Datalink Moves To Become Strategic Service Provider

Datalink is scaling its consulting and managed services practices to help clients solve business problems and turn cloud into an asset rather than a threat.

"If we're only going to sell technology, we're going to see a steady pressure downward on our overall business," said Paul Lidsky, CEO of the Eden Prairie, Minn.-based storage partner, No. 43 on the CRN 2015 Solution Provider 500. "But we have been able to turn that [cloud] into a business opportunity because of our consulting arm."

Datalink is one of many solution providers pursuing the shift from project-based, on-premise technology procurement to consulting to reach business outcomes with an emphasis on cloud and managed services -- which CRN has branded the strategic service provider model. This is the fourth major adjustment in channel business models recorded by CRN in its 33 years of existence.

[Related: The New Channel Model: Rise Of The Strategic Service Provider]

Lidsky told attendees at the Raymond James Technology Investors Conference on Wednesday that the transformation has meant becoming involved in the entire IT life cycle by forming much deeper ties with chief information officers, so Datalink can participate from the very beginning in planning a solution for a particular challenge.

"Most CIOs will tell you they have far more complexity [in the data center] than they have people to deal with it, which allows us the opportunity to be the provider of that intellect," Lidsky said at the conference, held at the New York Marriott East Side. "Once we're involved with that CIO, we're involved in everything that goes on in the business from that day forward, and you end up in a 360-degree relationship that never ends."

Lidsky said Datalink is investing heavily in its advanced services business, which includes a customer support organization, a managed services practice that remotely supports private clouds and IT infrastructure through two network operations centers, and a $28 million consulting business.

The consulting arm is expected to nearly double in revenue in 2016 given the high levels of investment and customer interest, according to the company. Datalink today derives 4.5 percent of its $630.2 million of annual revenue from consulting.

’The momentum is picking up because the brand is picking up,’ Lidsky said ’Two years ago, people would not have thought of us as a consulting business.’

Datalink’s consulting services span both data center and cloud ecosystems, Lidsky said, with an emphasis on helping clients decide what workloads belong best in a public cloud, private cloud or proprietary data center. The company can then actually build and orchestrate that combination of cloud services, Lidsky said.

It is increasingly rare for inquiries to Datalink to come from customers that know what they need from a technology perspective. Nowadays, Lidsky said, the typical client comes to Datalink asking for help with achieving a particular business outcome.

"As we got involved in these kinds of capabilities, all of a sudden, Datalink is looked at as a different kind of partner, no longer a VAR, but much more of an IT services company," Lidsky said. "We sell a lot of hardware, but it is really in pursuit of solving ... business issues our clients face."

The growth of Datalink's consulting practice should be significant enough to offset any sales declines associated with storage and on-premise infrastructure, Lidsky said. Storage sales overall are coming in relatively flat, with traditional spinning-disk revenue down slightly and flash storage sales growing considerably over a small base, according to Greg Barnum, Datalink's chief financial officer.

"Storage as a sector hasn't been growing that rapidly," Lidsky said. "So we pick up a lot of services around cloud and around building private clouds."

The business model challenges will be more pronounced around profits, where Barnum said traditional disk storage offers 22 percent gross margins, but flash storage offerings provide gross margins of just 18 percent.

"The margin mix is changing," Barnum said. "The growth in consulting margins [is] not fast enough to offset the decline in product margins, so we've seen our overall margins drop."

PUBLISHED DEC. 9, 2015