Connectivity Kickstarts Recurring Revenue For VARs

Channel partners are wrestling with business model changes in a software-centric world. But as hardware margins are falling when customers move to cloud-based solutions, a new opportunity emerges: these subscription-based services can't be reached without connectivity.

Indeed, selling networks and telecommunications services is not only a natural progression for solution providers but a way to introduce recurring revenue into their business models, according to master and subagent partners.

Partners that don't include connectivity as a part of their portfolio of solutions stand to lose customers completely, solution providers told CRN this week during the XChange Solution Provider 2017 conference in National Harbor, Md.

Adding connectivity will be a leap of faith for some VARs, but it should ultimately be a no-brainer, said Jeffrey Lee, vice president and chief technology officer for Carceron, an Atlanta-based solution provider.

Sponsored post

[Related: DLT's Alan Marc Smith: Solution Providers Must Prepare For The Inevitable Rise Of Subscription Services]

"There's no reason not to. Working with a master agency and adding that residual income … It's like free money," Lee said. "If you don't [add connectivity] someone else will, and they could undercut you and kick you out. You want to make yourself as sticky as possible with customers."

Carceron specializes in managed IT services for business customers -- everything from IT consulting, daily IT operations, cloud computing, and telecommunications services. Carceron offers connectivity services through master agent partners, but the provider didn't start selling telecom services until nearly seven years into the business.

When the company got its start, Carceron shared office space with a small master agency that sold connectivity services and handled telecom management for businesses.

"We realized that we could do what [the master agency] was doing," Lee said. "He wasn't holding any inventory, and he wasn't even collecting the money because he wasn't doing the billing. Now, we make that commission [and] we get that recurring revenue."

SOVA, a Plains, Pa.-based master agent believes that partners who aren't selling connectivity services are leaving money on the table, according to Gene Esopi, SOVA's president.

VARs are used to their core business model, which has been shipping boxes and billing for engineering services. Some VARs are also leery of bringing in a carrier that could make a mistake and potentially jeopardize a large equipment sale, Esopi said.

Master agents can help VARs get used to recurring revenue generated from connectivity services because they have a great deal of "tribal knowledge" when it comes to working with telecom providers, he said.

For its part, Sova is looking to bring on new partners this year, especially solution providers, MSPs and VAR partners who don't take in any recurring income today.

"It's a heavy lift to learn all of [a carrier's] systems, to meet their quotas and compliance requirements. I think working with a master [agent] frees up [VARs] to do what they want to do, service their customers, while we do the back office work," Esopi said.

Many businesses are moving applications to the cloud, but the cloud can't be reached without connectivity, so VARs realize that they must make the pivot, said John Cunningham, founder and co-CEO of IT and telecom management solution provider BCM One.

"The services that VARs once sold on premises are now in the cloud, so I think they can all see it: connectivity fuels the cloud," he said.

VARs stay busy with their current offerings, but New York City-based BCM One said it could work with partners to create a recurring revenue model and add connectivity services at their pace, taking on a business partner role similar to a master agency. BCM One gives partners the option of being engaged with their end customers, or hand off management to BCM One and collect the residual income on the sale, Cunningham said.

"When you've been doing something for such a long time that has generated positive revenue, it sounds good to say you want to make a pivot, but then it's hard to change," he added.

Connecting with a master agent is a good first step for VARs that want to add connectivity services to their practice. After that, it's important to let their existing customer base know they are offering telecom services and then offer these businesses the same services at a better rate, Carceron's Lee said.

"They'll get that monthly check," he said. "It might be small, but it adds up."