+A
guest analyst • Tiffani Bova
EVOLUTION TO
MANAGED SERVICES
To make this new business model work for your company,
you’ve got to commit to some difficult changes.
Thinking about how resellers will shift their project-based businesses to a services model sometimes
keeps Tiffani Bova awake at night. The Gartner Inc. research director spoke with ChannelPro Managing
Editor Cecilia Galvin about the business model and how channel partners can make the transition.
ChannelPro: How has the typical solution provider business model changed?
Bova: Solution providers first sold hardware and software, and that evolved to selling products with some
services pulled along behind. The next step was selling solutions, so the providers didn’t become product-
reliant. Now customers want technology as a service—managed services, if you will.
So solution providers need to get to that new model where their revenue is more predictable, and re-
curring, with longer-term contracts. The benefits are obvious. It may improve their profitability as well.
ANALYST
ChannelPro: What’s involved in making the change?
Bova: You have to change your agreements, with the customer paying a certain amount every year and
increasing payment by percentages over time. It’s a very different contract from, “I do this, and once it’s
done, you sign off and pay me.”
You may also need different types of talent. Lots ?
of engineers like to go out on calls and get their
hands on the equipment; they may not want to sit
in an office and work remotely. Sales reps may
change too. They will now have to sell only services, and that’s not what many of them learned to sell.
cpeditor@ehpub.com
ChannelPro: Why is the transition so difficult, and who can solution providers turn to for help?
Bova: A majority of resellers are run by technologists first and businesspeople second. They understand
the coolness of the technology, but they have no idea how to write a service-level agreement, change
their value proposition, and start selling differently.
There was a study that followed up with resellers four years after they had transitioned to the new
model, and these providers had only about 10 percent of the customer base they started out with. They
couldn’t resell the rest of their customers. And finding new customers is one of the things that frightens
resellers the most.
Most providers also do not have a full-time marketing person in-house. They don’t think, “Boy, if I need
to change my business from a project base to a recurring revenue base, I have to redo my Web site and
my value proposition, reposition myself in the marketplace, and align myself with different organiza-
tions.” This is what a marketing person would do.
Companies like Level Platforms, N-able, or even Ingram Micro with its Seismic offering have done the
heavy lifting from a management tools perspective, and are going to help providers transition their busi-
nesses. Vendors like HP, Microsoft, Cisco, Sun, and Oracle are also helping partners to make the change.
ChannelPro: Where will solution providers be on the managed services learning curve in 2008?
Bova: It depends on where they started from, if they can survive long enough to weather the shift, and if
they can afford to make the shift. When you reinvest in a new business, it’s not about cutting a cost here
and here. It may mean hiring five new engineers and a marketing person so that they don’t distract the
field sales force, the engineers, and the steady-state business, because that steady-state business is
paying for these other people.
