Managed Services Provider Reality Check: You’re a Customer, Not a Partner

A recent Facebook post by Len Srinivasan, a vice president of channel partner development at backup vendor Vembu, pretty much sums up what many people are thinking about managed services: Are MSPs part of the channel or are they customers?

“The market dynamics are changing so much and we see the trend where MSPs are behaving like customers. In a typical channel model, the vendor will have visibility in terms of who their customers are, but when they go through MSPs – that visibility is lost since MSPs are offering the software/application as a service to their customers directly. Please shed some light on this. — feeling meh,” he wrote.

Managed services have always been part of the channel. Some solution providers say they’ve offered some form of managed services long before they became vogue. What made managed services popular in the early 2000s was a combination of persistent and affordable Internet connections that made remote monitoring and management practical; as well as the rapid commoditization of staple channel products, such as servers and PCs. Simply put, the average VAR needed a new value-add to sustain revenue and profitability.

But did consuming managed services technology ever make MSPs “partners”?

Managed Services Business Model a Godsend

From a revenue perspective, the managed services model is a godsend. By charging a recurring service fee, MSPs can accurately predict their gross revenue, cash flow and profitability. This is a far cry from product sales, where every quarter is subject to market and customer vagaries that cause sales to rise and fall without reason.

An emerging class of vendors — including Level Platforms (now owned by AVG Technologies), N-able (now owned by SolarWinds) and Kaseya — jumped on the opportunity with tools and resources. They provide the software that enables solution providers to easily and effectively deliver remote management of network devices, storage, servers and endpoints.

Larger equipment vendors, such as Cisco Systems Inc., Juniper Networks and Hewlett-Packard Co., jumped on the bandwagon by giving solution providers price protection for their hardware used in managed services infrastructure. Through price protection, MSPs could more easily budget for infrastructure expansion, and it too provided vendors with a semi-predictable source of revenue.

And software vendors, especially security specialists such as Symantec and Sophos, offered consumption-based licensing for their applications. MSPs wouldn’t have to pay hefty upfront licensing fees for unused capacity; they could buy more seats based on their utilization rate. This made software delivered as a managed service more affordable.

All the way, every vendor from RMM to networking hardware called MSPs a “partner.” Level Platforms even formed a community called MSP Partners (now part of CompTIA) that provided solution providers with materials on how to build better, profitable managed services packages. The reality, as Srinivasan points out, is MSPs are and never were partners in the traditional sense of the channel. They are customers.

Think of it this way, a MSP may work with Continuum for hosted managed services or buy software from LabTech Software, but their customer will never know the technology source. The value is in the service delivered by the MSP.

NEXT: Partner vs. Customer Conundrum >>

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4 Responses to “Managed Services Provider Reality Check: You’re a Customer, Not a Partner”

  • It’s the same in the platform versus application hosting space. Let’s face it, hosting service providers and software developers have a love-hate relationship with each other. The hosting provider needs the ISV, because hosting that product or solution means consumption of resources (read=subscriptions and billings) for the provider. The ISV needs (sort of) the host, because customers are demanding that they be able to access their solutions “in the cloud”, and hosting providers are the way to get that done. It would seem that the two have much in common, in terms of wanting to give the customer what they want, but it’s not that simple.

    Take even the case around QuickBooks hosting. Intuit believes they own the relationship to all QuickBooks customers, and they’re right to the extent that the user relies on QuickBooks for some business functionality. Hosting service providers think they own the customer relationship because they have significant influence over the products accessed from their servers.

    who, in the end, actually owns the customer relationship – and are the “food chain” of providers in that entire lineup operating as a partnership or as removeable vendor elements?

  • Great post Larry W. Interestingly, as one of the seemingly smaller, yet very meaningful changes I’ve steered since taking over HEROware Inc in our channel, it’s been to change how we refer to our “customers”.
    Indeed, in an internal team meeting shortly after taking over last Fall, I tapped into my diverse industrial experiences where no matter the business relationships– a “customer is a customer.” a company that buys product from you, yes, they are a reseller–but they’re a customer as well. We’re not “partners” and though prevailing marketing winds in the channel have for decades tried to utilize the “partner” term to further endear manufacturers and software companies to their “customers”, the practical reality is, unless you’re embedded in the delivery of the service to the client, through the reseller-customer, and engaged in a way in which you share in the profits or costs of delivery and support of the eventual end user-business client of the reseller (MSP, VAR, ISV or the like)…you’re the manufacturer and they are the customer.

    I said to the team and our resellers, if our financial relationship begins and ends with them, they are our customer! Treat them like you’d want to be treated as a customer of any establishment or business you frequent, and then go further.

    Our industry so prefers marketing generated buzz words and hype, rather than plain spoken candor and simplicity…and yet I find that when you get to the real people running our reseller customers daily, they’d much prefer the simpler, more plain real tone in our relationships.

    Great article Larry W keep it up
    Rob Ryan, President, HEROware

  • Excellent piece. I would like to point out that in the early days of RMM the vendors (Level, N-able, Kaseya, etc.) We in their evolutionary learning curve as well with regards to their selected go to market and licensing model. Not so much their fault as they basically were following long standing software industry pricing models. It took them awhile to change and adapt. I believe they may have been pushed along by the likes of up and comming RMM vendors such as HoundDog (now GFI Max) which offered a utilization based licensing model.

  • Norbert Doeberlein:

    Had the same conversation about partners/customer this weekend, and the whole Channel itself. We came up with that unless you can control any portion of what your vendor does, you’re a customer. But we took it a step further… is a small vendor to a large corporation really a client to the vendor? Plastic injection molding to GM/Chrysler — Liquid egg producers to McD’s? Kind of like the reverse mortgage of the mfg world…

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