Managed services and the art of differentiation

Differentiation is the name of the game for managed services providers, as the market becomes mainstream and commoditisation rears its head again.

That's the view of industry experts, including Neil McMurchy, Gartner research vice president for growth strategies, who says managed services have now become 'part of the furniture', raising new challenges for the channel.

"The channel challenge, fundamentally, is how on earth to provide a differentiated value proposition around them, because increasingly as things move into the mainstream the perceived differntiation becomes much, much, much harder to establish, and if you can't establish differentiation then the only thing left to compete on is price," McMurchy says.

McMurchy says managed service providers can't rely on vendors to create effective differentiation.

"We have the luxury of looking at a lot of marketing propositions from a wide range of vendors across a wide range of managed service offerings and even at the vendor level, the differentiation is generally speaking pretty poor," he says.

"You have got to work really hard to add value.

McMurchy says differentiation – either through customer experience, or specific IP or other offerings – provides the ability to sustain margins.

He cites the example of an Australian company providing managed desktop services to the mining industry, which has created a 'significant margin' premium proposition purely based on the proposition that they 'will fix the problem, worry about the contract – whether in or out of an SLA – later'.

"They get a margin of between 25% and 40% more than their competitiors in what is fundamentally a commodity service and it's essentially around the customer experience," McMurchy says.

"If you think about that industry, time really is money. So the whole ethos is about fixing the problem with no tolerance for delay.

"It's interesting because they're an Australian company and they make big virtue out of the fact they have a very, very flat organisation structure, that their people are absolutely empowered to fix the problem – not go to the contract to see if it's in the SLA or not – and the fact is they don't really care because they know it's swings and roundabouts: what they lose on doing stuff theoretically outside the SLA they pick up through margin and better customer engagement.

"So a bog standard commodity managed service delivered at a premium through making a virtue out of fixing the problem and not going to in or out of scope problems. That's a customer experience differentiation right there.

Differentiation through advanced services

Miguel Lopez, Kaseya senior vice president for the MSP business, notes there's another way to add differentiation too – through adding new, advanced services.

"The original services that MSPs have offered over the years are still there and they all offer them for the most part – so they provide support, patching, some type of monitoring, some antivirus, backup or some kind.

"But what we're seeing now is these other services that not everyone offers.

"These are things like advanced monitoring, expanded or enhanced security which starts getting into the area of multi-factor, single sign-on, cloud backup and things of that nature.

"What we're seeing now is that MSPs customers are going and asking for these kinds of things.

It appears, however, that not all MSPs are listening.

Lopez notes his experience at a conference last year when, while speaking at the event, he asked attendees how many had customers asking for audit and compliance type of service.

"I was kind of taken back by the response – about 65% to 70% of the room raised their hands. That's a lot, awesome.

"So I asked them 'those of you who don't offer those services, put your hands down'.

"About 65% of those people put their hands down. I was amazed. Do you understand there are customers of yours that are asking for services that you're not offering and possibly your competitior is offering?

He highlights security, advanced monitoring and cloud services as key areas where MSPs can reap the benefits.

A range of differing backup services reaching beyond the basic backups to local are also an option.

"Everybody offers backups to local. But then a large group of people offer backup from local to off site.

"Then you start getting backing up cloud, or backing up from cloud to onsite, or cloud to cloud. Not many are doing that nowadays but those MSPs that are growing are doing those types of things.

"What we're seeing is that those services are the ones that higher growth MSPs are getting into and getting into earlier than most others.

Lopez says for MSPs looking to land large customers, security, advanced monitoring and cloud services are 'super important' while for smaller customers, the security offerings are key.

Both McMurchy and Lopez agree that getting into new services early has a dual benefit, enabling the reseller to gain top margins before an offering is commoditised, but also enabling them to create a 'expert' status around themselves.

However, Lopez says starting up a new service isn't always easy.

"There is a lot that goes into building a new service. There is a whole go to market perspective of it and a lot of business owners don't really know what that means.

"They usually start up a new service when their customer raises their hand and says hey can you do this for me because I'm starting to hear stuff around it… they basically wait for their customers to create the demand.

"The problem is that if you wait for the customer to create the demand and you're not offering that service, they're going to assume you don't offer it, and when someone else is offering it they tend to go other places.

The vendor launched its Powered Services go-to-market-in-a-box offerings in July, aiming to take the hard work out of selling a new service by providing positioning, sales training, pricing, packaging and lead generation.

"We see three main areas we've started off in. One is security as a service. We've done cloud management as a service and also advanced monitoring as a service," Lopez says.

Customer conversations

The conversation MSPs have with customers, and the value they bring, is also crucial, Lopez says.

"It's not so much the service you're selling.

What differentiates you is your understanding of the customers' issues and how to relieve that pain, he says.

"A lot of technical people try to keep the conversation at a technical level. But how you differentiate youself is also in how you communicate that services offering.

That's a message reiterated by Australian MSP Emerging IT, which says it sells business value, not bits and bytes, delivering value from simplifying IT operations.

Noel Ervine, Emerging IT sales and new technology director, says "I don't go into a customer call with a predetermined idea of what to sell.

"It is more of a discovery and understanding – you want to know what is there and what issues they are trying to resolve.

"We figure out how we can help their business grow, and match our tools, solutions and systems to facilitate that," Ervine says.

"I don't pitch a product. I want to understand the pain. To know what would make their day-to-day life better. If I could flick a magic wand and make everything better, what is it they would want?"