What Is Managed Services 3.0?
Cisco Systems Senior Director Al Safarikas, Autotask CEO Bob Godgart and THINKstrategies Managing Director Jeff Kaplan each work for vastly different organizations — massive, midsize and small companies. Still, they have something in common: They are evangelizing the move to next-generation Managed Services.
So what is Managed Services 3.0? Marketing hype, or a true shift in the MSP market? Here are some key thoughts from Godgart, Safarikas and Kaplan.
According to Kaplan’s blog entry:
Managed Services 3.0 represents the confluence of three important forces: More powerful and cost-effective enabling technologies (particularly SaaS); more compelling marketing messages and effective marketing tactics; and more committed leadership and sophisticated management.
Safarikas, senior director of Cisco’s Service Provider Managed Services group, offers these thoughts:
Managed Services 3.0 can give all aspiring xSPs an opportunity to assume greater responsibility for their customers’ IT/network management requirements and establish a more strategic relationship with the most demanding business decision-makers.
Rather than just supplying bandwidth and responding to RFP requests, savvy xSPs can proactively address their customers’ predictable business technology alignment needs, and thereby gain a competitive advantage.
According to Godgart, next-generation MSPs will increasingly collaborate with one another, through a trend known as outsourcing management. Instead of being locked to a single MSP platform, service providers will be able to coordinate customer tickets and other project information across multiple platforms such as:
- Professional Services Automation (PSA) systems
- Remote administration and monitoring platforms
- And service provider marketplaces (such as the Ingram Micro Services Network (IMSN) and OnForce)
I hesitate to brand anything “Managed Services 3.0” because defining the term is a bit tricky. But I think it’s clear that the early adopter stage for managed services is coming to an end. And we are seeing a shift to next-generation business models that will require hosted SaaS and multi-partner engagements.
Hi Joe;
I’d like some clarification. According to Al, Bob and Joe’s aggregate definitions, most of this simply sounds to me like the requirements for a Trusted Advisor who is continuing to align their services, deliverables and business offerings with their clients’ needs as new solutions and partnering opportunities emerge.
I’m at a Lunch ‘n Learn sponsored by MSP University, Expetec and Intel today where the topic of my presentation was leveraging Managed Services to become the Trusted Advisor, and what the role and responsibilities of the Trusted Advisor are.
To me, these include focusing on the following areas:
Understanding the clients’ business operations, their daily workflows, processes and procedures.
Understanding the clients’ target market and why customers buy from them instead of their competitors.
Determining how to improve the client’s value proposition to their customers.
Understanding the clients’ competitive challenges, and who their competitors are.
Understanding what could cause a customer to leave the client.
Understanding the clients’ business priorities, and each of their business unit’s daily, monthly and yearly goals.
Understanding what the client’s overall business goals are, and what they are willing to invest in today to achieve these goals.
The Trusted Advisor must be focused on business outcomes for their clients, as opposed to solution or project outcomes, and look for ways to create synergies across all of the client’s business units by seeking out solutions that increase overall efficiencies, productivity, and alleviate pain and mitigate risk to prove value as a true business partner that not only posesses technical, but all-important business acumen as well.
If this is being touted as MSP 3.0, it’s no different than what we’ve been educating VARs to do since 2005, so I’m wondering if the industry is just so accustomed to revving products and services on a regular basis that we are simply re-branding an old, familiar friend….
Erick Simpson
MSP University
http://www.mspu.us
Erick: Greetings from Portland, Ore., airport (I’m stranded by flight delays). I would agree with your conclusion that the industry (reporters like me included) often re-brands old, familiar themes.
A case in point: Although managed services requires a news sales mindset and business model, MSPs most often mention that their biggest challenges involve customer acquisition/retention, marketing, talent recruitment/retention … all of the same challenges that plague traditional small businesses.
How did your event go? Do you have more face-to-face seminar’s planned?
I think that the next evolution of Managed Services will reach well beyond the IT infrastructure. Perhaps we are seeing the start of the MSP’s starting to manage Payroll, HR, Staffing, Finance, AR and AP. It is essentially all data, right?
