|By Gathering Clouds||
|June 11, 2013 09:14 AM EDT||
We recently had the pleasure to sit down for an extended chat with Joe Panettieri, EVP and Editorial Director at Nine Lives Media. Our discussion covered a range of topics including the value of the MSP in the cloud market, how MSPs differentiate themselves, what success looks like in the cloud-related markets, and much more.
This is the first of 2 parts, check Part 2 here.
GC: Tell me a little bit about your background and your engagement in the space. Why do you find writing about the cloud provider industry so engaging and important?
JP: So my focus is a little bit beyond the cloud. My main focus has been the IT channel over the last few years, including VARs, managed service providers and increasingly, cloud services providers. As the cloud came along, my company saw a natural opportunity to cover the intersection of the IT channel and cloud computing: how VARs and MSPs will change their businesses for the cloud, and then how cloud services providers, cloud aggregators, and cloud brokers will build out their businesses as well.
The reason I’m so intrigued by all this is because, in my mind, it’s not really a technology conversation; it’s a business model conversation. How businesses can plan properly in terms of their budget for cloud services, and then how cloud service providers, VARs, and MSPs can monetize these services in a profitable way with the right compensation models, etc. So I really enjoy the business side of the conversation.
GC: What about drilling down a little bit into some of those models that you’re talking about? What about the MSP model is particularly interesting to you? Why is that such a compelling story, especially right now?
JP: If you look at the history of the channel, most channel partners focused on product sales, and then some consulting services around that. A company like that would get a several hundred thousand dollar deal perhaps, with money up front to build out a network or a specific application for a customer. The project could take months and months, but these businesses would be making lots of money right up front.
That’s the historic model. With the managed services model of predictable monthly billing, with pro-active management support of the end customer sites, it’s a completely different financial model. VARs can either go blow up their company and start over with complete recurring revenue model in the managed services space, or they can seek to achieve the delicate balance between product sales, consulting services and managed services.
Again, it gets back to that business-level conversation. One of the reasons I was so intrigued in covering this space is we’re a small business as well. We were launched in 2008. We were acquired in 2011 and as we were building out our own business model, it was fun to write about our model, but also intriguing to cover MSPs in the space and the models they were leveraging.
GC: So looking out at the range of MSPs, VARs, etc., how do you understand these companies in terms of how the market dictates their success?
JP: Historically a lot of the products sales were vendor driven: “Microsoft has a new product. So I’ll sell that into my customer base and make some money.” But the power has shifted to the people, both the end user, with bring-your-own-device (BYOD) for instance, but also people in terms of the corporate business managers, or the chief marketing officers who want to activate a stats-based marketing campaign or a lead generation program for example.
So this whole idea that a vendor such as a Microsoft or any other big IT company would promote a product to partners, who in turn would really sell that into the customer base, has been flipped on its head.
Now it’s the consumers – the end user or business manager – demanding certain services forcing the channel partners to react accordingly. This further influences the vendors, whether it’s Microsoft or Cisco or anyone else is developing product. So it’s a wild time out there. The entire business has been flipped on its head.
GC: Then for managed service providers, in particular, what challenges do they solve for businesses, and what challenges do they also present?
JP: I think managed service providers have freed up businesses, their customers, in terms of innovation. If I’m a business, why would I employ numerous people to just maintain PCs, servers, printers, work stations, and all the basic nuts and bolts of the IT infrastructure? I mean that’s maintenance service; that’s not innovation.
That’s the problem the MSPs have solved historically. They just keep customer businesses running and those customers are now freed up to spend more IT budget on innovation, including a boatload of cloud innovation. But even that’s getting challenging in that the MSP services offered, since so many of them are becoming nearly as commoditized as the tech they use. Basic PC management and support is now a commodity.
The MSPs themselves have to move up the food chain. And I see them as sort of the rare type of company that can do both the on premise management, but then start to plug their customers into various cloud services. So the MSP almost becomes a gate keeper for everything that flows into the customer setting, whether it’s on premise hardware and software or various third party cloud services.
GC: Does that position the MSP to be a major influencer on the way a company can access innovative new tools and technologies or are they simply a gate keeper?
JP: They’d better be an influencer. A prime example would be if I’m a business owner or if I’m that end customer: sure I could go out and buy a range of cloud services directly from the cloud providers. It’s easy, at least first. But once I get up to three or four or more cloud services, how do I integrate all that? How do I manage the billing for all that? This is where the MSP comes in and instead of just being a reseller of cloud services, the MSP is making informed business recommendations to the customer in terms of what’s the use and value, and then tying it all together while providing vendor management all the way through the process.
GC: What are the challenges MSPs present?
JP: One of the key challenges is whether an MSP really has any intellectual property. Say I’m an MSP. I’m basically on-premise. I’m managing third party devices and in the cloud – most MSPs are simply plugging into third party services. Eventually that gets commoditized as well because the MSP really doesn’t own any intellectual property in all that.
So what we’re starting to see is some MSPs, maybe five percent of them, are developing their own software or their own integration code. This enables them to have their own intellectual property where they can continue to charge a premium for what they’re offering. So maybe in a legal market, for example, some integration code is developed that ties together document management, mobility, and things of that nature. The MSP has the secret sauce to tie that all together because it’s their intellectual property and they will continue to charge a nice premium for that.
