Comments on: Are Managed Service Providers Killing Their Own Margins?

By: Joe Panettieri

Joe Panettieri — Thu, 24 Apr 2008 04:42:57 +0000

If I had to sum up “the race to the bottom,” it would focus on novices bidding down their prices vs. experts promoting their value-added services. As the novices run into cash flow problems, the experts will rise to the top … and continue that race to the top, as Todd McKendrick and others have described on this site.

By: Justin Crotty

Justin Crotty — Wed, 23 Apr 2008 20:23:35 +0000

This “race to the bottom” has nothing to do with the application, tools, or propogation of such tools into the market. The race to the bottom in the IT channel, as it relates to price and margin, is simply the result of our collective inability to sell VALUE and enable our customers to differentiate us from the competition. With no way to differentiate on value or value-proposition, customer have no choice but to focus on price.

Don’t believe me? Read this and let me know if it changes your mind.
http://ingrammicroseismic.wordpress.com/2008/03/19/commoditization-has-nothing-to-do-with-commodities/

By: Richard N

Richard N — Thu, 17 Apr 2008 19:15:48 +0000

@Ben: My answer would be (5) something else.

I expect most small integrators to leverage a third-party service provider. We’re a seven person shop. Building a NOC won’t be an option for us. Even if we had the money i don’t think it would be well spent on a noc.

Something akin to the “master msp” model described on this site a few weeks ago appears wiser, at least for us. Or something similar to Ingram Seismic, where small integrators can pay a monthly fee for an online service, brand it as their own, and offer it to their customers at a reasonable premium.

I guess this could be similar to item (4) on your list, but it still sounds like (5) “something else” to me.

By: Ben Yarbrough, CEO Calyptix Security

Ben Yarbrough, CEO Calyptix Security — Thu, 17 Apr 2008 16:14:43 +0000

I am curious what MSPs see as the right industry parallels for the MSP industry to thrive in the long run. Price competition will always exist – but as long as the MSP or any service provider has meaningful market differentiation other than price, then the provider you can move the customer off of price and do well. However, monopolistic profits will always eventually bring competition. I believe much can be learned by looking “outside the box.” So what do you think is the right model? Is it:

(1) the traditional technology vendor – distributor – VAR model;
(2) some sort of franchise model;
(3) the construction industry model (with the MSP serving as the general contractor under its own brand);
(4) a new vendor – manufacturer/MSP distribution & service mode;
(5) something else?

We are listening.

Thanks
Ben

By: StuFinancesTech

StuFinancesTech — Thu, 17 Apr 2008 16:11:11 +0000

I’m not in your business but as far as I can tell, the break/fix isn’t managed services and that troubleshooter isn’t an MSP. A service to be managed is why clients pay a monthly fee for it. A service of troubleshooting is a service only managed by the client’s breakdown of their system and when they decide it needs to be fixed. That doesnt sound managed to me, thats mis-managed service.

Every industry has these issues. In mine there’s always someone cheaper but few independents like me (and fewer big boys too) have tech financing specific programs that match or beat CIT and work with the wide ranging credits that I can.

The WSJ reported about 2 weeks ago that the Dell/CIT JV to finance Dell’s customers was in big financial trouble leaving Dell potentially on the hook for $455MM in loans they made. I bet they wish they stuck to selling hardware and left financing to the financing people. The expertise is what allows us to sell on value both in mine and the MSP industries.

See the WSJ story reprinted on my blog if interested at http://southernlendingsolutions.blogspot.com

Stu

By: Joe Panettieri

Joe Panettieri — Thu, 17 Apr 2008 11:16:17 +0000

Reply to #6: Mike, you raise some timely points. The only one I would add is this: MSPs must also be willing to have patience.

Let’s compare the current MSP situation to the dot-com bubble. When the dot-com bubble burst, only the most committed people stuck around to sort things out and build out Web 2.0.

I am not suggesting that we’re in an MSP bubble. But I would concede that we are reaching a point where a lot of non-MSPs are calling themselves MSPs. The truly talented, patient MSPs will continue investing in people, processes and technology — and they will find a way to solidify their brands.

