XChange: VARs Share Recurring Revenue Model Success Stories

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More solution providers are adding a mix of off-premise solutions to their on-premise offerings, a trend that should continue into 2012, according to new research from UBM Channel.

"Those are [companies] not just thinking about the old model: get a solution, get a check and move on. They're thinking about recurring revenue," said UBM Channel CEO Robert Faletra during the opening session at XChange Solution Provider 2012 in Los Angeles.

Faletra provided an update to last year's UBM Channel research. Last month, about 70 percent of solution providers said they were on track to offer both models, described as a Progressive path by UBM Channel. Just last August, about 62 percent said they were on a Progressive path, according to the study. At the same time, solution providers planning to continue to offer only on-premise solutions, the Vintage path, declined from 20 percent to 17 percent from August to February, Faletra said.

Meanwhile, the mix of companies offering only off-premise solutions, the Transformative path, also declined from 20 percent in August to 17 percent last month. That's likely due to Progressive solution providers trying to transition to a Transformative path and backing off because there's not enough business yet to sustain it within their existing infrastructure, Faletra said.

"This isn't happening as quickly as some are projecting. You're not going to wake up next year and find the whole model has changed," Faletra said. "But it's important to think about building an annuity stream."

To illustrate the success Progressive and Transformative solution providers are experiencing, Faletra brought three solution providers on stage to share their stories.

Paul Hilbert, owner of Network Doctor, a New York-based VAR, said he's had no shortage of customers since he built out his own infrastructure to bring clients into his data center.

"Turning [capital expenditures] to a monthly expense for the client is more palatable to them," Hilbert said, adding that the customers Network Doctor has converted to a hosted model are paying the company double what they were paying before they were on a recurring revenue model.

Ira Bell, COO of New York-based Nimbo, has helped build a $6 million company in less than three years and is on track to double that number this year by offering solutions around Windows Azure and Amazon. The biggest inhibitor to growing his company even more is finding talented people to bring on board, Bell said.

"We look for .Net developers who can get up on the whiteboard and communicate with someone," he said.

Simer Mayo, president of Valor IT, started the Scottsdale, Ariz.-based company seven years ago as an IT break-fix company before transitioning to managed services and then an even more comprehensive hosted offering. Similar to Bell, Mayo said finding technicians who also can talk to customers is a big component of Valor IT's success.

"We don't have salespeople. We're all salespeople in a way," Mayo said.

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