Firm Sees Promise in Helping VARs Become MSPs ‘On the Cheap’

The growing number of VARs and other channel resellers seeking to provide managed services is creating opportunities for MSPs that market services aimed at facilitating the transition.

Aldrin Brown, Editor-in-Chief

March 24, 2016

3 Min Read
Lumen21 markets a variety of products to value added resellers VARs seeking a lowcost model for selling managed services
Lumen21 markets a variety of products to value added resellers (VARs) seeking a low-cost model for selling managed services.

As the managed service provider model has grown in popularity, value added resellers are increasingly heading down the path toward evolving into MSPs.

But that path is littered with VARs that failed on the way, with some reports placing the percentage that ultimately become successful MSPs as low 10 percent.

Still, rapidly shrinking margins are leaving no shortage of VARs opting to try their luck, creating opportunities for MSPs that market services aimed at facilitating that transition.

“The VAR community has definitely come around to the concept of providing managed services with IT products,” said Eduardo Don, CEO of Lumen21, which markets a variety of products aimed at helping VARs sell managed services.

The challenges to the VAR business model have been well documented in recent years, as the proliferation of cloud services and easier commerce between IT vendors and end users combine to squeeze top and bottom lines.

“The Traditional VAR is dead,” VAR owner Hayes Drumwright told Forbes magazine in an August 2014 article about changes in the industry.

Drumwright is founder and CEO of Trace3, which at its peak earned about $400 million in revenue as a value-added reseller, but more recently increased the ratio of engineers to salespeople to focus on big data, and mobile and cloud applications, according to Forbes.

The insatiable demand for managed services – despite intensifying competition – offers tremendous incentive for VARs and other resellers with relationships, experience and expertise in the IT channel.

“The market is rewarding those companies that are making this transition,” Ken Bisnoff, an executive with TelePacific Communications, wrote in a blog post for Intelisys. “While many traditional telcos are valued at five times their operating profit, managed services providers are valued at 10-12 times.”

But such transitions rarely come easily – or cheap.

Successfully competing in the crowded MSP space often means being able to offer a variety of sophisticated services, around the clock. A full-service MSP needs a data center, world-class security, 24×7 remote monitoring, scalability and redundancy, not to mention trained staff.

The requirements make it difficult for many VARs to adhere to a cardinal rule of successful entry into the managed services space: Spend wisely.

“Successful MSPs find a way to provide infrastructure with minimal upfront investment (so you can transition without needing to raise significant capital) and with minimal ongoing spend,” Dr. Prasad Akella, a senior vice president at Intermedia, wrote in a blog post for ChannelPro Network.

That’s where Lumen21 saw an opportunity.

The firm offers VARs three options for making money in managed services without up-front capital investment, which Don estimates at about $1.5 million.

VARs can refer the business to Lumen21, turning over the entire managed service account in exchange for a referral fee. They can resell, using the VARs own sales staff to sell products from Lumen21’s managed service portfolio at a markup.

Finally, there’s a white label option, allowing VARs to present their own branding to customers, while contracting for one or all of Lumen21’s full array of back end services, which include 24/7 technical support and remote monitoring via the MSPs separate NOC and SOC.

Lumen21 also has required certifications to provide managed services to regulated industries, like the lucrative healthcare vertical.

“We’re trying to establish a channel for our services,” said Don, the Lumen21 CEO. “It’s an opportunity to move services through that channel.”

Don said the arrangement allows VARs to immediately generate revenue selling managed services, whether or not they intend to exit the reselling business.

VARs, he said, innately understand how to solve their customers’ IT problems and have the skills to upsell additional managed services. Resellers can even realize a boost to their traditional core business.

“If they’re able to do that model correctly, they’ll also pull product through,” Don said.

In his blog post, Intermedia’s Akella suggested VARs should ensure that their service provider partners have certain attributes:

  • It white labels its services for you to market under your brand.

  • It has the scale to allow you to resell its services at a cost lower than what you would spend to build and offer them yourself.

  • It offers market-competitive service levels that are currently at the “five 9s” (99.999 percent uptime) level so you can, in turn, offer them to your customers and be competitive.

  • It allows you to white label its billing service. And, the company’s billing models are sophisticated enough to support the market’s expectations of payment based on the elastic use of resources. This also enables you to use back-office functions to build your brand at all customer touch points.


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About the Author(s)

Aldrin Brown

Editor-in-Chief, Penton

Veteran journalist Aldrin Brown comes to Penton Technology from Empire Digital Strategies, a business-to-business consulting firm that he founded that provides e-commerce, content and social media solutions to businesses, nonprofits and other organizations seeking to create or grow their digital presence.

Previously, Brown served as the Desert Bureau Chief for City News Service in Southern California and Regional Editor for Patch, AOL's network of local news sites. At Patch, he managed a staff of journalists and more than 30 hyper-local and business news and information websites throughout California. In addition to his work in technology and business, Brown was the city editor for The Sun, a daily newspaper based in San Bernardino, CA; the college sports editor at The Tennessean, Nashville, TN; and an investigative reporter at the Orange County Register, Santa Ana, CA.


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