In today’s channel ecosystem, where services are the name of the game and profit margins from pure play resale are declining faster than bitcoin stock, a standard hardware refresh can open the door to talks about profitable moves like cloud migration and hosted services. For resellers and traditional managed service providers, these discussions can easily generate new projects, establish ongoing service contracts and transition toward a higher-margin managed services model.
These assertions aren’t ephemeral hypotheses. For IT solutions distributor D&H Distributing, they’re solid business opportunities backed up by hard numbers and customer demand. The distributor’s Data Center Technology business, which comprises data switching, storage, compute and power solutions, has grown by 36 percent year over year. The growth is due in large part from MSPs serving the SMB space leveraging infrastructure refresh opportunities.
The SMB space in particular presents partners with revenue potential because a large number of these businesses still tend to have dated infrastructure. The market for SMB cloud infrastructures is growing. According to Statista, in 2018, the size of the global SMB cloud services market is predicted to reach $158.9 billion. In North America, the market grew from $36.8 B in 2015 to a projected $51.8 B in 2018.
Peter DiMarco, vice president of VAR sales at D&H, says that there are boundless opportunities for MSPs stemming from a simple Windows server architecture refresh. He states that there are so many SMBs hopping on the digital transformation bandwagon that the sky's the limit when it comes to sales opportunities for both new and existing customers.
The server refresh sales opportunity is particularly attractive to partners who have yet to establish a concrete recurring revenue practice. Even resellers and MSPs who operate on a primarily product-based, break-fix fee structure should be reviewing clients’ services and architecture mix on an annual basis. When the time comes for that yearly review, DiMarco says the first thing partners should do is propose a refresh of the on-premise infrastructure because it combines the legacy practice of monitoring, managing and structuring an IT environment with an opportunity to provide some type of data backup and security service.
Regulatory drivers are another reason for VARs and MSPs to have this conversation with customers. Existing regulations like HIPAA and the impending threat of restrictions like Europe’s GDPR standards mean that smaller organizations, especially those that tend to be fragmented among multiple offices, have compliance needs they have to solve for in and around security and data privacy. An MSP with capabilities and skill sets in that area can come in and assess the infrastructure and existing compliance gaps, then make recommendations on what the IT environment should look like. Typically, that includes a refreshed server, as well as some type of a backup or disaster recovery server - either on-premise or a combination of on-premise and the cloud.
Mark Pontius, owner of dental practice-focused MSP Compass Network Group, says that regulatory driver translates to big business. Compass proactively pursues server upgrades as part of its efforts to keep clients in compliance with HIPAA regulations.
“For example, you have an end-of-life on a server OS. That becomes not just a desirable upgrade for general security, good business practices purposes, but it actually becomes a compliance issue,” says Pontius. “We are proactively looking at the age of our clients’ equipment, what they’re running, what versions of server they’re running, and then reaching out to them in advance so they can plan and budget for these updates.”
Pontius points out that that same opportunity applies to workstations. For example, back in 2014 when “XP went into the light,” Compass drove a tremendous amount of business upgrading clients to Window 7. Typically, by the time a machine is due for an operating system upgrade, it is at the end of its useful life. In heavily regulated industries such as healthcare, that becomes a compliance issue.
“It rarely makes sense to upgrade the operating system because typically the equipment at that point is old enough that it should be under consideration for replacement anyway,” states Pontius. “So you have this cycle where we’re monitoring the age of the equipment, making sure that the computer systems work, and trying to reach out to clients in a timely fashion so they can plan and budget for these upgrades.”
DiMarco and Pontius also say that partners should be concurrently evaluating the totality of those systems and the services the customer is currently paying for. While technically this line of thinking is about upsell opportunities, Pontius says that in the vast majority of cases, partners acting as their customers’ “trusted advisors” are in fact doing their due diligence when pointing out the associated refresh or upgrade opportunities that are aimed at helping achieve their business outcomes.
“Have you upgraded your gateway? Are you doing secure email? What are your backup strategies? Can they be improved? Can we make it more bulletproof? Can we implement an upgraded backup strategy that would further minimize potential loss of data?” Pontius says that asking questions like these might lead to additional revenue opportunities for partners, but that’s an ancillary benefit. The real advantage is that these questions get customers thinking about their long-term IT strategies and how partners can help their businesses grow over the long term.
DiMarco says that another key piece to an infrastructure upgrade is customers wanting a more agile infrastructure and a cloud-based solution to support their fast-growing data analysis needs.
“Many existing end users are consuming more and more data,” says DiMarco. “Because of that, the current MSP has an existing customer that may have four times the data needs than they had three years ago. All of the devices now accessing that data demands an investment in that upgraded infrastructure.”
The increasing SMB focus on data and digital services is translating into significant business for D&H and its partners, says DiMarco. Many end users look small in terms of numbers, but their businesses are built on leveraging huge amounts of data. A small private equity firm, for instance, might have no more than 20 individuals, but they need enterprise-level functionality and support to effectively run their business.
In the end, Pontius says partners have nothing to lose by initiating these conversations with customers. No matter how persuasive the argument or necessary the upgrades, some clients will decline a comprehensive refresh. But once the idea has been floated and the seed planted, customers may start noticing areas that could be improved by new, automated applications and solutions designed for a post-digital transformation business environment.
“You can’t force customers to spend money,” Pontius says. “But at least you’ve had the conversation, and you’ve given context and a reason to have that conversation.”
Win or lose the sale, partners will have done right by their clients by explaining the business opportunities inherent in a refresh. For an industry like the channel where partners build the very foundations of their practices on the strength of their customer relationships, understanding the ultimate business goals and demonstrating the concrete ways a forward-thinking IT strategy can help pave the way to future prosperity just might lead to the kind of customer loyalty that’s intrinsic to partner success.