Getting the full service?

Trade

The future of IT is often summed up in one word: services. There’s nothing new in the preposition that IT companies will need to turn to services to survive because the margins on product are getting so thin they’re practically see-through. It’s been doing the rounds
since the end of the 80s.

Vendors have been exhorting their channel partners to make the transition to becoming service providers for many years and some have invested time, effort and money into achieving it. But for the vast majority, the shift to services has been more a question of
updating and relabelling their maintenance capabilities than becoming full-scale service providers.

This is worth bearing in mind when it comes to examining what role the channel can play in delivering managed services. As with all hot IT topics, managed services manages the trick of sounding simple and horrendously complex at the same time. Defining managed
services is not so straightforward.

Richard Nolan, managing director of Decision Support Services, is critical of the way in which the term is used to cover a multiplicity of sins. ‘To me, a lot of things are bandied around under the heading of managed services. Things like providing anti-virus updates
are tasks not managed services. I’m talking about a big bang solution – about taking over the main enterprise systems, the core computer systems. The other things are just chipping around the edges.’

He believes ‘only large companies’ can deliver the big bang managed service. ‘I don’t think any reseller can, even in the SME market.’

In terms of potential customers for the big bang managed service, Nolan argues they have to be global organisations or very large companies. Does that mean the market in Ireland isn’t big enough for resellers to invest the time, effort and money to become capable of
delivering his definition of managed services?

Nolan thinks so. He argues most resellers are ‘glamorising a task and saying ‘this is a managed service’.’

Trickle down effect
Nevertheless, there is a trickle-down effect when decisions made at a global level affect organisations based in Ireland. For example, a multinational might outsource its computing services to IBM or HP at a global level but might have certain contracts locally with people like DSS and other local companies. It might not make sense for a
large operation like IBM or HP to gear up to provide the service the reseller is involved in. ‘That’s where the reseller would fit in,’ Nolan says.

Joe O’Reilly, commercial director at IT Force, agrees that it’s hard to define managed services. ‘There’s a huge discrepancy in what people term as managed services. It’s very hard to know if it will ever be clearer.’

IT Force has its roots in outsourcing. O’Reilly freely admits it set up in 1999 with the expectation that the IT boom and the lack of qualified staff would lead to outsourcing taking off. ‘We found it didn’t because there was a fear of it, a fear of losing control.'</p>

He believes managed services are ‘defined by a service level agreement (SLA). You’re paid for a level of service and measured by that. Most large resellers are slowly becoming aware of the area of SLAs and the theme of managed services. Until recently, it was seen as an extension of the maintenance contract, but managed services is more about trying to guard against various support issues happening. The big difference between managed services and maintenance would be proactivity.’ O’Reilly says the issue of ownership and being rewarded based on the level of service ‘is still alien to a lot of resellers and customers’.

Ray Breen, sales and marketing director at Servecentric, offers his own interpretation of managed services, describing it as ‘a much touted term but many who claim to offer it are really offering technical consulting or the outsourcing of traditional IT operations.
Managed services is about value added services that are complementary to an IT function and typically offer either enhanced levels of service or provide new services that add value to the business’.

He provides examples of what he believes come under the managed services umbrella: Managed data management, managed application continuity, managed networks (m-Commerce in particular), managed data compliance and managed disaster prevention.

Remote delivery
Many of these services ‘would be delivered remotely where clients could enjoy economies of scale from utilising what is in essence a shared service offering.
Operationally, the services appear to be delivered from within the client organisation. The emotive issue of control does not arise as the control point is still with the client’s IT function and the deliverers of the service do so under the aegis of the client IT
management.’

O’Reilly also emphasises remote delivery as part of the managed services equation. In many cases, IT Force becomes the virtual IT department for organisations with 20-80 PCs. Through a remote link to these organisations, it can take over the servers and desktops and offer a basic level of support. It can also monitor anti-virus updates, email and storage capacity.

Most of these types of service fall under Nolan’s category of tasks, but it is the area of tasks where most resellers operate. More importantly, it’s where most suppliers think resellers are best placed to operate. And many of them are packaging their ‘managed
services’ for resellers to sell on to customers, especially in the SME market.

A good example is Eurokom, a business which managed email services for corporates. Until now, the company has always sold direct but recently it announced plans to appoint resellers to sell its managed email services to SMEs. ‘It’s very difficult to deliver to the
SME market without feet on the street,’ says sales director Brian Lynch. Resellers provide those feet on the street, along with geographic coverage, IT competence and customer relationships.

Resellers will be able to provide the Eurokom service as an extra product/service to their customers. ‘It’s a clever way of delivering service to the client because people are very comfortable with their local client.’

Lynch cites the example of one company which reacted negatively to a direct mail campaign from Eurokom. ‘I was talking to a reseller a month later and found out it was selling services to that client. The reseller mentioned our service to the customer and the
response was ‘if you think we need it, where do we get it?’ The proof is in the pudding.’

