Franchisors Building Broad Push Into IT Services

So Many Models, So Many Markets
The bread-and-butter for the oldest and largest IT franchisors is a variation of break-fix work charged by the hour. Some, like 1 800 905 GEEK and RescueCom, are building up corporate managed services profiles. Others, like Fast-Teks of Tampa, Fla., encourage franchisees to add on MSP capabilities on their own. One of the biggest franchisors—Computer Troubleshooters, with 260 North American franchises and an additional 210 operated internationally—has added limited MSP services but seems to largely be sticking with its single-technician, break-fix formula.

Meanwhile, companies such as the Utility Co., CMIT Solutions, TeamLogic IT in Mission Viejo, Calif., and Concerto Networks in San Diego, are betting on nearly pure MSP plays. The models on offer are varied, to say the least.

Investments range from the $1,990 it costs to become a Soft-Temps Worldwide computer consultant, to the $284,000 it can cost to open a Computer Renaissance brick-and-mortar storefront. Figuring out the true costs can be difficult—RescueCom franchisees sign a five-year contract but pay 18 percent in ongoing royalties, while Data Doctors charges just 5 percent in royalties but locks franchisees into 20-year deals.

--> Franchise models can get so specialized that franchisees are more agents than business owners. That's the case with Scottsdale, Ariz.-based DataPreserve, a data backup, storage and recovery company that franchises out sales for franchisees to bundle onto other vendor deals, such as MSP services from Do IT Smarter.

It's a wide-open space, and vendors are taking notice. Software giant CA, Islandia, N.Y., has quietly built up strong relationships with 1 800 905 GEEK, Computer Renaissance, RescueCom and Computer Troubleshooters, whose technicians push CA's firewalls and antivirus solutions to clients.

"We saw the burgeoning business of companies like 1 800 905 GEEK servicing the home and SMB," said George Kafkarkou, senior vice president of CA's home and small office division. "With the nature of solution providers evolving and the growth area this market represents, this is a material opportunity for them. And I think this is something the end-user wants—otherwise you wouldn't see it growing."

The managed services franchisors generally work in tandem with MSP platform vendors. The Utility Co.'s network operations center is powered by Ipswitch, while CMIT Solutions resells Zenith Infotech, Data Doctors works with N-able, Computer Troubleshooters lists Level Platforms as a partner, TeamLogic IT runs Kaseya's platform, and Concerto Networks franchisees have their choice of Kaseya, N-able and Zenith.

Bill Stewart, N-able's vice president of marketing, likes how franchised MSPs are positioned to sell up to SoHo customers. "Most VARs tackle SMBs directly. But a Data Doctors goes to the SMB and says, 'We'll do your home offices, and if we do that well, how about your real office?'"

N-able is taking the model seriously—it recently hired a major accounts representative to focus entirely on franchises.

The Rise and Fall of the Franchised Empire?
Some in the industry are very leery of what they fear may be the over-commoditization of IT services, or worse, an eventual triumph of sales over substance.

John Igoe, CTO of MSP software vendor SilverBack Technologies, for one, wonders if franchisees selling managed services know what they're taking on. "Do they have the operational capability? Do they have the know-how to really deliver managed services? It's a lot different than traditional break-fix," Igoe said. "Will they ever be able to offer service-level agreements of any substance? The complexity of this model, especially with regard to compliance, is enormous. Is a customer really going to like that the organization touching deep into their network is two or three levels removed from their sales contact?"

Craig Brenner of New England Data Services said franchised IT services "haven't penetrated any market that we do." The CEO of a pure-play MSP in Waltham, Mass., Brenner said he sees some value in the franchise model as an engine of horizontal growth but doubts that a typical franchisee would ever be able to scale vertically. "The franchise model is riddled with difficulties. It's a great way to grow the business, but a very difficult way to scale the business. Every customer has different needs—different printers, different firewalls, different everything—how do you scale that? You're going to standardize performance in an environment that has an unlimited number of variables? You can't," he said.

Perhaps not so strangely, RescueCom's Milman agrees—more or less. "A lot of people getting into franchising get a slick franchise sales guy. I did it—I'll admit it—and it wasn't long before I said, you can no longer represent me. As you research the franchises, you'll see that many people are out there signing franchisees up simply because their check can clear," he said. "We don't want to do that. We want our franchises to be able to service every level of customer from the grandma who can't print her photos to the enterprise-level company. Look, I've turned down more people who have wanted to become RescueCom franchises than we've sold."