The Managed Services Lowdown

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Managed Print Services Is Here, But So Is Competition from Vendors

Built-in features that enable remote, browser-based management of printers and brutal competition have led to this crossroads. To help them seize page sharethe all-important measurement that shows how much hardware and ink a company sellsHewlett-Packard, Lexmark International, Xerox, Oki Data and others all have delivered new channel programs, strategies and solutions. But in their quest, these vendors can become notoriously direct.

This may be why some solution providers have looked at the print technology, service and channel offerings of the top vendors and have simply decided they could offer print managed services better by themselves.

QLC Technologies, Philadelphia, provides comprehensive print managed services to customers for freeas long as they sign on to buy print and copy consumables (primarily ink cartridges) from QLC. QLC manufactures its own ink cartridges, and the margin on consumables alone allows the $30 million company to provide comprehensive print managed services, said CEO John Murabito.

"We try to keep it all in-house and do it all ourself," Murabito said. "With our technology, we don't feel we have to rely on anyone. We have software that tracks cost per page and provides print management. If a customer has multiple locations, like a bank, they can go to our Web site and track the service history of machines, how many times we've been on their site and done repairs. They can check page yield and page count per machine."

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Because page share makes for simple accounting, few technology disciplines lend themselves as easily to managed services as printing.

"In the whole document solutions space, we're going down that [managed printing] road," said Tom Senecal, president of Laser's Resource, Grand Rapids, Mich. "The big thing in our organization, our key performance metric that we run every month, is 'pages under contract,' " Senecal said. "As we move forward with our business strategy, everything inside the company is about pages."

All major vendors have articulated some version of the page-share strategy. Xerox, Stamford, Conn., has provided a version of its own document consulting tool, called XOPA, giving partners a weapon in negotiating managed services deals. Xerox has seen about 15 percent growth in document managed services, and Chairman and CEO Anne Mulcahy has made it clear she expects to grow sales through solution providers.

Oki Data, Mount Laurel, N.J., was among the earliest to partner with solution providers in the delivery of print managed services. In June 2006, the company beefed up its offerings to provide presales support such as Webcast training, joint sales calls, RFP and RFI response services and a strategy to work with customers regardless of their document hardware environment. The program has shown an astounding 500 percent growth since 2005 with 85 percent of the managed service consulting triggered by partners, according to Oki Data.

Lexmark, Lexington, Ky., has been aggressive in the development of channel-focused print managed solutions for vertical markets including education and health care. But the company continues its relationship with Dell, closing a lucrative print managed services contract with the vendor for Boeing in 2006.

Laser's Resource has partnered with market-share king Hewlett-Packard, Palo Alto, Calif., to roll out document assessment consulting services and print managed servicesusing tools to keep track and manage fleets of document hardware. Working with HP has been a growth-creator for Laser's Resource, Senecal said. But even HP and its massive channel are struggling to clamp down on all opportunities. Senecal said HP leads in techno-logy and its approach to solution providers but could grow in other areas.

While solution providers have generally provided a thumbs-up to each company as a partner, few if any will say their vendor partner has gotten it perfect. Some have lauded Oki Data's channel commitment and managed service strategy, but have said its technology hasn't overwhelmed the market. Some laud Xerox's technology, but have said some channel conflict remains. Lexmark, with an army of loyal channel partners, only recently rebounded from several quarters of disappointing sales and profit.

Offering managed print services can be simplified, said Andrew Ritschel, president of Electronic Office Systems, Fairfield, N.J. "The ideal situation is you put in printers to replace older printers out in the field in company populations," Ritschel said. "You have to go in with a lower cost-per-page output and say, 'Look, you give me your five-year-old printer, I give you your parts, supplies, everything included.' The biggest challenge is reading the meters correctly every month."

-- Edward F. Moltzen

NEXT: Storage

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Storage Services: Small Market With Big Rewards
Storage as a managed service is a fast-growing niche of both the storage and the managed services markets, and it's wide open for service providers and solution providers looking to expand their offerings with a minimum of investment.

It is still a small market, worth a mere $250 million to $300 million in 2005, according to research firm IDC, but one where the holy grail of the channelrecurring revenue for a service that is fairly easy to implementis available to those who see beyond its size.

Maturing software and turnkey data backup service operations from several technology developers have combined with double-digit growth to make the business viable for solution providers of almost any size.

It may also be a fragmented market, with three or four relatively well-known companies and a number of startups, said Doug Chandler, program director of storage software and services at IDC. However, that fragmentation has made it a good market, Chandler said. Customers, especially small and midsize ones, are looking at ways to improve their data backup and are being forced by issues such as compliance to make sure they can retrieve their data once backed up.

"A lot of customers frankly don't know where to go if they are interested in backup as a service," he said. "That leads to a lot of interest in the channel."

