The Rocky Road From Tin Shifting To Delivering Services

Managed Service Provider

Prior to the cloud computing boom, reseller organisations were focused on “tin-shifting” – selling ICT hardware to businesses. Today the economic climate is impacting business spending and the investment in extensive IT hardware seems unlikely for many CIOs and ICT decision makers. So whilst trying to maintain a competitive advantage, drive cost efficiencies and grow the business requires strategic investment in ICT can fall by the wayside. So how should resellers respond?

The answer, is traditional value added resellers (VARs) need to adapt their business models to reflect the new ways customers now want to buy their ICT. The managed services delivery model can bridge the gap by giving companies access to cutting-edge technologies and management expertise, without requiring the high initial capital expenditure or on-going investment in technology upgrades and training that on-site systems demand.

Because of this, the managed services market is estimated to grow from $142 billion in 2013 to $256 billion in 2018 as companies of all sizes shift from delivering their ICT primarily in-house, to outsourcing not just hardware, but also application management to a managed service provider.

Flexible Models Of Working

A small number of partners have made the transition to a service and consumption model but the majority have struggled to embrace the concept. Despite analysts calling time on the traditional channel partner, many continue to run profitable, and successful businesses based on traditional models. However, customer buying habits and the vendor response to these changes will have a dramatic effect on partners who are used to well-funded vendor backed channel programmes.

With both customers and vendors driving the need for resellers to adopt flexible service and models, why do so few successfully make the jump? Put simply, the move is not straightforward. Resellers looking to make the transition should take into account:

  • The practical issues of delivering ‘always on’ structure.
  • Re-organisation of resellers’ DNA to reflect customers’ desire for new services.
  • Supporting public, private and hybrid cloud options.
  • Understanding the sales cycle in the old and new worlds.
  • The level of risk associated with a flexible delivery model.

Arguably those that do make the shift to the service delivery model have the opportunity for deeper longer lasting and more strategic relationships with their customers. The traditional reseller does not, however, need to make those investments but rather act as an aggregator of services offering the customer ongoing holistic service management.

Born In The Cloud Business Vs Traditional

Whilst the changing marketplace has created challenges for traditional channel partners it has also created a whole new ecosystem of ‘born in the cloud’ managed services providers (MSPs), with the infrastructure and expertise in managing complex application stacks, and who specialise in supporting the reseller community. These new providers recognise the need and willingness of ‘traditional’ resellers move into managed services in order to improve customer retention, address new market opportunities, and drive higher margins.

Some would say these kinds of organisations can form the perfect team: traditionally hardware-oriented resellers can sell ‘white labelled’ managed services, safe in the knowledge that their customers’ businesses are in the hands of experienced specialists, whilst continuing to own the customer relationship. MSPs which support the channel will often have well-define defined cost structures and a very modular service offering, making it easy for resellers to cost out solutions and define SLAs.

Today’s end-user CIOs are increasingly treating technology as a service – funded in its entirety from operating expenditure. Forming relationships that grasp this opportunity, and partner with the right specialists, will reap the rewards, in terms of predictable, recurring revenues and a closer, deeper relationship with customers driving the entire cloud service ecosystem.

Damian S - H&S

Damian Skendrovic is CEO of Atlas IT. Atlas IT was formed in November 2000 and has rapidly grown from 4 to almost 100 employees. It has been part of NTT Communications Group since 2009.