Managed Services: It's Time To Get In Now While The Getting Is Good

Whether you want to believe it or not, the managed services model is more than a passing fad. There are more than enough VARs building successful deployments with managed services to legitimize it as a viable business model.

ROBERT FALETRA Can be reached at (781) 839-1202 or via e-mail at rfaletra@cmp.com.

With Ingram Micro and Bell Microproducts supporting programs for VARs looking to get into this market and other distributors, including Synnex and Arrow, teeing up offerings in this space as well, the risk and cost of entry for solution providers is dropping.

One thing to remember is that this will be just like every other market we've watched materialize in that margins will be affected as it matures. It can be painful to enter a market too early because much is undecided and unclear, including whether or not the customer acceptance level will be high enough to make an investment profitable.

In this early stage of market development, sales cycles are long, success rates are low and profitable pricing models are unclear. The advantage of being in the market at this stage—if you can afford it—is that the expertise and knowledge that's gained accelerates your business in stage two, where most profits will be made.

Stage two, of course, is when the market is becoming more accepting but the knowledge base of deployment is still not widespread. My personal belief is we are currently in the very beginning of stage two when it comes to managed services.

Some will argue managed services is different and that margin degradation isn't as likely here as with other solutions, but I believe it will be as true in this arena as it has been in every other. The very fact that distributors are jumping in with both feet in rapid succession tells you market acceptance is growing. Distribution is a volume game, but it, too, can earn more profit in the early stages of a market than it does in the later stages. More important, managed services offers distribution a unique opportunity in that it can offer solution providers an easier entrance point into managed services and help cut costs.

	'Solution providers that have jumped into managed services early have unique offerings and expertise in how to build contracts and charge for this. They've been able to show the customer a path to improved service levels.'

For that reason, I think we will see a faster transition from stage two to stage three in managed services than we have seen with other models in the past. That's because historically, most of the cost of building expertise in a new model was borne by solution providers, and distribution was merely an outlet to acquire pieces of the solution. That generally meant market development was fragmented and measured. Managed services, however, are being offered by distribution in a more complete package.

We've been writing about and debating the merits of managed services for more than three years. Solution providers that have jumped into managed services early have unique offerings and expertise in how to build contracts and charge for this. They've been able to show the customer a path to improved service levels with better cash flow.

The result for them has been improved margins and recurring revenue streams that make it much easier to manage a business and also to build real business value with visibility to future income. That's not going to go unnoticed much longer.

I'm not saying the floodgates are about to open, but I am saying that we are entering stage two, and this stage will accelerate more quickly than usual. If this is the stage in which the richest margins and the most money is made, do you really want to wait until we enter stage three when nearly everyone is in the space and the pressure to compete on price escalates?

Make something happen. I can be reached at (781) 839-1202 or via e-mail at rfaletra@cmp.com.

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