GC: Is there a limit in terms of an MSP’s applicability to a business when compared to the scale of that business or are they always applicable to at least some portion of a business? When does it make more sense to own rather than to rent?
JP: The only limit for MSPs is ultimately their own desire. An MSP has to decide what they want to be. Do they want to be a lifestyle business? Do they want to be a growth business? It’s really up to the CEO. The possibilities are limitless, but the work itself gets quite heavy.
I think the vast majority of MSPs will remain lifestyle businesses and continue to serve customers well, but they won’t become that sort of strategic, mission-critical player for the end customer. But then there are other MSPs that are just taking on more and more workloads because the CEO is determined to make sure that it’s more than a lifestyle business, that it’s delivering real intellectual property. So I think the only limit is the CEO’s stomach for risk, and the CEO’s overall ambitions for the company.
GC: So let’s say a business does decide to go to an MSP and access cloud that way, beyond cost reduction, what value is that MSP bringing to that business?
JP: The other thing with the MSP that we shouldn’t forget is that they deliver is predictability. I’m always wary of positioning an MSP as a cost reducer – I don’t think managed services are about reducing costs at all. In some cases they are, but I don’t think it’s the primary motivation for managed services. For instance, when we launched our business, we used a range of cloud services and managed services from third parties, and it wasn’t because they were going to save us a boat load of money.
True, they saved me the upfront initial cost, but ultimately, I knew that real experts were managing my infrastructure while I focused on my business. I know my business inside and out. I was not about to hire an IT team to run a bunch of networks for us. It just didn’t make sense. I’m not in the network business. I’m in the media business. So I think the real value of managed services is predictability, reliability and focus for the end customer, and that never goes away.
GC: Amongst the set of MSPs that broadly create a sub-industry to the larger cloud industry, who is doing it right and who is doing it wrong?
JP: Yeah, so by the way thanks for coming to the table with great questions. There’s no one perfect model here. When you think about the managed services and the cloud services markets, transportation comes to mind as a good metaphor. In transportation, sometimes you prefer a bike, sometimes a car, sometimes an airline, sometimes a railroad, etc. I don’t want to support this myth that in the managed services or cloud services market, there’s this silver bullet where if you just do it this certain correct way, you’ll be successful. There are lots of different models. I’ll give a few examples of some of the various models I’ve seen that are working.
In the MSP space in particular, going vertical seems to be a huge advantage right now. So a company like ETG.net was a very successful MSP, but they gradually developed more and more expertise in the management practice market for healthcare providers. They’ve bet the entire business now on healthcare customers and they’re blowing it out because they truly understand the healthcare market, the compliance issues, and the privacy issues. They speak with the doctors in the doctors’ language rather than selling them technology. So I think that that’s one MSP model that’s worked really well.
The cloud brokerage model is also growing fast. Cloud Sherpas, for example, is a cloud brokerage that offers Google apps, Salesforce.com and a bunch of third party opportunities for end customers. But they do more than reselling the apps. They provide migration services from on-premise legacy apps out to various cloud applications. They integrate it all, and then they manage it all. So the cloud aggregator model is promising, but it’s difficult to pull off.
The cloud brokerage model is more about distribution of multiple different applications out to VARs and MSPs. So if I’m a VAR or MSP, where can I find a marketplace for multiple third party cloud apps? A cloud brokerage may be a solution there, and we’re watching companies like Ingram Micro Cloud and TechData TD Cloud in that area.
The other model is the targeted or strategic acquisition like an All Covered, which is owned by Konica Minolta. All Covered has been buying up MSPs based on a number of factors. One reason could be regional footprint. Say an MSP has unbelievable reach or a large footprint in Florida; maybe All Covered would move in and buy that MSP to get reach in the Florida area.
GC: What companies are coming up short, or not being as innovative as they need to be to keep pace with the trajectory of this industry?
JP: I’ll tell you who I think is coming up short without putting one name on it. I think big technology vendors – like server makers, networking companies, security companies – are coming up short. I think big technology vendors are still struggling to understand the MSP market. I think those big technology companies often continue to think of a product sale mindset: “How can I get my channel partners to sell more of my product, rather than consumable pay-as-you-go services?”
The big vendors, generally speaking, have been late to the market and have been working very hard, not always successfully, to design their channel programs to appeal to MSPs and CSPs. It’s still early in that game, but I think overall the cloud and managed service markets were bottoms up success stories: small companies coming out of nowhere to rapidly build some great niches. Then the big companies found out about this trend and are trying to get in and are still trying to work into it.
GC: How do these companies make that transition in a more graceful way?
JP: Instead of talking to the MSPs, if they were to hang out with the MSPs and listen, they might get more value. And I think we’re starting to see that happen. I’ll give you a prime example of a journey that’s ongoing, but looks very promising.
IBM just held PartnerWorld in Las Vegas. A good portion of the IBM PartnerWorld conference was focused on MSPs, and it wasn’t IBM speaking to the MSPs; it was IBM listening to and having a great dialogue with the MSPs. You can’t just take a server and suddenly say “Okay, before it was for the end customer. Now we’re going to slap the MSP label on it and Mr. MSP, buy this.” That won’t work. There has to be a dialogue in terms of how that’s going to be consumed, how it’s going to be positioned, and I think IBM is working very hard to make sure that that dialogue happens. I think they’re on a journey though. I don’t think it’s perfected yet.
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