RESELLER CHANNEL: Why Resell Managed Services?

Posted: 9/2003

Why Resell Managed Services?
By Dan Foster

Few business opportunities match the low barrier of entry and multilayered revenue potential of reselling telecommunications and data services. Managed services that operate on top of data communications services represent an additional revenue boon for resellers.

Managed services can be defined in a number of ways, but the most viable managed service technologies are those that are proven, easily installed, managed primarily by a third party and in demand by organizations large and small. These services usually are available through indirect channels and use best-of-breed technologies, giving customers peace of mind and trust in a familiar brand.

A recent spring 2003 research survey by Bostonbased Summit Strategies Group shows 45 percent of 200 corporate IT and business decision-makers at mediumsized and large companies are using managed services and hosting while another 19 percent expect to adopt these offerings in the next two years. The firm reports all 200 companies surveyed work with up to five managed service providers and have done so for at least 18 months.

Most small to medium-sized businesses also are great sales targets for the offerings, since they frequently do not have the scale or resources to deploy and manage them on their own. This results in a reduced time to deploy the services with a dedicated support team always available.

BEST BETS

A virtual private network service managed and monitored by a third-party service provider is probably the most compelling managed services opportunity for resellers. It is easy to implement on existing data circuits and has low/no management overhead for the reseller.

Most importantly, however, resellers can provide their customers with high-value services at a relatively low cost. This is particularly important for resellers customers in certain industries  such as finance, law, health care and public sector agencies  where secure data connectivity may be a regulatory requirement. HIPAA regulations ensuring patient information privacy, for example, are forcing health care and insurance providers to implement VPN-equivalent data services in their organizations by the second quarter of 2004. This has lead to a groundswell of demand for the most cost-effective data security technologies and services, with IP VPNs winning out in terms of cost/performance over traditional, more expensive frame relay and leased private line networks.

At an average cost of $30 per user per month, managed IP VPNs are an enterprises best bet at ensuring secure, private data connections between remote/mobile workers and offices, partners and customers. They are flexible because they ride over many access technologies and can be managed and configured remotely, reducing the time to provision or restore the services. Resellers having sold data access or network equipment now have the natural opportunity to upsell existing customers managed IP VPN services and earn additional monthly recurring revenue.

Depending on the size of the enterprise, managing and monitoring an enterprisewide VPN, storage area network or data backup and recovery system can be a daunting, intense and expensive job that usually requires significantly experienced IT personnel to manage. Managed services take the hassle and worry out of configuring the network and installing the service, adding and removing users and monitoring connection security and quality. IT managers are thereby relieved of false security alarms and administration tasks associated with adding and removing users, installing security patches, adjusting user access privileges, resetting passwords or monitoring connection security and quality.

In the case of VPNs, these administrative services and any Tier 2 technical support are typically handled entirely by the underlying VPN provider, leaving the reseller responsible for some Tier 1 customer support and management of the service.

In contrast, reselling managed storage services is akin to subleasing real estate you dont own. The tenant pays you monthly for the privilege of storing their belongings (data) in the storage unit while a third party does all the cleaning, building management and security. Like other managed services, reselling managed storage requires little overhead and is a service you can sell to a customer and almost forget about until the rent check comes in each month.

PAYOUT

Reselling managed services also has a direct bottom-line benefit for resellers because it increases total income per customer and establishes a customer-retention strategy. To the extent they are buying managed services from you, the customer will be more sticky and average contract life will increase. IP VPNs typically have a higher gross margin of 10 percent or more than the underlying circuits they operate on because the only cost is implementation and management versus leasing the physical connection.

Managed services are the key to enabling a reseller to appear bigger and more capable than they might actually be, says Nik Nesbitt, founder of channel relations consultancy MarketRace LLC. The services themselves are primarily managed entirely by a third party, but resellers can typically provide the customer service and own the billing relationship. In acting as a rebiller and reporting all of its customers bill as revenue, the reseller makes itself look like a larger company than if it were only an agent, where it could only report as revenue the commissions earned  typically less than 25 percent of the billed revenue.

Managed services can be both an entri into new customer accounts as well as an opportunity to build on existing ones. It helps resellers penetrate more deeply into each customer account, thereby creating a multilayered product and service sales model that engenders higher customer loyalty.

Conventional wisdom is that the more products and services your company provides to the customer, the less likely the customer is to switch to the competition even for lower prices and more features.

INCREASED ODDS Reselling managed services also should take into account the varied needs of the enterprise customer, provided the demand is there along with the margins. Nesbitt says that resellers can economically provide multiple services as long as they build in the expertise within their organizations to support the services and select providers of the services who support them well.

Supporting customers with managed services at multiple sites regionally or nationally requires the reseller to offer a large broadband footprint. Typically, resellers act as agents for multiple network providers. Another option is procuring these services from a network services aggregator. Working with an aggregator gives the reseller instant access to a large service footprint and a multitude of access technologies, such as DSL, cable, T1s, ISDN, dialup and frame relay. For example, the reseller can help the customer reach newlyopened remote offices and teleworkers, or help a customer to lower its fixed costs by migrating from frame relay to less expensive IP VPN services that operate over readily available DSL or cable.

Resellers should consider equipping their arsenal with services from managed IP VPNs to Web hosting to storage so they can demonstrate the value of being a one-stop shop to customers.

There are a number of complementary managed services and products that are obvious fits, but resellers need to be on top of everything that is available so that when theres a customer need, the reseller doesnt have to deal with the pain of a missed opportunity.