To Erick’s point the best and most profittable MSP’s have been and are always considering how IT process influences these departments and work flow. They are having those business discussions. Perhaps now Service providers will take on more ownership of actually delivering these services.
Companies developing the SaaS solutions and platforms will help the best MSP’s manage and support more within the client infrastructure.
Though backed by some very big bucks, look at what http://www.Workday.com is doing. I think that MSP community should look to take a page from their playbook. What additional services can you offer your customers? Seek partners in the areas you lack expertise.
Call it what you will…I am confident that the best is yet to come.
Todd: Actually, you stole my thunder a little bit. In a few hours, another blog entry — talking about MSPs managing the bridges between SaaS clouds — will debut on MSPmentor.
The big challenge for customers is that they will ultimately outsource multiple applications to SaaS providers. But in most cases, there’s no way to manage the links between SaaS platforms, nor can you flow data between them.
A startup I met today is striving to sold the problem. More details shortly on MSPmentor.
Joe,
This has been our favorite internal debate lately, especially surrounding the events of the recent MS Partner Conference. What is the next evolution of Managed Services and the IT Service Industry?
In all likelihood we are 5-10 years before anything becomes mainstream in our market but if a Fortune 500 (Dell) or Microsoft itself were to create a Hosted Small Business Platform (IT as a Service), it would have a serious impact on the entire Microsoft Partner Channel. We are not too far away with Exchange, Unified Messaging, Sharepoint, CRM, and Office Communications Server already being offered as hosted products.
IMHO, I see three new types of partners/providers of the future, the first are Infrastructure Partners, these are the data center providers like Rackspace or Microsoft/Google’s who will offer Microsoft Services or SaaS from their hosting facilities and will bundle them with their own products/services. This will largely become a commodity/feature driven market and be reserved for those with the capital to build.
The second is the Consulting Partner, this is a partner whose consulting or business practice is IT based or related and gives them the unique opportunity to resell Microsoft services. This maybe where the majority of partners who cannot afford to transition to a hosted provider end up, if not out of business. I see this as the local presence of the big MS mother ship. The partner would advice clients on the most appropriate solution for their business, maybe do some end user or customer premise “legacy” product support, and make margins off MS service sales “affinity partnership”. You could think of them as a broker with valued added services like IT business consulting.
The third is the Development Partner, in death there is life, this will be a growth industry. Microsoft will open the floodgates to support its new SaaS model by encouraging ISV’s to develop niche add-ons to its hosted products. These development partners may also be infrastructure partners who have created an edge by building on the standard Microsoft Vanilla platforms. If MS really opens the door to a friendlier open platform then I predict an explosion of new development firms specializing in vertical markets.
Great to see the debate moving forward…
I love this debate because it questions the validity of a Business Model, in this case the long term effect of Managed Services and what happens next.
As you look at Managed Services, I agree with the analogies of the Market and the role you have to play to effectively deliver a Managed Services offering. As the model really adopts MSP’s find themselves creating ways to be different from competitors. In order to be different, do you offer more value and services within the MSP offer or do you broaden your scope by offering things outside the normal MSP realm.
1- If you increase the value, in most cases you find yourself giving the client everything they want without charging for it. When monitoring came out as the beginning of the MSP error. Resellers charged for monitoring; now we include it for free along with many other things and just consider it a cost of doing business. Eventually this method decreases margins and drives your business model in the ground because most business cannot sustain high volume – low margin business. My opinion has always been to charge as little as you can for a set of core services to your market. Once engaged you can always up-sell other services and offerings as you develop the “Trusted Advisor” relationship. Example: When I was a reseller – We charged 69.00 per user per month for full-Time managed services support in 2000 and made money. As the market grew into what everyone now calls MSP, we always kept our core price but added other options and offerings (HaaS) to attract new revenue from the existing client base. Business 101 – Your existing client are the fastest increase revenue potential you have.
