” said Bender, who cringes to think what inaction could have cost him. “If we hadn&t taken things into our own hands we would have been in trouble on a much bigger level than just the MSP business.”

It&s not like the tools to take monitoring services to a deeper level aren&t there, said Bender and Gniffke. Most MSP platform vendors ship their products with advanced feature sets that provide things like automation and software delivery, tools that scale easily as MSP customers are added. But do vendors do a good enough job of pointing out how advanced functions relate to successful managed service models? Not really, said Bender.

Vendors also didn&t help InHouseIT look beyond the technology to necessary sales organization changes. Another reason InHouseIT&s MSP sales began to stall early on, said Gniffke, is that customers didn&t see the need for adding managed services when they already had an IT administrator on the payroll. Seeing this, InHouseIT realized it had to move inside salespeople out into the field where they could present the value of managed services to the people who feel the pain—the IT administrators, not management.

“Our goal came to this: Sell managed services to the IT managers so they could make their life better,” said Gniffke. “Once we were able to sell it to them and they saw the value, their companies bought in.”

Now, MSP revenue for InHouseIT stands at about $60,000 per month, up from about $15,000 a month a year ago, said Bender. Every new customer is managed, he said.

Internal Struggles
But, of course, MSPs say, they can&t rely on vendors to shoulder all the weight of the transition. Vendors can only do so much about these difficulties, said Ian Sutcliffe, director of MSP solutions at Champion Solutions, Boca Raton, Fla., which partnered with IBM when the VAR began offering managed services about two years ago. “It has been a big cultural change,” said Sutcliffe. “Even now, some of our salespeople continue to struggle to adapt to the MSP model and its sales cycles,” he said, explaining that many salespeople still look for the 100 percent close, eyeing big invoice numbers. After all, he said, those sales team members still adapting to MSP sales were likely the ones slow at adapting to other things in the past. The opposite stands true for the salespeople who&ve had no problem adapting to managed services. “The top salespeople were always good at looking at the long term anyway,” said Sutcliffe. He doesn&t think an IBM MSP partner program could have helped much with that.

No Hard Feelings
None of the solution providers CRN spoke with for this story that had a rough time getting started harbor any beefs against vendors. That disappointed N-able U. student Ted Swanson? Today, he&s a satisfied N-able partner who has also expanded into a partnership with Kaseya. Still, he says most solution providers he talks to don&t expect vendors to ever really “get it.”

That doesn&t keep the vendors from trying, though.

Cisco Systems is working with partners to hammer out a separate channel program with appropriate requirements and rewards to support a managed service model, said Surinder Brar, senior director of worldwide channels programs and strategy at the San Jose, Calif.-based networking vendor. The vendor has assembled a group of about 10 VAR and service provider partners to identify partners& strategies that won&t fit the managed service model.

“In our current reseller program, we have requirements with regard to having certified individuals, CCIEs and other individuals like that. In the managed service program, instead, the requirements are more [around] what kind of [network operations center] does a partner have, what is the reach of the NOC, can it support equipment remotely in certain geographies, what kind of services do we want to identify partners as being capable of delivering,” he said.

Participating partners will still need presales and post-sales-certified individuals, but at central locations rather than at each remote site, as required by Cisco&s standard reseller program, he said. Brar declined to name a time frame for the program&s launch.

SonicWall, for its part, in January launched a separate MSSP program that includes unique product SKUs, bundles, price points and support services, said John Keenan, director of Eastern region sales at SonicWall, Sunnyvale, Calif. “We found that a lot of folks wanted a franchise approach to getting into the MSSP business,” Keenan said.

SonicWall&s partners needed a more flexible software licensing scheme to make it easier to spread across multiple customers, he said. The vendor also earlier this year launched its TZ 50 security appliance, the MSSP-friendly twin of its TZ 150 appliance line that comes bundled with SonicWall&s Global Management System software for remote management and monitoring.

In addition, SonicWall recently introduced new tier-three support capability that backs up MSSPs providing tier-one and tier-two support on their own.

Too Early
If there is some way to set a minimum standard for the quality of MSP partner programs and what they should teach, the crowded pool of vendors makes that goal difficult, said Charles Weaver, co-founder and president of the MSPAlliance, a six-year-old industry body based in Chico, Calif., whose 200 members include VARs and vendors alike. The MSPAlliance&s first certification—the Managed Services Accreditation Program, unveiled last week—is for solution provider members, not vendors. Why? Because solution providers with MSP experience are already in more agreement about what it takes to be a successful MSP. Vendors are at least a year behind, said Weaver.

The MSPAlliance is pursuing an MSP certification for vendors, but right now only one requirement stands out—a pledge by vendors to temper the cannibalization of partner MSP revenue by offering managed services directly, he said.

Enter Microsoft. Some solution providers have expressed concerns about Microsoft&s planned splash into the managed service area with antivirus, antispam and antispyware services, SharePoint, CRM and managed desktop services delivered over the Internet. The fear is Microsoft will commoditize managed services by shipping them with Windows. However, in a recent interview with CRN, Microsoft Chairman Bill Gates pledged that his managed service push does not imply a direct-sales model, and that partners will be needed to do customization work regardless of whether customers have their software on premise or access it from Microsoft.com over the Internet. Time will tell.

Overall, maybe it&s still just too early to expect MSP platform vendors to craft comprehensive partner programs that offer much beyond mere pricing and deployment models, said InhouseIT&s Gniffke. “The midsize MSP market is so new,” he said, “no one knows what best practices are yet.”