An uncertain economy means increased scrutiny of every investment. As an example of this trend, research firm AMI Partners reports that 67 percent of small to midsize businesses expect revenues to decrease in 2009, and 66 percent expect to restrict cash flows during the same period.

Amid the gloom, however, AMI also reports that half of SMBs plan to look for ways to leverage technology to reduce costs and drive efficiency and productivity. That's the appeal of managed services. From the start, managed service providers (MSPs) have offered a value proposition that resonates with customers when times are tough.

Jason Beal, director of services at Ingram Micro, sums up the economic argument this way: "At the highest level, managed services offer customers a better value for their dollar. In many cases there are cost savings, and the fixed-price contracts make IT spending more predictable. And it's pay-as-you-go vs. customers paying up front, which makes it more attractive from a cash-flow perspective. Setting aside all the IT benefits, there's a strong economic argument for managed services right now."

How persuasive is the argument? Despite an expected contraction in overall IT spending, U.S. solution providers predict that their managed services revenues will grow 20 percent this year, according to AMI. "About one of every three U.S. channel partners offers managed services, and this economy presents a strong opportunity for them," says Avinash Arum, senior analyst at AMI.

To test the opportunity and check the pulse of the MSP business, we present profiles of three MSPs. Each approaches managed services from a different angle, with varying emphasis on traditional projects and services. All their target customers are spooked by the current downturn and all remain convinced of the viability of the MSP model. We trust their stories will help you leverage managed services to weather the economic storm we all face.

E-ternity Guarantees Business Continuance
E-ternity Business Continuity Consultants has a unique take on managed services. An MSP for just under two years, E-ternity is "a business continuity solutions company," says Greg Onoprijenko, president of the Ontario, Canada-based firm.

"Things like power outages, floods and computer viruses all threaten a company's ability to perform their dayto- day operations," says Onoprijenko. "We provide services that allow them to continue to conduct business in the face of these and other disasters." The company targets customers with 100 to 500 employees in financial services, technology, manufacturing, and in service industries such as legal, architectural and engineering -- "any company that is serious about protecting itself," Onoprijenko says. E-ternity does project work with existing customers, but for new customers it provides managed services only.

The approach seems to be working. Sales of the E-ternity TraumaCentre suite of monthly managed services exceeded expectations last year, growing 183 percent in the second half of 2008, and more than 53 percent of the year's contracts were signed in the fourth quarter. Management expects the positive trend to continue through 2009. Although the downturn has made customers cautious about new expenditures, such concerns only raise the appeal of managed services.

"The economic downturn has changed the criteria for business decisions," says Onoprijenko. "During this recession, companies will not invest in any solution or service that does not deliver guaranteed results, reduced management burdens, predictable costs and flexibility. Our monthly managed services deliver on these points with no up-front capital investment required."

The offering consists of four managed services centered on business continuity:

• E-ternity PlanningCentre provides a repository of step-by-step recovery procedures, a validated action plan that includes post-disaster business and IT processes.
• E-ternity RecoveryCentre provides continuous access to a company's IT environment in a crisis situation. After a disaster, employees can access their applications in a virtual data center hosted by E-ternity.
• E-ternity SecurityCentre protects against network security attacks and helps companies manage application logs for compliance. It is powered by MX Logic and Alert Logic as part of Ingram Micro's Seismic managed services offering.
• E-ternity CommandCentre, powered by Level Platforms from Ingram Micro Seismic, provides a web-based dashboard for customers' and E-ternity's engineers to monitor and manage a company's IT systems in real time.

"In the past, we used to provide business continuity on a project basis, where customers would commit to large up-front capital investments -- as much as $400,000 -- for us to design and implement a full business continuity program in the event of a crisis," says Onoprijenko. "Now we offer the same level of protection, but instead of the capital expense, we package business continuity for an affordable monthly fee." E-ternity offers its suite a la carte, an incentive to tempt risk-averse customers. Although some customers subscribe to all four services, most start with one or two to test the waters.

"Managed services are like a magazine subscription," says Onoprijenko. "If you get tired of the magazine, you can cancel it. You haven't bought three years worth of magazines you're stuck with whether you like them or not. That's a perfect analogy. With any of our monthly services," continues Onoprijenko, "if your business changes or the service doesn't deliver as promised, you can cancel the service and at that point buy the technology. You can't do it in reverse."

If managed services fit the mindset of risk-averse customers, they also make business sense for solution providers, delivering profitable recurring revenue and a scalable business model that suits any economic environment. In fact, E-ternity is currently adding staff and rolling out new programs. "We see this as an opportunity to leap ahead of some of our competitors," says Onoprijenko. "Because we did the heavy lifting of crystallizing our approach and lining up business partners 18 months ago, we're a well-oiled machine that's ready to deliver today."

masterIT Lowers IT Ownership Costs
masterIT was founded three years ago in the merger of two companies, masterIT and Wisetech. The goal was to provide SMBs with a way to lower ownership costs and remove operational headaches by providing IT-as-a-Utility -- the company's proprietary hardware-as-a-service option of including the infrastructure as part of a fixed-fee agreement. Today the Tennessee-based MSP offers a menu of managed services such as network security, remote monitoring and management, and help desk, while also selling hardware, software and traditional IT services and projects.

In 2008 masterIT experienced a 50 percent increase in recurring revenue from managed services, following a 40 percent increase the year before, says Gary Wiseman, president and CTO. This year he expects recurring revenue from managed services to continue strong, while the project business decreases due to the recession.

