LabTech Automation Nation 2015: Cloud Pricing, Perspectives, Best Practices

What cloud services should managed service providers (MSPs) sell to customers, and how profitable can those services really be? These are questions that MSPs are grappling with every day right now. Service Leadership CEO Paul Dippell presided over several sessions at LabTech Automation Nation 2015 last week that provided perspective on these questions.

Here are some of the takeways from a couple of Dippell’s sessions, including an overview of the cloud market from his company and some real-world perspective from a panel of MSPs. Let’s start with an overview of the cloud market today.

Dippell divides cloud services into a few different buckets – private cloud (the service provider owns the data center), vendor-branded cloud services (such as Microsoft Office 365), and white-label cloud services.

Just say no to running your own private cloud

Operating your own private cloud is probably not the best choice for IT service providers, according to Dippell.

That’s because capital requirements of infrastructure investment are high. Plus, private cloud operators must invest in new equipment every few years and pay for it all over again. And an MSP investing $10 million in a data center will never get the volume pricing benefits of another private cloud operator investing $100 million in a data center. It’s best to leave private cloud operation to bigger players.

Choose your cloud provider wisely

So if you are not running your own cloud, choosing the right cloud provider is important. Dippell pointed out that 80 percent of cloud firms are venture funded, and venture investors put their companies on a clock when it comes to succeeding or failing. And they expect 70 percent of these companies to fail.

So MSPs can expect to have a lot of churn behind the scenes in terms of the providers they use. “You have to be able to charge high enough to make things work on the back end. You have to charge high enough to be able to transfer those customers from one cloud provider to another if something goes wrong.”

Vendor-branded or white label?

Should you sell vendor-branded cloud or white label your own solutions? Dippell said he predicts that you will be better able to hold onto margins with a white-label approach.

And what about on-premise applications versus cloud-based? Dippell points out that in cloud-based applications, vendors control the upgrade schedule. If a new version comes to the cloud, you have to use the new version. If you are an on-premise customer, you can stick with the version you are using and delay or skip the upgrade.

Dippell’s company Service Leadership has much more information about pricing, trends, the cloud and profits than MSPmentor can provide here. Check out his company’s site at this link.

MSP cloud panel discussion

Dippell also presided over a panel made up of three successful and well-known MSPs. Panelists included M.J. Shoer, president and founder of Jenaly Technology Group; Andy Harper, CEO of Gaeltek, LLC; and Tim Sheenan, director of technical services at CalNet Technology Group.

First of all, none of the companies represented on the panel operated their own private clouds. Here are some of the other questions and answers.

How can MSPs vet cloud providers? What questions should they ask?

It’s all about getting the right support, these MSPs said.

Harper of Gaeltek said one of the key questions he has when vetting cloud providers is about customer support. How can he escalate his service request when there is a problem?

Shoer of Jenaly agreed. His company is all-in with Microsoft and uses Azure for infrastructure. He said he vets cloud providers according to their quality of support and communication. And he recommended MSPs talk to IT distributors, particularly Ingram Micro or Synnex. “They will provide you better support than if you buy direct from Microsoft,” he said. He buys Microsoft through Synnex.

Do you monitor your cloud providers?

The short answer is a resounding yes. All three MSPs on the panel said they monitor their cloud providers, and Harper of Gaeltek added that his company also looks for patterns in the data to identify issues that may not otherwise be obvious.

Shoer noted that Reflexion Networking has posted a set of LabTech Software monitors that simplify the monitoring of that company’s services.

How much or how little do you put your customers’ services in the cloud?

Shoer said that the answer depends mostly on the customer. Some customers are averse to putting services in the cloud due to previous negative experiences, he said. In one instance Jenaly moved a customer from hosted Microsoft Exchange (implemented by another provider) back to an on-premise Exchange server.

How do you handle cloud outages that are not your fault, but are your provider’s fault?

Harper of Gaeltek said that right from the start he sets customers’ expectations. He tells them that there will be service outages.

Shoer tells customers that when there is an outage they will hear from Jenaly every 30 minutes until service is restored.

Sheenan said that what customers are looking for is a therapy session. “Somebody wants somebody to yell at and offer them an apology.” So that’s what CalNet offers.

And how do you compensate your sales reps for cloud sales versus other sales?

Shoer was the only one with an answer on this one, since Sheenan’s focus is on technical services, not sales, and Harper is the only sales person at his company. Shoer said he offers his sales reps a percentage of the contract, and that percentage is the same whether it is an on premise sale or a cloud sale.

Do you agree with Dippell’s perspective on the market? What about the MSPs on the cloud panel? Got a different idea? Please share it in the comments below.