Declining Perpetual Licenses Should Entice VARs to Embrace Managed Services

As more IT hardware and software providers shift from offering perpetual licenses in 2023, the clock may be running out for VARs that have resisted the managed services movement. While many solutions are still available as capital purchases, vendors are making it hard for many customers to resist the as-a-service or subscription option.

The software still available with perpetual licenses has increasingly become a less compelling value proposition for customers. That’s because subscription-based software has proven much more profitable for vendors while giving customers more flexibility and predictability. Customers have also come to realize the fact that stagnant software makes them more vulnerable to cyberattacks.

CloudBlue’s Aleksander Cvetkovski

Alex Cvetkovski, CloudBlue’s director of go-to-market and acceleration services, recently noted: “Research indicates that B2B companies are increasingly leveraging recurring-revenue models to create a better experience for customers who routinely prefer making small, regular payments instead of large, infrequent ones.”

The trend is also shifting to hardware. For example, the launch of Lenovo’s new TruScale lets partners deliver “everything-as-a-service” under one contract. As part of the new Lenovo 360 model, that means PCs, tablets, servers, hyperconverged infrastructure, software and services.

Lenovo’s Vlad Rozanovich

“We’re seeing more customers engaged with us with the conversations around true scale, or as a service for both the client and the server side,” Vlad Rozanovich, president of Lenovo North America, recently told Channel Futures. “That’s a part of the business that I think is going to remain extremely strong, not just this quarter, but also moving into strength in the foreseeable future.”

Another example is Dell, now offering its server and infrastructure hardware as managed services with the launch of Apex.

VARs Adding Managed Services

The call by experts for VARs to become MSPs, or to add managed services to their business models, is nothing new. But now, more are moving deeper in that direction. One of the largest product resellers, Insight Enterprises, made that the centerpiece of its investor day event back in October.

Insight’s Joyce Mullen

“We know we can deliver higher value to our clients when we sell services,” CEO Joyce Mullen said at the event.

Guiding VARs to offer managed services is a crucial initiative for ConnectWise, which acquired technology solution provider (TSP) Service Leadership in 2021. Paul Dippell is the former CEO of Service Leadership and now ConnectWise VP of ecosystem evangelism. Dippell is a strong advocate of training VARs to add managed services to their business models.

During a recent podcast with ConnectWise chief revenue officer Clint Maddox, Dippell said managed services provide obvious benefits.

ConnectWise’s Paul Dippell

“With the typical managed service line of business, you can forecast revenue nine months, 12 months out with a pretty high degree of accuracy, whereas on the pure product resale side, it’s hard to forecast past 30 or 45 days frequently,” Dippell said.

Client Relationships

Stronger client relationships are another key benefit, he added.

“You are a trusted adviser to the advanced technology folks on the project side. But further, if they would hand some of their operations over to you as opposed to somebody else, or as opposed to continuing to do it inside, that’s even further a trusted relationship,” Dippell said.

(Editor’s Note: Channel Futures has long covered the gradual transition of VARs to adopting managed services practices. This dates back to our legacy brands, The VAR Guy and MSP Mentor.)

The hardest part of convincing a customer to hand over IT operations to a VAR is the notion that it would reduce their need for internal people. The way around that is to sell it to the CFO and CEO, Dippell said.

“They don’t know anything about infrastructure. They don’t want to hear about infrastructure; what they care about is the applications that run the business,” Dippell said.

As for the IT decision maker, the provider promoting managed services needs to have a pragmatic conversation with them by saying, “‘If your arms are wrapped around the infrastructure, you’re spending time on tactical stuff, that’s not good for your career,’” he said. “‘You need that to run really well, but you shouldn’t be the one running it. You need to take your time and focus on picking the applications implementing and evolving the applications that will take your company forward. That’s what’s going to make your career work in the eyes of your bosses.’”