Managed storage as a service today is primarily focused on automating data backups and offering SLAs about the ability to recover the data when needed. For solution providers, there are three primary ways to offer managed backup services: host the backup infrastructure and provide the service, offer the service using backup infrastructure owned by other technology providers, or resell a turnkey service provider's offerings.

Several solution providers are experimenting with building a full service offering. Marketex Storage Solutions, Santa Clara, Calif., for instance, cooperated with the University of Miami, which was looking to provide a laptop backup service to its students based on the LiveBackup Software from Atempo, Palo Alto, Calif. Russell Schneider, Marketex president and founder, said Marketex worked with the university to set up a system whereby any changes to data saved by students working online are instantly copied wirelessly to the university's data center so that if a laptop or desktop were stolen or dropped, the students would not lose their data.

The problem, said Schneider, is whether students will sign up. "They will pay $140 for an external drive they don't use," he said. "Will they pay $40 a year for automatic backups?"

Nexus Information Systems, Plymouth, Minn., which last year formed a storage division mainly to develop a managed storage service, is in the final stages of finishing its offering based on software from CommVault and Symantec, said Keith Norbie, director of that division.

Like Marketex, Nexus made the decision to invest in an open platform instead of developing proprietary software, Norbie said. While many MSPs use proprietary technology to lock clients into their service, Norbie said that could lead to problems including lawsuits as customers start storing data with retention periods of up to 10 years. "Some folks might brush off the risk," he said. "But for many VARs late to the game like us, the best way is to offer an open solution where you can add real value with less business risk."

Many solution providers focused on small businesses are working with companies such as Atlanta-based eFolder, Houston-based Terian Solutions and Chennai, India-based Vembu Technologies, all of which allow them to provide managed backup services, either by offering their own hosted service, using the technology provider's hosted platform, or reselling their partner's services.

Network Management Group likes to resell eFolder's storage service because customers can contract for a certain amount of space without paying extra for portioning that space between multiple PCs, said Steve Harper, president of the Hutchison, Kan.-based solution provider. Network Management bundles the storage service with other services, or offers it as a stand-alone. "By bundling it, we get more customers," Harper said. "Customers start at 10 Gbytes. But they probably need 20 Gbytes. So they buy 10 more. It's like giving away the razors to sell more razor blades."

EFolder is one of a handful of backup storage service providers that were started by a solution provider, a factor in Network Management's decision. "I like buying VAR to VAR," Harper said. "He let me have the branding, his pricing is competitive and his technology works."

-- Joseph F. Kovar

NEXT: Security

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Security: Managed Services - Savvy Vendor Or Hypester?
Security MSPs in 2007 will face a challenging task when trying to figure out which vendor partnerships can light their path to profitability. More often than not, MSPs are aiming at a moving target because only a handful of companies seem to realize that being an MSP vendor requires more than just slapping a managed services label on their existing product offerings. But vendors with products that show a well-thought-out strategy for how they'll be used in a managed security service offering are easily distinguishable from the pack of hypesters, according to many security MSPs.

When it comes to evaluating vendors' products, those with strong remote management features and that can support enterprise methods of authentication such as Radius and LDAP in a secure manner are ones that grab the attention of Tunji Ajigbeda, director of managed security services at Atlanta-based solution provider Vigilar. "We look for how well the product can function remotely and how well the vendor has thought out how to work on the devices when you're not there. Having centralized methods of managing the device is good for realizing economies of scale," Ajigbeda said.

As the industry continues to mature, MSPs say vendors' ability to listen to resellers for ideas on additional platform functionality is becoming a key differentiator. But that's been tough to find in a space where vendors haven't always been forthcoming about the real costs of getting a managed services offering up and running, said Peter Bybee, CEO of Network Vigilance, San Diego. "We're the guys in the trenches trying to create services bundles and value propositions for customers," he said, "and I think the vendors are a bit naive about everything that's needed to make the model work."

As a result, MSPs are figuring out that just owning the platform doesn't enable them to do 24x7 managed services. In fact, an MSP platform represents only 20 percent to 30 percent of the total cost of starting an MSP business, and staffing requirements must also be taken into account because the certified intrusion analysts required to run an MSP offering don't come cheap, Bybee said.

Additional costs come from MSPs having to do their own custom integration. For example, in deploying its MSP offering, Network Vigilance had to invest in custom programming and develop a customized portal so that the services could be integrated with a customer-facing trouble-ticketing system, Bybee said.

"There's a side of the managed services business that vendors don't even touch, which encompasses tasks like operational management and change management, which are real issues with companies that must adhere to various compliance and regulatory requirements," he said.