Equally important: The best MSPs will exercise patience and take a long-term view of the market. So that if we ever enter an MSP bubble, they won’t be the ones that pop.

By: A. Douglas McLeod

A. Douglas McLeod — Thu, 17 Apr 2008 08:00:10 +0000

I find that most of the information here has real merit… But I believe Price is never the problem. Knowing how to sell YOUR managed service to the RIGHT customers. This is the real problem. Walking away from the wrong clients is very hard to do, But must be done to succeed at YOUR MSP model. Whatever it is.
Go read up on http://gettingreal.37signals.com these guys are spreading the right message.

Why is Dell coming to the channel? Hunting for MSP’s. They can’t reach those customers. The channel and MSP reach the clients that Dell cannot. We need to be asking WHY we reach them.

To grab market share the larger companies are going to give it away for free just to get the market share. If they do not perform they will lose the customer… but at a big cost to the smaller MSP models and at great damage to the market space. Greed is killer of us all… both customer and MSP.
One (of many ways to attack this) is to roll up more services… keep adding more and more into your top end product, you get this big bloated service that is hard to deliver. Or get real and just do less. Instead of half way(half ass) just do half as much. But oh what a great half it is… be the best in the world at one or two things. People pay for the best when it matters.
Doug Mcleod
http://www.clearfocus.net
(caveat: These are late night ravings so they maybe way off base, and may only apply to a tiny corner of the world, aaah make that… my world *grin*)

By: Mike Cooch

Mike Cooch — Thu, 17 Apr 2008 05:41:03 +0000

Let people race to the bottom. It makes it that much more likely that a firm that doesn’t do it will survive and be successful in the long term.

Why?

Because you can’t hide the impact of low prices on your service levels to clients. Low prices =

1. Lower quality people on staff
2. Less staff
3. Slower response times
4. Longer resolution times

The list goes on. Clients will only put up with this for so long before they look for a better option. It’s the exact same reason why some hourly service providers can provide desktop support at $135/hour when other firms are offering it for $85/hour.

Mike Cooch
http://www.smbitpros.com
http://www.everonit.com

By: Todd McKendrick

Todd McKendrick — Thu, 17 Apr 2008 03:41:01 +0000

I want to be know as the guy that said:

“The best is yet to come” -Todd McKendrick 4/16/2008

Everyone should tell 10 people about MSPMentor so that this becomes the site where good ideas and insightful thoughts are shared. The sand box is giant and I really want to learn more about who, what, why, people are doing certain things in there business.

By: Ben Yarbrough, CEO Calyptix Security

Ben Yarbrough, CEO Calyptix Security — Thu, 17 Apr 2008 03:14:25 +0000

Albert Einstein said “Insanity: doing the same thing over and over again and expecting different results.”

How do you fundamentally change the technology industry to align itself with the interest of the MSP and the end customers? Certainly something must change.

I challenge you to look for a business model and solutions package that delivers significant value to your customer with an eye toward a long term relationship through which you can profit. This approach makes total sense in a service business (where the value of your business is recognized as the “lifetime” value of your customer) but not for traditional technology vendors or transaction based VAR.

To survive and thrive, I believe the MSP community requires vendors that understand this basic concept. They must provide you as the MSP the necessary technical tools on a business model or platform that is consistent with a long term relationship business. While monitoring tools such as Level Platforms and CRM solutions such as Autotask have quickly evolved to fit this need, you still lack the traditional technology/networking tools on the proper business model to complete your service offering.

Do your current vendors offer you the tools AND the business model to build a relationship/service based business? If not, maybe the MSP community still has gaps in its solution bag!

To improve the “team” [for the customer], you can change the coach or the players…. in this case… you can change your vendors or the channel….[because the end customers are always there!] …. your choice! I trust you don’t want to change the channel.

Calyptix Security is a new network/security vendor in the market with comprehensive networking and security tools AND a business model designed specifically for MSPs. Invest five minutes and take a look. You might just find something that makes sense for you AND your customers.

Ben Yarbrough
CEO, Calyptix Security