During last week's "Build, Resell or Refer: Paths to Success in Managed Services" NetSeminar, we asked solution providers about their strategic reasons for entering the managed services market. Of the 176 responses, the results were:

• 43%: revenue consistency, or creating recurring revenue streams
• 24%: earning more revenue from existing customers
• 15%: increasing shareholder value in the business
• 14%: differentiating products and services from competitors
• 4%: customer control

The reasoning behind managed services is crystal clear. According to VARBusiness' State of the Market research, solution providers earn more than 60 percent of their revenue and 50 percent of their profit from services -- professional, break/fix and managed services. While roughly 43 percent of solution providers offer some form of managed services, only 11 percent of their revenue comes from this recurring revenue model.

If services are so important to solution providers' profitability, managed services not only provides a recurring revenue stream but also a means for better predicting future revenue, profits and growth. By having that recurring revenue stream, solution providers will have a solid foundation from which they can both predict and plan growth. It makes perfect sense.

The question that vexes solution providers is the best way to attack the managed services market. There are three basic models:

1. Building a managed service.
Building a managed service gives solution providers the most ownership over their business destiny. Once you have the network operations and data centers, a solution provider has the ability to deliver services on his terms and to offer new services as needed. The downside, of course, is the build-out expense. The conventional model of building a managed service holds that you must build the infrastructure that includes nonrevenue-producing capacity. Many solution providers report it takes 12 to 18 months to recoup their infrastructure investments. Likewise, building a managed service requires new skill sets or retraining existing personnel; existing staff may not have the expertise for a managed service and, in many cases, they're too expensive for the monotonous task of 24/7 monitoring.

Beyond the initial and ongoing costs of building a managed services is the availability of tools to enable remote monitoring and management (RMM). Vendors such as N-Able, Level Platforms, Kaseya and SilverBack Technologies offer RMM tools, but they each have their limitations. These RMM tools aren't all built alike and customization is often challenging, which could lead to limitations on service delivery and growth.

2. Reselling or partnering with infrastructure or other managed service providers.
Solution providers also have the option of partnering with other managed service providers to deliver services to their customers. Once a company has made the infrastructure investment in managed services, their potential sales territory is unlimited. With excess capacity, many solution providers-turned-managed services companies are building their own channels to resell their services or partner to extend their sales reach. Likewise, companies such as Zenith InfoTech and Ingram Micro's Seismic program offer back-end managed services infrastructure, providing solution providers with instant access to the managed services market.

3. Referring business to a managed services company.
The third option is not to build or partner, but simply refer customers to a managed services provider. Vendors such as Citrix Online, Salesforce.com and Trend Micro pay commissions or referral fees to solution providers who drive business to their services' direct sale teams. Think of this model as being more of an agent, in which you neither own nor have responsibility for the managed service, but you do have options for providing more services or product to the customer. A common problem with this model, though, is the solution provider doesn't own the customer relationship after the initial interaction and won't receive subscription renewal fees.

Which path to the managed services market is best depends on the goals and objectives of the individual solution provider. Those who go the partnering path can graduate to be standalone managed services providers. Those who refer business can always invest in the services infrastructure. And those who build can always look to their peers for technical and sales support.

What path to the managed services market are you taking? What obstacles and challenges have you encountered on the path to managed services? Share your thoughts with Larry at lwalsh@cmp.com.

For more information about managed services models, check out another NetSeminar I recently produced: "Five Challenges in the Managed Services Metamorphosis," which discusses the chief market obstacles and strategies for overcoming challenges. And, take a look at ChannelWeb's Managed Services resource center for articles, research and insight on this growing market.