Interxion is another business taking the channel route to provide its managed backup and restore service. Sales and marketing manager, Jason O’Conaill, says resellers can sell its secure data service (SDS) as their own product if required. ‘The customer log-in portal is
branded according to the reseller’s need. The support is branded to the reseller. They’re making pure revenue off it because they don’t need to invest in hardware or software licences. They’re going to customers where they’re installed Exchange or LAN infrastructure and they’re presenting this service as a value add.’

Reseller trust
He agrees with Lynch that resellers can help deliver more clients. ‘Customers trust them; we would just be another new face trying to sell a product.’

In addition, they’re selling the service in small increments which would not be viable for Interxion. ‘We wouldn’t be in that business,’ O’Conaill admits. ‘It wouldn’t work for us because there are too many customers and the increments are too small.’

This approach is becoming commonplace. Security distributor NOXS Security is offering an anti-virus service called VirusScan ASaP. According to general manager Fergal Murray, resellers ‘need to do absolutely nothing – we provide everything including service and technical support. We give them as much control as possible to manage the user.’

He claims the cost of entry for resellers seeking to offer the service can be ‘as little as zero’. And Murray argues providing such a service ‘brings value into what the reseller is offering the user because the reseller is staying there virtually over the period of the service and the user is continually reminded the reseller is providing the service. The reseller can nearly own the customer.’

It gives resellers the opportunity to sell other products and services and retain customers’ loyalty. Murray says this is a big plus, particularly given ‘the way the market has gone where it’s difficult to retain loyalty and it’s difficult for a customer to value a reseller’.

Meanwhile, another security distributor, Unipalm, is offering a managed security service known as Safeanet. Through a security management portal, Unipalm pushes patches, firmware updates and reporting to reseller customers.

Robert Nash, director of Unipalm Ireland, believes it will be ‘especially relevant to small and medium businesses that often have few security skills in-house.’ And Unipalm is attempting to ‘make it as easy as possible for resellers to take a full value add offering to
their clients without the need to go through costly training and accreditation programmes’.

He says that although many of Unipalm’s resellers are technically capable and would be able to offer the service themselves, ‘it’s more a case of do they want to divert resources to this and make the up-front investment when they can buy an easy ‘package’ from the
distributor?’

Security
John Gilsenan, analyst at IDC, says security is an area where these kinds of services have potential because ‘people are increasingly concerned about security issues. They’re concerned about where IT might go wrong. They’re focusing on problems rather than where they can improve the business.’

The best potential for resellers is in the SME market but ‘it’s hard to make the balance of investment against the potential market. The sales cost is higher and the revenue stream is not as high.’

This may explain the move by service providers to push their offerings through the reseller channel to SMEs. The small number of large scale businesses in Ireland may also act as an inhibitor to any reseller considering taking the road to being able to offer more
sophisticated managed services.

David Dunne, channel manager at HP, says the partner community needs to start building service solutions for SME customers. He agrees it makes sense for them to partner with service providers because of the size of the market and the cost.

The size of the market for large scale managed services deals is not huge but partners can find a niche in providing services on HP kit in instances where it makes more sense for the hardware giant to use one of their engineers rather than its own.

O’Reilly at IT Force says it has had discussions with HP, ‘but my gut feeling is that it has sufficient manpower and is reluctant to give away any type of business’. Mark McArdle, practice manager at B.I.C. Systems, proffers a different explanation. In big contracts,
which usually run for five or ten years, companies like HP or IBM ‘are probably losing money in the first two or three years of the deal. There’s less likelihood of them hiving off work to a mid-tier player in the market. Most big players have got help desks, database specialists, network specialists and security specialists. They keep it in-house to keep the cost down and the risk.’

Collaborative approach
But McArdle adds that B.I.C. works well with companies like HP in collaborations ‘going after managed services contracts in a consortium type approach.’ He says there are a number of such bids where B.I.C. would be providing the core part of the contract.

Nevertheless, SME seems to be the logical market for the bulk of resellers to target, especially given how many there are in Ireland (and how many resellers fall into that bracket). In many ways, the approach taken by service providers to resellers is much the
same as that adopted by product suppliers seeking to sell their product to a wider market. Many are seeking to use resellers as the gateway to sell their services to a broader range of customers – most of which it would be uneconomic for them to target themselves.

For the large majority of resellers, their role in providing ‘managed services’ could be much the same as the one they fulfil in selling IT products.

Managed IT security market grows in Europe

In a briefing paper released 12 months ago, Forrester Research predicted the European market for managed IT security would grow to €4.6bn in 2008. It claimed managed firewalls would account for 36 per cent of the total market with revenues of €1.7bn, while
managed intrusion detection systems would account for €1.5bn in revenues.

Managed PKI certificates would generate €1.1bn in revenues but vulnerability assessment would account for only €318m.

The market researcher predicted SMEs would generate 66 per cent of sales or €3bn out of the €4.6bn total. Companies with less than 10 employees were unlikely to opt for managed IT security but those with between 10 and 249 employees would represent ‘as
much as 52 per cent of the total 2008 market’.

Larger businesses with more than 5,000 employees would account for only eight per cent because most of their managed IT security services would be ‘wrapped within larger infrastructure outsourcing agreements’.

17/05/04

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