Amid all this, industry consolidation is looming ominously for MSPs that have put in huge amounts of time and effort in forging delicate relationships with vendors. For Alvaka Networks, consolidation has already led to the end of one profitable partnership. For two years, Alvaka had a smooth relationship with a vendor that was characterized by favorable billing and contract terms and the ability for Alvaka to retain ownership of the customer. But almost immediately after the vendor was acquired, the larger firm began making unworkable demands, forcing Alvaka to end the partnership, said Kevin McDonald, vice president at the Huntington Beach, Calif.-based MSP.

"Consolidation is going to cause us a lot of problems," McDonald said. "Once a vendor is acquired by a bigger company, much if not all of the personal understanding that was part of that decision-making process is gone. You start getting edicts from the big vendors who don't understand the pricing or branding models."

Some vendors understand that pricing is crucial to MSPs and have launched channel programs to address these issues. SonicWall's Global Management System software, which provides centralized management for SonicWall appliances, forms the basis of what MSPs regard as one of the industry' best MSP vendor programs. Perimeter Internetworking and Secureworks also have gained favorable reputations in the channel.

Even if their vendor partners are flexible and channel-friendly, many MSPs still may not be able to generate enough business to stay afloat. For Network Vigilance's Bybee, being an MSP is all about surfing the uncertainties and doing what's necessary to build a customer base as quickly as possible. "Managed security services is still about long sales cyclesas long as a yearand a lot of work necessary to get new customers," Bybee said. "That's the challenge: How do you bring on customers in a short period of time to justify the investment?"

-- Kevin McLaughlin

NEXT: Hardware

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Hardware-As-A Service Spurs New Interest In Old Financing Options
Hardware-as-a-Service came on the scene in 2006 as an intriguing new way to expand a managed services business.

But many MSPs that tested the HaaS waters have stepped back to safer, more traditional vendor leasing and financing programs to affordably fulfill their customers' hardware needs.

As a concept, HaaS is still recognized as the summit of managed services. It is a risky approach that takes the recognized value of offering remote IT monitoring and proactive network management and then throws into the mix the expenses of hardware procurement and replacement.

Correctly balanced, a HaaS offering should deliver PCs, servers, storage and networking gear under an affordable, fixed monthly MSP subscription rate. But financing the cost of hardware in a way that debt maintenance stays low enough to keep a HaaS customer's remittance affordable presents a significant challenge.

Two pioneering HaaS solution providersMSP On Demand and Master ITtackled this equation using third-party bank financing. Together, they represent two bold schools of thought.

The approach of MSP On Demand dictates that a HaaS provider purchase for the customer incremental portions of that customer's IT network hardware as that hardware ages or falls out of warranty. MSP On Demand, Hickory, N.C., mentors MSPs into HaaS providers, but only 22 pupils have launched HaaS businesses. The HaaS approach of Bartlett, Tenn.-based Master IT is to go in and buy a customer's entire network then manage it from there on out. Master IT marshals significant third-party financing, and its service is not for resale.

Leasing and financing options from IBM, Cisco Systems and Microsoft may make more sense for delivering hardware that can be paid for over long periods of time, said Paul Fisher, purchasing agent at Warner Connect, a solution provider and MSP in Fridley, Minn. "We have been going with the different vendor financing programs," he said. "I have found that most will finance an entire projecthardware, software and allwith third-party products included and often with better financing rates."

IBM put a new twist on its financing and leasing program in October when it introduced the Express Managed Services program, which provides discounts and longer-term payment options for MSPs that buy IBM's midmarket-targeted Express line for their managed services businesses or MSP customers, said Mike Regal, director of managed services at IBM, Armonk, N.Y.

When you get right down to it, HaaS is just a new way to define long-term leasing and financing of hardware, said Leonard DiCostanzo, president of Turnkey Computer, Staten Island, N.Y. "Every service can be combined with a hardware product at a price, then you can go and finance it," he said. "You can go grab IBM or Ingram Micro or any of the vendors with leasing programs. Whereas in the old days, vendors only liked to finance hardware, now you are pretty much able to finance as many services as you need."

To this end, the appearance of resalable Software-as-a-Service MSP monitoring and management platforms from distributors such as Ingram Micro and Bell Microproducts, which also offer hardware leasing programs, could make driving hardware sales as part of an MSP offering a very lucrative proposition.

Ingram Micro will become a one-stop-shop for MSP monitoring tools and hardware financing when it begins to offer a resalable MSP platform called Seismic. The platform will lend itself to HaaS MSPs in several ways, said Justin Crotty, vice president of services for Ingram's North American Services Division, Santa Ana, Calif. The heart of Seismic is a hosted version of the MSP platform from LPI Level Platforms, Ottawa. LPI not only has a hardware vendor certification program that maximizes the integration of certain hardware with LPI software, but in December, it upgraded version 5.2 with Intel VPro support. Both of these features present a solid argument that MSPs running Seismic should persuade their customers to deploy a significant refresh of VPro-based hardware, which Ingram can finance on terms that could accommodate a HaaS-style provider, Crotty said.

