Easing Into Service

If you're a solution provider, your long-term success is tied directly to your ability to derive profit from services revenue. Falling product prices continue to have an adverse effect on margins, and solution providers increasingly must rely on services to make up for lost profit on product sales.

That sounds simple enough. The problem is, services is a labor-intensive business. As a result, the ability to scale services is limited by the quality and quantity of the people on hand. And more often than not, unless you're a major global systems integrator with hundreds of accounts, your revenue from services is roughly equal to your cost of delivering the service.

MICHAEL VIZARD Can be reached at (516) 562-7477 or via e-mail at mvizard@cmp.com.

Fortunately, a viable way out of this conundrum appears to be at hand in the form of an old idea whose time has finally come. Back in the heyday of the Internet boom, a number of companies put forth business plans based on providing managed services. These MSPs essentially planned to use ubiquitous broadband Internet connections to remotely manage customers' networks and PC systems. But many discovered that the end systems that needed to be managed were difficult to support remotely and the networking technology they relied on was not all that robust.

But if we fast-forward to today, the tools of the MSP trade have improved, and many solution providers are finding that being an MSP is now a viable model, even in the small-to-midsize-business space. Moreover, they are finding that this is the most profitable way to leverage a limited number of technical personnel across a broader range of clients.

None of this has gone without notice among traditional hosting providers such as Interland, Verio, Corio and even IBM. They have all begun to court solution providers with promises of lower capital expenses if the solution providers agree to host their managed services at the data centers run by the vendors. It also remains to be seen how many vendors will adapt their channel programs to support the MSP business model.

But if you're looking to get into the MSP business with a minimal capital investment, hosting providers are a viable option. And no matter how you get into the managed services business, the one thing you won't regret is what a steady stream of profitable revenue will do for your balance sheet.

Are you listening? Do you agree? I can be reached at (516) 562-7477 or via e-mail at mvizard@cmp.com.