As a part of our series on 2018 Year in Review, the EDGE360 editorial team looked at how VARs took a managed services approach to grow new opportunities. We had the opportunity to sit down with David McGillivray, founder and President of InterGrid and a regular contributor to EGDE360 on managed services issues. InterGrid offers the JetStream Private Label Managed Services program that enables VARs to provide managed services without the risk typically associated with building a practice from scratch. McGillivray shared his thoughts on managed services trends and milestones in 2018, including how moving to the cloud changed how VARs and end customers approach business.
EDGE360: What were the top trends in managed services in 2018?
McGillivray: VARs and end users are looking at the impact of the transformation to the cloud on their operational organizations. End users are re-looking at staffing models that may have included multiple people who were taking care of data center, network and some collaboration, for example. If you move your data center and collaboration into the cloud, how do you justify having these resources?
It also is impacting VARs, who may have had a few employees onsite for a customer doing rack and stack, maintenance, selling SmartNet maintenance contracts and selling upgrades. The reseller may find that clients they have had for 20 years are going away, because they are moving to the cloud.
This transformation is having a dramatic impact on what a reseller has to offer. It also is affecting the resellers’ margins, because the margins on cloud services are drastically lower on product and reseller delivered services. On the other hand, it has opened opportunities for resellers to take over for the customers who have decided they don’t require/want internal resources and offer more As-a-Service options to these end users.
EDGE360: Anything that changed the way VARs consume or offer managed services?
McGillivray: The first is the cloud, as I mentioned. The second change is that hardware and software vendors are moving to a subscription service model. Instead of offering a license and then paying a maintenance fee for a specific software, you now have to consume from the cloud. In many cases, you don’t even have the option of running it onsite any longer. Oracle, Cisco, AWS and many others are driving customers to subscription.
That means that VARs who used to sell software/license fees/maintenance fees don’t have that option any longer. They are not getting the big payment upfront, but rather small payments every month, and are not able to offer the maintenance upsell.
This is pushing VARs to look for how and where they can add value in other areas of the business, and that is where managed services comes into play. For example, big providers cannot be everything to everybody, so a VAR can create a custom-managed security services play, for example, that is tailored to what the end customer needs. When VARs move into providing custom support through managed services, they can add that value and also create recurring revenue.
EDGE360: How would you define 2018 in a sentence?
McGillivray: 2018 was the year of enlightenment. VARs are starting to realize that the world actually is changing. We are now in the consumption generation – and this is being reflected in the cloud and with subscription models. This is going to grow and continue as younger people enter the market and spur more change.