Traditional leasing options and distributor financing may appear safer to some interested in building HaaS businesses, but MSP On Demand is ginning up a new formula that could be a game-changer, said Ramsey Dellinger, president of MSP On Demand. At least four major hardware vendors are in talks with him about how they could offer enhanced technical support offerings to HaaS providers, he said.

Still, what makes next-generation HaaS architectures almost no different from traditional leasing and financing options is that in the end, equipment is being bought and must be paid for, said Brian Mullaney, vice president of sales at Aegis Associates, Waltham, Mass. No matter how you do HaaS, he said, "the trick is, 'How do you get profitability per user up high enough to cover HaaS expense?' "

-- Dan Neel

NEXT: Software

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Application Service Providers Return In SaaS Clothing
It's fair to say that most MSPs have grown their businesses by taking one step at a time away from traditional break-fix businesses. Many keep at least a part of their old hardware businesses intact.

But a growing subsegment of MSPs have all stopped dirtying their hands with hardware and have launched MSP businesses that manage only the software and operating system layers. The basic building blocks of this approachnear-ubiquitous broadband connectivity and secure VPNshave made this model ever more feasible.

This tier of MSPs might have called themselves ASPs six or seven years ago but now prefer not to be associated with the ASP boom and bust of the late '90s.

Take Everon IT. Targeting businesses with 20 to 100 employees, Everon monitors and manages the full network and software stack for a monthly fee, becoming their customers' outsourced IT department, said Mike Cooch, CEO of the Boston-based company.

Everon's toolbox includes Citrix Systems' remote-control and LPI Level Platform's monitoring software. The monthly charge are $49 per PC for PC management, $299 per server for server management and $299 per company for network management.

Another MSPNavisiteis a pioneer in running customer applications from Microsoft, Oracle and other companies.

MSPs in this app-hosting mold are "coming up the stack, doing more rather than less management, moving more toward Software-as-a-Service and less software licensing," said Doug Mow, vice president of marketing at Navisite, Andover, Mass.

Software from many established vendors is still not designed to fully enable the subscription SaaS modeit doesn't run apps for multiple customers on shared infrastructure. Such "multitenancy" however, is a foundation of and NetSuite's SaaS offerings.

Older companies such as Microsoft are adding multitenancy capabilities and a hosting partner like Navisite can participate in both models. Navisite could now run a dedicated server for a customer's CRM implementation, but as the software gains multitenancy, it could then move the customer to that new platform later, Mow said.

Skyytek Worldwide, Miami, built its business on NetSuite's hosted ERP. It is an implementation specialist using NetSuite's ERP infrastructure-in-the-sky to grow into a national presence, said Ray Tetlow, chairman and CEO of Skyytek.

"When we started three to four years ago, we were a small outfit out of Miami but were able to service companies in California. Now we have nine or 10 offices," Tetlow said.

Tetlow could be the poster boy for NetSuite CEO Zach Nelson's partner mantra. The SaaS model enables VARs "to service customers anywhere," Nelson said. "Just as using an application like NetSuite allows customers anytime, anywhere access, it also allows VARs to deliver anytime, anywhere services. The geographic constraints imposed by solutions like Great Plains and Sage are lifted, and VARs can move from regional to national and even global without investment."

Nelson and CEO Marc Benioff have at times been pressed to explain why their SaaS model could be a boon to solution providers rather than a disintermediating force that kicks them to the curb. Both companies have said that ISV partners can use their platforms to develop and sell specialized software running on their services. But for VARs, many of which are used to big-bang license sales, SaaS has proven a nettlesome issue. Forward-thinking VARs realize that even services-in-the-cloud often need customization and integration with existing customer infrastructure.

Tetlow estimates 30 percent of his business is in license sales, while integration and customization represent a small part of his revenue. For him, implementation is the big-ticket item. "For every $50,000 we make in license sales, there's $100,000 in implementation," he noted.

Craig Tribuno, vice president of operations at Systems Engineering, an MSP in Portland, Maine, is bullish on the model. "We do on-premises work and remote management, and it's been interesting to watch the reapportioning of resources" he said. Basically, the sometimes huge one-off fees are now counted into a subscription model. Systems Engineering uses Autotask for scheduling and billing its work and becomes the IT system for customers.

Solution providers said it is now easier than ever to convince customers to use an MSP.

"The ubiquity and reliability of broadband, of VPNs, have made all of this possible. Another driving force is the pressure on businesses for uptimethat's really loosened the purse strings as has the focus on security," Tribuno said.

-- Barbara Darrow