Managed Service Providers: a model opportunity?

7 min read Resellers, dealers, VARs

The ever-increasing number of cloud technologies that a company has to work with today is raising the awareness and relevance of managed service providers (MSPs) to an all-time high. Comms Business looks at the model options for channels and why resellers should evaluate embracing those models.

In the cloud based era of Anything-as-a-Service, businesses need to think of suppliers as strategic partners, and on-board those with capabilities to deliver end to end support.

A managed services provider (MSP) in our sector is an ICT services provider that manages and assumes responsibility for providing a defined set of services to its clients either proactively or as the MSP (not the client) determines that services are needed.

These are not solutions looking for a problem as it is a well-established fact that small- to medium-sized businesses (SMBs) have an ongoing challenge managing their computing and communications needs; they need to reduce their ITC overhead while improving reliability.

Organisations today have a very wide array of ICT applications ranging from on premise hardware and software as well as a growing number of ‘as a Service’ cloud and hosted applications.

For most SMBs, it’s not cost-effective to maintain a full-time ITC staff, and even if there is a team on site they can’t address every challenge thrown at them.

Pricing/Charging Models

You might think that pricing of managed services is simply a case of per user, per month, per application or device and that is certainly one model or option available – but there’s much more and pricing of services is most certainly in the top three user considerations, along with sales and service delivery, that determine who wins the business.

Generally speaking, the principal managed services pricing models at an MSP's disposal include monitoring only, per device, per user, tiered pricing, all you can eat and a la carte, though some suppliers use different terminology.

Different models will work for different suppliers and of course, for different customers.

Monitoring Only:

Provided to organisations of any size, the monitoring-only pricing model provides, say, network monitoring and alerting services by the MSP. For larger organisations. this means alerting the customer's in-house IT staff, or both. Services are usually provided on a flat fee per month which allow the MSP to charge for additional services – some or all of which could be wrapped up in the flat fee.

Per Device:

This is the most popular and simple MSP pricing model. Here an MSP has a menu, or list, of services, each of which has its own monthly per device fee, £40.00 per desktop, £10.00 per phone etc.

Two quick observations here. Firstly, this model is very simple for quotations, easy to illustrate for users and again simple to work out costs for changes in user/device numbers. This is why it is so popular.

Secondly, and this is a downside of the model, it is also easy for users to compare pricing between competing suppliers and therefore susceptible to the dreaded ‘race to the bottom’ on pricing.

Tiered Pricing:

Think Gold, Silver and Bronze service and this is an easy one to figure out. The more precious the metal the more services the user gets and the more the MSP can charge.

The onus is on the MSP to structure the service tiers that offer their clients the best deals. Many users find the cheapest deals are not good enough and the most expensive not all encompassing.

Value Based:

Sometimes referred to as the ‘all you can eat’ model as it provides comprehensive services. In this model the MSP becomes, in essence, an outsourced IT and Communications department for the user. It requires the business owner to have full confidence in the MSP to be able to deliver ongoing services as need and circumstances change. This model may include 24/7 coverage or for certain days of the month only where in the latter case additional services outside of the agreed times can be billed by the MSP.

A La Carte Service:

In contrast to the value-based model the A La Carte service is where the MSP provides service for discrete services that address a specific customers need. A good example would be disaster recovery and managed back-up. Users can select from a number of services to create their own bundle or package of managed services.

Why Become an MSP?

As technology and the channel evolve Value Added Resellers are finding themselves sitting in a rather hot seat.

With a major focus on hardware, albeit cushioned by vertical market software, other specialisations and installation and set-up fees, VARs can be easy pickings for large vendors looking to expand their direct sales. Along with hardware price pressure the rise of cloud based solution delivery compounds the problem.

A huge swath of IT computing has and is moving from on-premises to the cloud. Ironically this move is being made despite the fact that the price of on-premises kit has been plummeting for years. But those prices aren’t the issue. It costs far more to manage hardware than it does to buy it.

With the cloud, much of that burden is lifted. And that leaves hardware-centric VARs in the lurch.

Many observers say that it is time to stop holding on to the past.

Dublin based Pulseway puts it succinctly when they say, ‘Times are a changing. The way forward isn’t just the vast expanse of the cloud, but offering services that meet IT demands with precision and utterly lift the burden of dealing with minutia. That way forward is managed services.’

Pulseway adds, ‘VARs don’t have to shift their entire business model to managed services. The trick is the blend the best of the current value added reselling with what fits your business and goals as far as managed services.

The beauty is if you migrate from a VAR to an MSP, you’ll make more money from managing what you or others helped install. This could include hundreds of end points, the internal network and the WAN. And since you are deeply trusted, you’ll be the one to move this infrastructure forward.’

Why should resellers and VARs consider adopting an MSP model.

Mark Curtis-Wood, Head of Network Services at Nimans, says it’s a win-win situation for everybody really.

“Customers are benefitting from lower CAPEX, lower OPEX in many cases as well as better SLA’s. Also, resellers are gaining additional recurring revenue. There’s a margin-stack being built up which drives profits. Inevitably by selling more products to more customers builds loyalty and stickiness and develops wallet share.

