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
Managed services make sense today because:
- They help clients do more with less.
- Clients like pay-as-you-go contracts.
- They boost productivity of technical staff.
- They deliver profitable recurring revenue
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
"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
- 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."
|Bright Spots for MSPs
- Managed security: With threats such as cybercrime rising,
bulletproof security is a must. Customers like the payas- you-go
concept of managed security.
- Help desk: In-house 24/7 help desks are expensive, yet
many companies need continuous support. Outsourcing the help desk
can save money while improving the quality of service.
- Virtualization: Building on the "do more with less" theme,
virtualization is a logical specialty for project-minded MSPs.
- Hosting: Following the logic of managed services, application
hosting can deliver more reliable IT to SMB customers.
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.
|Ingram Micro Seismic Reduces Risk for MSPs
Solution providers needing help in the managed services
business have a valuable partner in Ingram Micro. "Ingram Micro
Seismic enables solution providers to deploy a rich portfolio of
managed services with minimal up-front investment," says Jason Beal
of Ingram Micro. "We provide the infrastructure and support that
can reduce startup time and expense."
Ingram Micro Seismic offerings include remote monitoring and management,
online backup and restore, help desk, managed security, professional
services automation (PSA) software, and hosted software-as-a service
applications such as Microsoft Exchange and Microsoft SharePoint.
All are available on a pay-as-you-grow basis.
Ingram Micro Seismic customers also gain free access to the Seismic
Success Support Portal, a complete knowledge base of best practices,
tutorials and benchmarks for MSPs, including a peer-group forum.
In addition, Ingram Micro Seismic has strategic relationships with
both MSPUniversity and MSPPartners to provide Seismic customers
with access to targeted, online and face-to-face managed services
training and education.
"I would have to credit Ingram Micro as the catalyst for us becoming
an MSP," says Greg Onoprijenko of E-ternity Business Continuity
Consultants. "We use Ingram Micro Seismic for our managed security
service as well as our remote monitoring and management platform.
Our partnership with Ingram Micro has certainly helped us succeed
as a managed services provider."
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
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
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
- 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.
In the spring 2009 issue, we incorrectly listed the web site of
Integrity Networks. The correct URL is integritynet.net.