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.

Dan Foster is chief marketing and sales officer for MegaPath
Networks Inc., an IP network services provider supplying high-speed access,
network and security services over a private nationwide backbone.