MSPs Get Serious About Selling Their Services To The Channel

After years of relentless pressure from peers, the media and vendors to quickly and expensively convert to managed services or die, many VARs found themselves testing and scrapping any number of MSP models.

But a funny thing happened along the way. As the space has matured, established MSPs have found more traction to sell specialized IT management services to their peers. With the infrastructure and expertise in place to provide proactive, remote IT management to business customers, MSPs like ClearPointe Technology, Do IT Smarter, Synergy Global Solutions and InCompass IT have packaged their services for other MSPs, VARs and distributors to resell.

The value proposition for channel partners is simple: You focus on the customers, we'll focus on the service.

Call it the cure for the pain of pouring time and money into building a network operations center (NOC) and service desk, said ClearPointe CEO Jeff Johnson. In April, Little Rock, Ark.-based ClearPointe became the first MSP to earn accreditation from the MSP Alliance for a third-party NOC.

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"I talk to new MSPs who tell me, 'Look, I can't be a NOC and sell these services at the same time. My guys are waking up at midnight and answering service tickets.' It's more than they bargained for and it's more than they can handle or want to handle," Johnson said.

Do IT Smarter CEO Don Begg concurs, adding that needs vary among resellers looking to offer managed services.

"We have a number of point solutions. Our big offering is kind of like a franchise approach with a full package of services. But some companies just want us for the help desk because they can already do remote monitoring. Other resellers want the full package," Begg said.

For Charles Weaver, president of the MSP Alliance, a trade association that provides accreditation, training and other services, the concern is that resellers that outsource too much for too long won't benefit in the long run.

"The pros with outsourcing are that the young MSP can really enter as an apprentice, if you will, into a new business model without having to invest a lot of time and money. In the old days, lawyers would read law for years with an older lawyer. I see a lot of similarities here," Weaver said.

But at some point there has to be a departure, said Weaver: If you're only a reseller there is no appreciable increase in your profit margin because you don't take on any of the risk. "You've got to spread your wings," he said.

Begg understands the concern, saying that resellers of his SilverBack Technologies-powered NOC and help-desk services can treat their relationship with Do IT Smarter as a path to their own in-house MSP offering.

"We can either be a stepping stone or we can be an end solution. If you look at a Zenith Infotech, they have solutions similar to what we do—outsourced NOC, help-desk capability. But the reseller who's with us, if they decide they want to implement their own NOC but want to continue to leverage the SilverBack tool, we'll help them migrate over and we throw the business back to SilverBack," Begg said.

Gavin Garbutt, CEO of MSP platform vendor N-able Technologies, calls selling outsourced services "an opportunity-filled area of growth for entrepreneurial MSPs," but cautions sellers to get the legal side down pat.

"Our licensing doesn't allow for [outsourcing N-able-powered NOCs], but we've had partners ask us if they could amend the contracts to do third-party sales of N-able to resellers. And we're very interested in doing that, but we want to make sure the SLAs are in place," Garbutt said.

Next: A Vendor Or MSP?

A Vendor Or MSP?

Do IT Smarter's Begg and ClearPointe's Johnson both say their companies are getting out of direct service sales and are focusing entirely on the channel.

"We have a couple of legacy customers that we're in the process of transitioning across [to resellers of Do IT Smarter services]," said Begg, whose remaining direct service clients are mostly near his company's San Diego base.

ClearPointe has gone so far as to name a director of channel development, Bob Longo. "In effect, we have shut off direct client sales," said Longo. ClearPointe, he said, "is a Microsoft network service shop." Everything else, especially sales, is up to the channel partner.

"If a direct client comes to us, I'm clear with them that we don't have the resources to set up a whole network for you and we'll be doing that through a partner. That means they're upgrading the client networks and doing the sales. And that takes a lot of work. The care-and-feeding business aspects are theirs and we do the NOC," Longo said.

If all of this sounds like a blurring of the line between vendor and MSP, it gets even more fuzzy when you look at a distributor like Ingram Micro, Santa Ana, Calif. Ingram earlier this month announced a new third-party hosted NOC and help desk as part of its Seismic managed services offering. Those services will be powered by Level Platforms software and operated by Rochester, N.Y.-based MSP Synergy Global Solutions.

Then there are the MSPs that sell services built on proprietary technology. Just about everybody considers them pure vendors. Count the aforementioned Zenith Infotech in that group, as well as TriActive, which last month launched its TriMSP 2.0 program built on its patented MicroAgent technology.

"The company's been in the managed service business for 10 years, but it was direct cold calls to medical facilities only," explains TriActive Vice President of Marketing Ron Halversen. "But the company had built this multimillion-dollar NOC, and they looked at that and saw that there was an opportunity to sell these services to MSPs."

According to Halversen, Austin, Texas-based TriActive has some 70 MSPs in its TriMSP program.

"The list price is $2.25 per-desktop, per-month for the partner for the desktop management suite. If they only want patch management, that's $1.15 or so a desktop. We're finding partners who are going to revenue in 10 to 15 days [after plugging in TriMSP]. We've got a partner who's been to revenue in six days. Whereas before, they were putting out $50,000 [for software] and not getting to revenue in six months," Halversen said.

Companies with MSP roots now going after business in the channel aren't limited to providers of server and desktop management services. There's Connectwise, a Tampa, Fla.-based MSP that now sells its PSA tools to MSPs and other VARs. Tucan Technologies, based in Los Angeles, offers hosted e-mail, Web and backup services to the channel.

"We started as an MSP, but after a while it just made more sense for us to sell outsourced IT solutions to channel clients," said Tucan President Thom O'Bryon.

Next: There's Always A Catch

There's Always A Catch

Several years ago, Oli Thordarson tried selling managed services through the channel. He decided it wasn't worth it.

"We just decided we were paddling upstream and we dropped it. We even had a deal with Ingram and they were trying to push us into the Venture Tech guys. I said, 'Look we're just not interested in selling'," said the CEO of Alvaka Networks, Huntington Beach, Calif.

Thordarson found VARs to be too set in their ways to make the necessary changes to sell managed services.

"Resellers had problems reselling our services for a couple reasons. They couldn't understand what we were doing and they couldn't articulate that to their clients. They could sell a packaged product but not an intangible service at a higher price.

"That was because they were selling to the wrong demographic and the wrong 'psychographic'," Thordarson said, referring to his term for customers "with the right mentality, who really care about [network] performance."

Like Thordarson, InCompass IT President Tim Lambrecht runs an established MSP built on a Nimsoft-powered NOC. He is also critical of supposedly quick routes to managed services but believes there are enough resellers out there who "get it" to make outsourcing a viable option.

"I think that the MSP resellers who are going to be successful are the ones that have been in the MSP business. It's one thing to say that you're offering a service and another to understand what service you're offering," Lambrecht said.

InCompass IT still has direct clients, mostly near its headquarters in the St. Paul, Minn., area. But the MSP is "maybe two to five years out" from working solely through resellers, Lambrecht said.

"I think we're headed toward becoming a pure vendor of MSP services. It's just that we don't have a reseller in our own area that we could partner up with," he said.

Meanwhile, Thordarson hasn't ruled out testing the channel again. "It's probably inevitable that we'll go back into selling to resellers. We were ahead of the market. Just because we were a reseller and an MSP didn't mean we recognized the needs of potential reseller partners. I see things going on in the marketplace where there is more of a demand for what we wanted to do before," he said.

Two years ago, he said, Alvaka had to explain its value proposition to every client. "We had to somehow hold the prospect's attention before they looked at us cross-eyed," he said. "Today, you go in and talk about monitoring systems and they get it."