"We're a member of an industry benchmarking group, where we meet regularly with non-competing companies like ours to share financials and best practices," says Wiseman. "Many of them are seeing a decline in project work while managed services increase." The reason, Wiseman believes, is that managed services allow customers to do more with less and reduce costs, an urgent priority in today's economy.

"We have a meeting this afternoon with a client who has 45 employees and a full-time IT person," says Wiseman. "Small companies with less than 100 employees like this typically do not need a full-time IT person." Similarly, if companies have their own help desks, masterIT's help-desk service, provided by Ingram Micro Seismic, typically cuts their costs between 30 percent and 40 percent while delivering better service.

Though declining somewhat this year, project work is still important to masterIT because it complements managed services so well. The company schedules regular "wellness visits" with clients to ensure they understand the value of the services being performed remotely and behind the scenes. Often such visits cover the advantages of business continuity, a managed service masterIT offers, as well as the need for remote backup and disaster recovery planning, a solution offered on a project basis. masterIT has certified business continuity planners who walk customers through a 64-step process that includes business and IT procedures, as well as hosting of the post-disaster IT environment.

Other work that feeds off managed services includes "lean IT" solutions such as hosting and server consolidation. "If a client has 10 to 15 servers," Wiseman says, "with virtualization we can probably reduce that to three or four."

The need to run lean also applies to solution providers, and managed services technology can help. In the world of reactive services, every customer hiccup requires an on-site visit by a technician. Remote monitoring and management makes the technician far more productive. "Perhaps a client has a spyware infection and the technician needs to run a scan," says Wiseman. "While the scan is running remotely, he can also install a program on another machine and address a printer problem, all without leaving the office."

Such efficiency might tempt MSPs to cut prices in response to clients' pleading -- a common occurrence in the recession. Wiseman argues against it, noting that lowering prices without cutting services is bad business. "If a CEO asked you to cut your price, and you complied, he or she might think,‘If you cut your price 10 percent without cutting service levels, maybe you were overcharging me the whole time.' That's a slippery slope."

Instead, Wiseman always returns to the value proposition that led clients to managed services in the first place. "Do you want to go back to tape backup to lower your costs. No? We can turn off management of your security and software patches. No? Dial back on our 24/7 help desk. No?' So far no one's cut back yet."

Whalley Adds Managed Sevices
Whalley Computer Associates has been in business for 30 years as a traditional solution provider, selling hardware and software, engaging in projects, and providing services on a time-and-materials basis. With more than 140 full-time employees, the Massachusetts-based solution provider has recently begun to focus on specialties such as Microsoft Exchange, virtualization and storage technologies.

Whalley has also ramped up a managed services business that is showing signs of life as the economy falters. Offering managed remote access, network monitoring and management, configuration management, router and server management, managed security and other services for a set monthly fee, Whalley is experiencing a surge of interest from companies that are cutting back by reducing head count.

"Many of our prospects are companies that we know are laying off staff," says Kevin Learned, director of professional services at Whalley. "They realize they still need to take care of IT, so they are considering outsourcing for the first time." The picture isn't all rosy, however. Whalley has lost a few managed services customers due to the economy, smaller firms that are struggling to survive. "We called one to let them know that they had lost connectivity," says Learned. "They told us the bank had ordered them to close the doors."

For most firms, managed services make good sense financially -- a point Learned and his team drive home in every proposal. "To have 24/7 monitoring, you would need three people. Even if you paid them only $10 per hour, that's $7,200 per month," he says. "We can provide them with better service at a costper- hour from under $1 to around $7 for the highest quantity of business. That's what prospects like to see, a lower rate that's allinclusive."

Customers also appreciate the regular reports they receive on the status of their IT systems. These lessen the uncertainty of IT decision-making. "We provide them with concrete evidence that a server needs replacement or that the storage is nearing capacity," says Learned. "The initial reports establish a baseline and from there you simply follow the trends." Many newer customers engage Whalley for project work such as hardware and software upgrades that make their IT systems even more reliable.

If customers require services beyond the basic package, such as a help desk, these are usually billed separately. Whalley's 24/7 help-desk service, powered by Ingram Micro Seismic, has become a strong profit generator. One customer with 266 users saved $50,000 annually after outsourcing its help desk to Whalley. The $60,000 deal generated an annual profit of 35 percent. Perhaps most importantly, this customer and others have been well satisfied with the help desk and with managed services.

"The business model has been effective in living up to its promise from the customers' perspective and from ours," says Learned. "It has allowed both of us to do so much more with less. And it's really nice to have that revenue stream on the first of every month."

Beating the Recession
These profiles suggest that despite the recession, this is an excellent time to be in managed services. Here are some suggestions on how to succeed:

• Be aggressive. If you're an MSP, now is the time to win new business, not cut back. "Solution providers who have invested in managed services technology and business processes are in a strong position to gain market share," says Beal of Ingram Micro. "Instead of hunkering down, we recommend being aggressive in your sales and marketing outreach to prospects and existing customers."
• It's not too late: Solution providers who are still dependent on products and projects may find their business at risk. With managed services technology more accessible and affordable today, there's still time to enter the business.
• Partner up: Risky capital investments and service infrastructure buildups make no sense during a downturn. Instead, consider partnering with Ingram Micro Seismic (see p. 17). Ingram Micro's extensive suite of managed services has been proven by nearly 1,200 MSPs. Because it is available on a pay-as-yougrow basis, it's a perfect offering for building a practice that will help you weather the recession.