2- If you broaden your scope of services that start to take you out of the IT realm, you have to completely think a different business strategy. I believe you have to think like Wal-Mart…. I know sounds crazy but to effectively convince your potential customer base that you can now provide all things to all people, you will have to lower the price so far that it makes no sense not to try you out at least once. Getting into the area of offering other services like accounting, HR, etc. will force the IT business provider to look at the high volume low margin business. Price will be your driving factor for clients buy your services long term. Example: Live Vault offered offsite backup services since 2002 or earlier but the premium being charged still did not attract but a few to look at it. Now Amazon, Google and others offer this service for much less along with their many isles of shopping. In order to compete you will need to become your Wal-Mart of Services and tell people that you are the one stop shop, while the little smiley face bounces around reducing prices.
I had a friend tell me that he could have lost his store when Wal-Mart moved in but he didn’t because he said “Wal-Mart may greet you at the door and say hello but they I will greet you by your first name and tell you Happy Birthday unless I get too old to remember” He owns a local Hardware Store and will sell anything related to gardening and the small fix it yourself materials. He does not plan on opening up a grocery store isle and sell vegetables. However, he will sell you the tools that will grow all the vegetables you want.
Both business models work, I think you just have to decide which one you belong to.
Ramsey
It’s no wonder this article has started a debate… I was pretty excited to hear that someone was ready to label something as MSP 3.0 but what was described here was MSP 2.0. If you’re not already doing what was described here, you are behind the curve.
Mostly, I agree with Ramsey, except that my company never charged for monitoring. We were doing what is now considered managed services ahead of many, and when monitoring surfaced, we instantly added it in order to reduce our cost of doing business. But you can’t just keep spending monies to add services and expect to get your ROI in ongoing increased efficiencies. If you are doing your job properly, then you’ve assumed the role of “trusted advisor” and when you roll out a new offering, you’ll have a core group of attentive clients ready to hear what you are ready to deliver and they’ll be ready to buy.
The reality is that what managed services has allowed us to do is to have our customers really trust us to manage their infrastructure. Next, if they trusted us to manage the infrastructure while it was at their site, they will trust us to manage it when it’s at a datacenter…our datacenter. And once their infrastructure is at our datacenter, and they never see it, touch it or feel it…we really become the brand. Then we run dedicated pipes to our clients, provide them with bandwidth and even virtualize the infrastructure…and why not push a hosted VoIP solution to them over that same pipe…or whatever else we can find? ..and the whole thing is managed, on demand, and our customer don’t need to worry about a thing or have any capital expenditures. Talk about owning that customer…that’s MSP 3.0! And, by the way, we’d better get to it fast, because there are a couple of giants out there who are spending billions of dollars per year, building datacenters and going after our clients…direct.
Cheers
– Rory
Rory: Thanks for the thoughts. I agree with a lot of what you describe in terms of virtualizing everyting for customers. A few months ago I described how more and more services would ride across MSP broadband pipes. The blog entry also described the MSP hype cycle for new services. Here’s a look, in case readers missed the piece.
Hi Joe;
Event went great – yes we have 3 more scheduled – I’ll email you offline.
If I understand you correctly, Ramsey, As a Trusted Advisor selling Managed Services on value I have to disagree . Think of your client base as a pyramid. You have lots of clients paying you a small amount of money making up the bottom third – the widest part of the pyramid. In the middle third of the pyramid you have a much smaller amount of clients paying you more money than the bottom third. Finally, the top third of the pyramid is comprised of a very small amount of clients paying you the most money.
Our philosophy during and after transitioning to Managed Services and selling on value was to release the clients in the bottom third of the pyramid as we actively signed new “A” clients in the top third of the pyramid, replacing their revenue. We then were left with a lesser overall number of clients; but these were now “A” and “B” clients, who payed us more money, and viewed technology investments as strategic investments that provided them a competitive advantage in their markets, and were much, much easier to support and sell additional services and solutions to.
We now had “squeezed” our pyramid from the bottom and forced “A” and “B” clients up into the 2 halves of this new pyramid (no third tier anymore), and battled commoditization by only selling our services on value….great debate!
Erick Simpson
MSP University
http://www.mspu.us
Sometimes it’s hard to describe everything without writing a book. Sorry I was not clearer.
