Channel challenged in hybrid IT model

These were some of the key messages delivered to the Managed Services and Hosting Summit by Tiffani Bova, Gartner Distinguished Analyst. As she told the large audience in London on Thursday 26th September, “The more uncomfortable you feel, the more successful I have been.”

Not everything has to change rapidly, or completely. Steve Pearce of distributor Arrow ECS confirmed that there was still a huge traditional distribution business, but warned that the channel needed to invest ahead of change. “There is not a rush to managed services but change is happening.” Even the cloud term itself is on the way out: “It's not about cloud; it's all about what the end-user needs and wants,” he said.

The disruptive nature or the managed service model requires that the MSP embraces the use of technology in their own organisation to be able to deliver, manage and bill services correctly. Even as a successful managed services specialist itself, Tim Walker, MD, Taylor Made Computer Solutions, told the summit that its own managed services provision had been held back because they had failed to acknowledge the level of investment needed in technology and processes.

Tiffani Bova highlighted the new routes to market and channels competing with traditional IT sales. IT departments are losing control of IT buying, she said. “Those outside IT are now capturing more of the spending budget. Marketing, sales, supply chain, finance and HR functions are buying more IT, not just as a service, but also software and infrastructure. They prefer to buy as a service.”

This is a major break from the traditional IT department role which had had a controlling function. Now, other departments will implement solutions, and the IT department has to secure it after the event. And channels, which have traditionally been selling technology to IT departments have been resisting change:

Vendors can't reach these smaller customers without channels. The traditional channel is saying it is not going to introduce this, but customers are most challenged, not by technology, but with management and operations, so this is the opportunity. “If you can work out how to help them with the management of managed services, you have an opportunity to capitalise on where the customer feels they have gaps,” she said.

The change is being driven by a nexus of forces: “Social, mobile, cloud, information - those four are colliding in the organisation and are what is driving the managed services business.”

New channels are emerging, including those “born in the cloud.” These new channels are agile, effective and focussed on services, not with reselling. They don't get caught up in 'who bills the customer? And who owns the customer?' and they don't talk about MDF, deal registration schemes, rules of engagement, using vendor marketing tools. They say all they need is a stable environment they can build on, and a predictable market so they can manage it going forward.

An example of a business born in the cloud is Cloud Direct. Their Chief Business Officer, Eliza Rawlings, told the conference that Cloud services brokerage means aggregation, integration and customisation. Because the model relies on customer word of mouth, Cloud Direct has a policy of making customers “not just satisfied but advocates” to help reduce churn. Cloud brokering means very different P&L numbers, and demands extremely flexible billing systems because of changing special offers from suppliers, which means the company has to be master of all its processes.

And even established IT businesses cannot reply on reputation in this new market: Even IBM has to prove it can deliver compliances - that's the legal bit. “And SLAs with exclusions are ripped apart by client lawyers,“ warned Jerry Crossfield, IBM UK & Ireland MSP Leader. The mid-sized companies rely on channels for advice on technology, he agreed, so it was vital for them to offer managed services. “The mid-sized firms use local trusted business advisors so cloud could be even more right for them than enterprises,” he suggested.

Throughout the whole of the event there were three key messages that kept surfacing from the different speakers, Process, Automation and Partnerships. The secret of success appears to be about focusing on your processes from sales lead generation and acquisition through to service delivery and billing. Without the right processes in place profitability and customer retention are impossible.

Automating those processes so that you get them right every time is also key and that means investment in technology. The final message that came through loud and clear is that without partnerships the MSP will struggle to keep up with customer demands.

Partnerships with vendors, service providers, distributors and Cloud Service Brokerages will not only enable the MSP to get to market more quickly with their service offerings but will remove much of the financial and technology risk of trying to do everything oneself.