Wednesday, March 12, 2008

Rethinking managed services

This is my reply to a posting by Robbie Upcroft on getting into managed services.

You are right in saying that managed services are the way to go but I content that perhaps the time is too late. Why do I say that? If you haven't read the book the World is Flat then you should because it details how all this sort of work is going to be done from places like India. To get an idea of what they charge have a look at : As the site says "We hire out quality IT staff by the month for an hourly rate as low as US$3.36."

Problem with managed services is that they are so easy to replicate. If you have the cash go out and buy something like Kaysea and you're away. Sure you'll be able to convince most existing customers to come on board, not because of what managed services offer but more likely because they'll do what you tell them. Fine. Now what about new customers?

Why would I pay for you to manage a workstation? Will what they'll ask. I don't care if it is defragged, etc and if it fails I just use another temporarily. Sure, I'll take managed services on a server but on the desktops? No thanks too expensive. Is typically the response we have received.

Most clients in the SMB market space are looking to save IT costs and most won't pay a per month charge greater than say $10 because it doesn't make sense. If you have invested all that money in backend infrastructure like servers and Kaysea are you really going to a see a return on investment? Only if you get all client machines, including workstations onboard. As I said previously I think you are going to struggle to get any new clients on board with this.

Finally, what happens when people like HP and DELL enter the market by offering managed services on every PC they sell for LIFE (which they will)? These guys will be able to drive the costs right down simply because of their size. Even the best customer at some point will look at a cheaper prices (for essentially the same thing) and tell you, sorry but I'm going elsewhere.

So, in summary, yes managed service is an opportunity but it is not a saviour for a bad business model. You need to look at the setup and on going costs and license fees and ensure that you are going to get the numbers on board to cover these and make money. This is going to get harder and harder everyday as more people enter the market for "managed services" and drive the price down. I think it is too hard to differentiate yourself enough with a managed services product these days and there are not many barriers to entry. It is basically a volume business and SMB resellers really don't have the volume to make this work long term in books.

Only my opinion.