Evolution to Managed Services w/ Tiffani Bova

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 productreliant. 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 recurring, with longer-term contracts. The benefits are obvious. It may improve their profitability as well.

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.

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 organizations.” 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 businesses. 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.