As an increasing number of VARs add SaaS offerings to their portfolio, those without cloud services will find it increasingly hard to compete for customers -- and to maintain profitability without the margin-rich recurring revenue streams that SaaS services provide.
In North America, there are approximately 100,000 providers that provide IT services. Of this number, most are hardware VAR/resellers, and 15,000 to 20,000 would be considered managed service providers. The largest growth opportunity for hardware resellers is for those who can provide their customers with a full portfolio of hardware and managed/SaaS services. There are many reasons the market opportunity here is massive for those who offer both hardware and managed services:
1. A thicker managed services portfolio lessens the opportunity for a competitive VAR to move in and provide a unique service.
2. It helps hardware resellers remain relevant to their customers.
3. It provides the opportunity to grow business by providing everything a customer needs on one bill.
4. Adding SaaS services may serve as a disruptive advantage to gain access to new accounts.
5. Since SaaS services are "sticky," it will help the service provider to maintain a long and profitable relationship with the customer.
If the above reasons for offering SaaS services are not compelling enough, think of the opportunity for those services to provide recurring revenue. Recurring revenue grows over time with greater profit margin than hardware sales. As described in an article by Todd Scallan, vice president of products at Axcient, recurring revenue grows over time with greater profit margin than hardware sales. The result can easily be more than $700,000.
Channel experts agree that providing customers with more options through monthly services is a key to future success. New technologies, with scalable options for monthly service costs, are appealing to customers. The remaining challenge is in planning a strategy that will take a VAR business owner from today's hardware-centric business into tomorrow's SaaS business.
Hardware distributors also see an opportunity for growing SaaS revenue. They have a huge base of partners who purchase hardware. Why not offer a complete services portfolio to these partner bases and help them develop a SaaS business? Tech Data (TD Cloud), Ingram Micro (IM Cloud Services) and Synnex (CloudSolv) are all helping channel partners shift their businesses by adding SaaS services. They provide a complete hardware portfolio, plus a growing SaaS portfolio to become a one-stop shop for VARs who want to sell both. These distributors also offer resources to grow a managed services business, including training, thought leadership Webinars and events, and feedback from peer resellers/MSPs to help the VAR/MSP grow their services business.
Managed services continue to evolve. The move into SaaS services is a huge step, but a necessary one to thrive in a future where customers need and want change. VARs and distributors who plant the seeds of a services business now will have an easier time offering the next generation of services as well.
Andrew Alegria is senior manager of strategic relationships for Axcient. Though he lives in Boise, Idaho, he has been building channel partnerships and managing strategic relationships for Silicon Valley companies for more than a decade.