MSPs Tackle Hardware

Ramsey Dellinger, president of LanCom Technologies, Hickory, N.C, has gone from merely informing his managed customers that they need new or upgraded hardware, to buying it for them in exchange for a small increase in the customer&'s fixed monthly MSP payment.

“We own the server we install, and if at some point the customer doesn&'t renew the MSP contract, they have to purchase the equipment back from us,” Dellinger said.

None of this is without risk. Dellinger can lose money for up to three months after adding equipment to a customer network. “The first 90 days are the roughest. Then within six months we start making money,” he said.

But in return for taking that risk, the strategy creates a mutually agreed-upon form of customer lock-in that can extend an MSP contract indefinitely because of the high cost the customer must pay to sever it, Dellinger said.

Nitro Microsystems, an Ottawa-based MSP, paid a half-million dollars to buy the entire network out from under a customer it was providing with remote monitoring service. Nitro then repriced its MSP terms with the customer and in just over 12 months recouped the money it paid for the equipment—all while saving the customer money on operational costs, said Rob Munn, vice president of technical services at Nitro.

Nitro buys any part of a customer&'s network it can, be it the storage infrastructure, servers, or whatever, Munn said. “We like to see an investment return in 10 to 12 months, and after that the rest is gravy,” he said.

The trick to the strategy is financing. LanCom relies on its own credit and multiple lenders, eschewing vendor financing options because it could put distance between LanCom and its partners, Dellinger said.

One LanCom customer—a 47-user network paying about $5,800 a month, or $123 per user, for complete IT support, including PCs, security and storage—has several new PCs already factored into its monthly price. New hardware is financed, and customers just pay an added support cost for it. And at tax time, LanCom gets a break for the hardware it buys customers. “My cost becomes capital depreciation because we own the gear,” Dellinger said.

Adam Eiseman, president and CEO of The Lloyd Group, a New York MSP, said pricing models to buy hardware for his customers will be ready in about a year. When they are, he would love to see distributors step up and offer financing plans, he said.

Justin Crotty, vice president of channel marketing at Ingram Micro, said the distributor sees the need for such a formal financing plan on the horizon, but demand for one today is limited. “Financing is one big aspect of the emerging managed services model,” Crotty said.