Eric, when I was a reseller we sold a 3 tier system, Block agreement with monitoring, Managed Service contract (69.00 per user) and the HaaS. The goal was to move clients up the food chain as fast as we could because at the top we were considered the “Bruce Almighty of Tech” to our clients. We too had a pyramid of solutions.
My concern was really addressing the thought pattern of adding other industries to your MSP offer and the fact that a lot of guys get caught up in the pricing game because the market moved from 2.0 to 3.0 and they are not sure what to do now except add cost (value) or decrease price.
Personally, I really like how Rory has moved his model from 1.0- 3.0 it keeps everyone focused, employees understand specifically what they do and by applying a little common sense they get the big picture of progression. However, if Rory had added Frontrange (Goldmine) SaaS play with customization, then added an Intuit strategy for accounting and along the way added electricity Service (Ha Ha) as an added feature – My guess is you get the picture. He would have to become the Wal-Mart of Tech. Think about my Hardware Store guy – I did put a few words in his mouth. He can help someone grow a vegetable garden but it does not mean he is going to sell the produce as well. …… You may provide the tools that support a Goldmine solution to work, it may not mean you need to sell goldmine directly.
With SaaS and HaaS being a natural extension of the MSP Revolution (You’re welcome Amy Luby). MSP’s have to be careful of what they offer and how they offer those solutions within the MSP Solution. Here is a good debate –
If we agree that 3.0 simply increases our focus, allows us to become the Trusted Advisor partner for our clients and add those Utility based solutions (SaaS, HaaS, Cloud, Hosted, etc.) that cement the relationship then……How will businesses be able to change from getting profits on solutions when completed versus now getting profits on solutions when completed of a term (2-3 years).
Example: Solution (A) gets paid a profit of 15k within 30 days of completion and has been used to being paid this way for 3 or more years. Solution (B) now gets paid 15k over 36 months (416.00 per month) after completion, not to mention the cost of the product went somewhere. It would take a business over 3 years of selling this model to ever get to a true ROI. Because in 3 years from completion they would only have gotten the profit they normally would have received within 30 days. ROI is based on investment; their investment was 15k of profit over time. Where is the return on that investment?
To me, MSP 3.0 will cause major problems for most businesses not because of the lack of trying but because they are locked into certain overhead of doing business and cannot adjust or sell their way out of it fast enough.
I am enjoying this debate….
Ramsey
Ramsey,
I agree with your brief financial analysis. The greatest challenge once an MSP establishes a strong sales/marketing engine is scalability. If you continue to sign up clients with unlimited support, you have to build in audit processes to gauge your risk level with a prospect (this slows down the sales cycle considerably) or you have to set exact guidelines under which support becomes unlimited.
The biggest problem is ownership, how do you insure or manage an infrastructure that is out of your control. The client will always ultimately be responsible for their infrastructure because they control the investment. An MSP can not simply decide for a client that they will spend $15K upgrading their Exchange infrastructure to bring them into compliance for unlimited support and management.
I could go into a completely other argument about why unlimited support kills the value of our service… (supply and demand, if the support is unlimited then the client doesnt value the support that is provided, nor is there a natural incentive to make proactive investments into their infrastructure to reduce support costs…)
If your not using some sort of compliance theory or audit approach then your playing the game of averages. Some clients make you money, some don’t, and you hope that you make more on the profitable ones then you lose on the others.
How do you create a business model that can scale as quickly as you can sell it? That’s so simple it could be sold via a website? That’s profitable with every client!?
I would also add that Managed Collocation doesn’t address this issue, it improves the model but is still flawed.
The question I ask is, Does the client care about managing the server(s) in their server room or closet? Or, do they care about their staff having access to their data, applications, and great support when they need it?
I think we make the mistake of believing that businesses care as much about IT (the nuts and bolts) as we do. The fact is they most see it as a nuisance and cost center rather than an ally and asset. They are rightfully focused and concerned about their business and they’re looking for the easiest, most cost effective, and dependable service out there that will allow them to focus on being a Law Firm, Medical Office, Professional Service Firm, Manufacture, etc.