From a vendor’s point of view, it enables them to protect their own brand because especially with cloud services if you take Microsoft for example they are still able to sell a Microsoft branded service through a managed service provider.”

Edmund Cartwright, Director of Sales and Marketing at Surrey based Highlight, a company that provides network and application monitoring to MSPs, says VARs are among some of the key players in the channel facing fierce competition and thin profit margins.

“For a long time, adding value to hardware and software has been a big money-maker but the business is no longer the same and the competitive landscape is more saturated than ever before.

It’s critical that VARs begin the transition to managed services if they wish to have a steady / recurring stream of revenue and thereby cash flow stability. Having a diverse portfolio and a closer, proactive relationship with customers is key to staying in the game and thriving.

How important is it for MSPs to bundle services for their clients?

Mark Curtis-Wood at Nimans believes it is critical to bundle services because the whole concept of being an MSP is to drive economies of scale.

“That allows SME’s more than anyone else to access services they wouldn’t normally be able to do. These would normally require investment, resources and training such as when selling cloud services. But the MSP has already done that, so they can open more doors for customers.”

Edmund Cartwright at Highlight says that bundling services allows MSPs to demonstrate the value of their services in an effective, cost efficient and straight forward way.

“Different tiers are typically offered (Bronze, Silver, Gold) which generally respond to different business objectives, activities, deliverables and budgets. Customers find it easier to allocate budget for bundled services as it means they know the exact recurring cost and value of the bundle as defined and agreed between the two parties (provider and customer). They can also save money overall since bundled packages are offered at a competitive price when compared to purchasing the same services individually.

MSPs need to be able to monitor, alert and report on as many aspects of their customers’ infrastructure with ease. If they can accomplish this from a single solution, then there is a seamless efficiency gain resulting in quick and proficient troubleshooting without discrepancies, time wasting and finger pointing. They can become experts, specialising more so in advising customers on service improvements and future proofing evolution. In doing so, MSPs are able to become a strategic partner, earning trust and, converting happy customers into long-term ones who are likely to spread the good word about their services.

In a highly commoditised industry where standing out from the crowd is tough, professional recommendations are in all service provider’s best interest as they’re extremely precious and effective.”

Anatomy of a Case Study

If you combine the number of different models in which managed services can be provided with the individual skill sets and specialisations of any given MSP and then consider the myriad of needs that every organisation has from their ICT systems then it’s immediately apparent that there is no such thing as a typical managed services case study.

Having said that we set out to find an example of managed services that was relatable in terms of the services being provided by a medium sized channel reseller that many of our readers would recognise.

Gloucester based PSU Technology Group, a Mitel resellers we have visited on several occasions over the years, has always been more than a telephony services supplier having also been an IT company ever since we have known them and this case study, for their customer, Travail Employment Group, a company with 30 branches across the UK, is we feel a good example of how PSU has expanded upon their initial Co-Managed Service engagement.

PSU says that for any company experiencing rapid growth, an in-house IT team can struggle to maintain the support that the business and its employees need. Co-Managed Service support can provide an effective solution that helps to reduce costly employee downtime.

Travail Employment Group’s in-house IT team were committing increasing resources towards their ICT infrastructure, which was also leaving them with fewer available hours to devote to strategy.

Gary Sharpe, Travail’s IT Manager said: “We were struggling to maintain a satisfactory level of support, particularly when we had any staff absences or during critical business periods. It was obvious that we needed additional ICT support.

Why PSU? We chose them as they were impressed by PSU’s expertise as a fully integrated ICT and Managed Services provider and their commitment to service excellence as an ISO accredited company.

PSU recommended their Co-Managed ICT Service, which is working really well. We get the back-end infrastructure, technical and the essential frontline cover support that we need, while retaining full management control over our ICT function, which is perfect for us!”

In a nutshell, the PSU solution is a service framework that comprises:

1. Support help desk cover: to help users during busy periods.

2. Guaranteed engineering availability: where PSU engineers respond and action jobs with a clear SLA.

3. Intelligent Monitoring: where PSU engineers monitor and resolve any issues, before they develop into anything more problematic.

4. Proactive IT system improvements service: consultative advice to further improve the efficiency of Travail’s infrastructure.

5. Dedicated corporate and technical Account Management team.

In terms of benefits this service provides Travail with enhanced support cover – increasing the speed at which Travail employees receive ICT support, even during busy periods. ICT issues are being resolved more quickly – reducing employee downtime and boosting time and cost saving efficiencies.

Significantly, the managed service has increased ICT resilience with PSU’s Intelligent Monitoring service and on-hand technical assistance.

Ed Says…

Resellers and VARs getting squeezed by falling hardware prices, vendor direct sales and cloud deployment models is nothing new these days but the increasing availability of ‘as a Service’ offerings is truly overwhelming for many organisations – especially SMEs. The opportunity for managed service providers to take away all the pain points, skills learning curves and staff recruitment and wage cost with a managed service offering is enormous and growing.