SilverBack CEO Dispenses Managed Services Advice

As solution providers continue to embrace managed services as a business model, one vendor that has backed that model from its inception continues to gain traction. SilverBack Technologies, Billerica, Mass., is a provider of security and systems management software primarily targeted at small and midsize businesses. In an interview with Editor In Chief Michael Vizard, SilverBack CEO Dan Phillips discusses the need for solution providers to embrace managed services and explains why merely reselling services provided by vendors is bad for their long-term business health.

CRN: Why do you think solution providers today are receptive to business models based on managed services?

PHILLIPS: If you talk to any CEO of a regional or geographic VAR or systems integrator, they know they're in trouble. They're dealing with single-percentage point margins. Even from a maintenance standpoint, they have issues. Maintenance has become incredibly competitive. Now the vendors want to deliver their own maintenance, and they just want the partners to sell the maintenance. So now they're getting two points, three points on maintenance. You can't run a business that way. Your revenue can go up, and you're still going to lose money. If you sit down and have a business conversation with any CEO of any of these midtier types of VARs and systems integrators, they have to find a way to move their business into a high-margin business that is predictable and recurring. They're very willing to figure out how to do this. They have to do it to survive. In the next two to four years, virtually every VAR or systems integrator will be offering some type of remote managed service. They have to.

CRN: Why do they have to do that?

PHILLIPS: There have been thousands of VARs and systems integrators that have been out there for five to 10 years selling Windows and Sun servers, and then they went for a period of years and sold a lot of Cisco routers. And for the last couple of years they've been selling lots of NetScreen firewalls and Symantec software. But in the last year or two, they've been gravitating more toward maintenance. As they moved through the product cycles, the margins have eroded to the point where these thousands of systems integrators would now like to figure out a way of moving toward remote managed services. It's a way for them to get a competitive advantage over all these other VARs doing the same thing they're doing. It's a way for them to increase their revenue and, most importantly, to increase their margin.

CRN: How do you help VARs get into that type of business?

PHILLIPS: We do two things. We provide them with a tool that's designed so you can install it at their location but remotely manage hundreds of end users from that one location, without VPN connections and without installing agents at the customer site. We also automatically set thresholds and reports and will remotely administrate and maintain the tool for the partners. The second half is we have what we call a franchise model. We will go to these partners that have not delivered managed services before, and we will help them design, create, package, market, deploy and manage these managed service offerings. We will teach them how to take existing low-margin business and turn it into high-margin remote managed services. We teach them how to do proactive, preventive maintenance remotely. We'll teach them how to do both network and security audits. We'll teach them how to do full-blown, outsourced, remote managed services. We'll actually build the programs for them, design the collateral on the data sheets, train them how to offer these solutions, help them with the marketing, and then once they're closing the [deal], we teach them how to deploy and manage that back end.

CRN: What differentiates SilverBack from other players in this space?

PHILLIPS: We can install all the products to monitor networks, systems applications and security equipment in a day. It is extremely easy to use. We have the ability to provide the remote administration and maintenance tool that allows our partners to provide managed services. It doesn't require agents. It also has thresholds and alarms set automatically, so it's very geared for a channel partner that wants to provide network security management and other remote managed services to a large number of SMB end users. And it's very much priced for the SMB market. What HP won't do is teach you how to become a managed service provider. HP, CA and Tivoli built their network management platforms in the early '90s. They weren't designed to be able to have a one-to-many model that will cost-effectively get into the SMB and the midtier market.

CRN: Some companies, such as Cisco, are building the managed services and asking partners to resell them, rather than helping the partners deliver their own services. What's your take on that approach?

PHILLIPS: Vendors can take one of two approaches. One approach is to actually provide the remote managed services--as Cisco is going to do with its acquisition of NetSolve--and then have the channel actually sell the services that the vendor builds. I think there are a number of issues with that. The first issue is a scale, from a delivery standpoint. If you have one vendor trying to deliver all of the managed services, you're not going to get nearly the scale you would get if you instead enabled all of your partners to deliver their own services. More importantly, if the vendor decides to provide and deliver the remote managed services and all they want their channel to do is to sell it, the channel adds no value. When the channel adds no value, they make no money.

What vendors like Cisco, HP, and Sun--with its acquisition of SevenSpace--are doing is taking the next frontier, the next high-margin business that's available to the channel, and making it a commodity immediately. Cisco has really upset a lot of its good partners, the ones that learned how to add value in remote managed services. Now they view Cisco as a competitor. It's hard to walk away from Cisco. But they've angered a lot of their better VARs that could really add value. The other option is for a vendor to provide tools to its channel to deliver remote managed services in volume and then teach the channel how to deliver its own services. You get much greater scale that way, and you get a channel that can truly add value and a channel can make a lot of money.

CRN: So are the vendors being somewhat hypocritical when they tell the channel to add services and then they move to undercut them?

PHILLIPS: I think they absolutely are. You have to think very highly of Cisco and what they've been able to accomplish, but I think they've opened up a big door to their competitors. I think a competitor can now go after Cisco's channel and say, 'We want to enable you to deliver your own managed services. We're not here to ask you to sell ours at low margins.' And you know, the channel will never survive unless it's allowed to add value and make margins. The thing that's a shame is that a lot of these channel partners over the last three years have really pioneered this remote managed services business, and it's been a tough couple of years to get it to where the market is today. For a vendor to walk in the second it looks like it might reap some benefits and take the margin away and turn it into a commodity is the wrong thing to do to your channel.

CRN: How will you work more security features into the mix as security management and systems management continue to converge?

PHILLIPS: I think you'll see us partnering with more of the security vendors in the not-too-distant future. When you look at our technology, we have a basic delivery platform, which has the ability to take an application and deliver it remotely with a one-to-many model. On top of that delivery platform, we have our applications. So we have the ability to take third parties' applications. It could be other security applications. It could be storage applications. It doesn't really matter. That's a very big direction for us.

CRN: How many partners does the program have today?

PHILLIPS: We have approximately 70 partners today. We've been doing this for just about three years now with this model. I don't see how a company can be successful doing this with 200, 300 or 400 partners right off the bat. You need to get those partners up to speed. You need to get them successful before you move on to the next one. We sign up about 10 new partners every quarter. As we get larger, we'll be able to do more than that. But that's part of the reason we're at 70 now. The partners go through a very interesting process when we sign them up. They go through about a three-month period where they completely transform their business.

CRN: How is the pricing for the service structured?

PHILLIPS: In our pricing model, we price our product per managed device. We also offer a perpetual license or an annual license, whichever one the partner wants to use. A typical annual license to what we call a Platinum partner is $215 per managed device per year. A perpetual license is $560, including maintenance.

CRN: Why do think the SMB market is ripe for managed services?

PHILLIPS: All small and midtier end users now have mission-critical IT infrastructure. But they don't have months or years to go deploy traditional solutions that do the full active monitoring of their IT infrastructure. They don't have large and sophisticated IT staff, and they don't have more than $1 million. So they can't buy CA or Tivoli and six other guys to make it work. The solution to this problem is for managed service providers to provide remote managed services and outsourcing.