Over the past 2 years I’ve observed a sea change effecting VARs, resellers and consulting businesses as they begin to shift to hosted services models. Progressive organizations are climbing the customer value chain as they begin offering hosted services for applications, and even going as far as providing hosted desktops – offering higher customer value, tighter customer relationships, and lower overall churn.
But achieving this step-up in value (and new growth-engines for existing managed services business) can also prove to be disruptive to the unprepared.
How do VARs and dyed-in-the-wool MSPs successfully shift to a hosted workspace model? How do they make the case to management for this shift? How do you morph from hosting mailboxes to hosting desktops? From bespoke engineering to replicable services? From thin margins to double-digit?
Success factors that make the difference
During the past years with Citrix I’ve been working with some of the worlds most advanced (and some not-so-advanced) VARs, hosters and MSPs who are making this change. And during this time I’ve seen a basic set of recurring themes, opportunities, war-stories and of course, success stories.
They boil-down to the following categories; during future blogs, I’ll plan to cover the each:
- Goals: Why transform, and what’s the payoff?
- New business model and recurring revenue models
- Service definition and market differentiation
- Operational transformations
- Technology transformation and impacts
- Sales and compensation changes
- Marketing and demand generation differences
Who’s Making the Hosted Workspaces Transition … and Why?
Over time, most technology-based industries will confront either commoditization or outright disruption of their businesses. This holds particularly true for VARs and managed services alike. Already in these businesses we see
- VARs – acquiescing that simple product sales and install/break/fix are not generating the margins they once used to. Plus, their customers are seeking out more full-service technology partners that can assist with all parts of their lines-of-business – thus acquiring more strategic vendors.
- HSPs/MSPs – (hosted service providers / managed service providers) are finding that the business of providing generic outsourced servers, or simple application hosting like MS Exchange, is becoming less lucrative and more competitive. They are seeking ways to climb the value ladder to provide fewer commoditized services, and more strategic outsourcing revenue streams.
- Infrastructure-as-a-Service and Hosted Networking – Similarly, providers of IaaS and outsource networking (NaaS) are finding that such services are also vulnerable to commoditization. For this reason, we see IaaS providers going “up-stack” offering higher-value Platform-as-a-Service packages – including hosted applications, desktops, databases, directory etc..
Ultimately these transitions are occurring because existing services are becoming lower value and continue to be transactional. There is a distinct industry move toward recurring-revenue services that benefit both provider and customer. For the provider, a recurring revenue stream signals longer-term reliable cash-flow and valuation; for the customer a subscription-style service transforms capital expenses into operating expenses which are easier to budget and account for.
If you are part of a vendor channel, and haven’t made at least a partial shift to higher-value differentiated services and/or to a recurring revenue model, you may want to review your business strategy.
In future blogs I will drill-down into the various changes needed to make these transitions as well as all of the resulting benefits. In the mean time consider the following links:
- [Blog] How big is the DaaS market
- [Blog] Differentiate or Die – Why MSPs need to change their game
- Citrix Service Provider Program