Would You Guarantee Your Managed Services Price — for a Lifetime?
The recession is triggering some rather wild IT service strategies. Consider the situation at Cincinnati Bell. The service provider has launched a “Price for Life” program that gives customers a permanent monthly rate for several bundled services. Plus, there’s no contract requirement. It sounds to me like an act of desperation by a telcommunications company trying to retain residential customers. But I wonder: Would managed service providers be crazy enough to make similar guarantees?
According to a Cincinnati Bell press release:
“Priced For Life is Cincinnati Bell’s price assurance to its loyal customers. With the Priced For Life program, a bundle customer can hold the monthly service fee constant at the current rate as long as the customer maintains the current level of services at the current residence. In addition, Cincinnati Bell provides this price assurance without a contract.”
Some add-on features, federal and state taxes, surcharges and fees are not covered by the Priced For Life bundle program, Cincinnati Bell added.
Of course, there are clear differences between legacy telecommunication companies and modern managed service providers.
Remember, the number of U.S. landlines has fallen somewhere between 4 percent and 6 percent annually since 2000, reports Slate. Telecom companies are therefore scrambling to introduce IP services and yes, even managed services. (Check out the latest managed services moves by AT&T and Verizon Business.)
Larger — Not Smaller — Margins
“Best-in-class MSPs (defined as the top 20% in gross margin) earned on average a whopping 65% in gross margins in 2008 and had over twice the revenue per customer. In comparison, average MSPs earned 36.7% in gross margins.
Some aspiring MSPs may resort to wild prices to stay in the managed services game. But those companies will ultimately implode as they sacrifice long-term profits for quick customer wins that don’t generate ample profit margins.