The rise of managed IT services – how to generate recurring revenues

Managed services are altering the way IT providers sell to businesses – from traditional break-fix and product sales to a subscription model that provides resellers with a recurring revenue stream. Dominic Sacco and Phil Tottman talk to key players to explore the opportunities and find out exactly how the market is evolving…

The channel is changing – the rise of the cloud and monthly subscriptions are making resellers rethink their services.

Managed services – charging for IT support or maintenance on a subscription basis – are traditionally offered to enterprises, but smaller local businesses are beginning to pay monthly for their IT support, whether it’s their network, email, servicing, printer repairs or more.

Having experts (based either in-house or as a call-out service) who can offer support and maintenance for a set monthly cost is a strong alternative to the age-old break-fix method, which sees a business contact a service provider to carry out the work for a one-off payment.

Even independent PC retailers are starting to embrace the cloud and new business models, with 41 per cent now offering managed services and a quarter thinking of doing so this year (see our full retail survey in our March 2015 digital edition here).

Firms that opt for managed services can cut costs and have access to a more reliable source of support. Managed print services can also increase workplace efficiency, reduce downtime and improve a firm’s security. 

Research from Epson found that 72 per cent of companies currently own their printers, with 70 per cent managing and maintaining them internally, however 60 per cent said that they are already looking to move over to managed print services. 

Peter Silcock, Epson’s business manager for business imaging in the UK, said: “We are seeing a large increase in managed print service requests to reduce consumable spend and overall running costs.”

Oki Systems’ marketing manager Andrew Hall shared his expectations of the coming year in managed print services market: “We expect demand for managed print services to continue to accelerate, driven by increasing awareness businesses have of the benefits. While the UK economy is slowly improving, caution is still the watchword for most businesses and cost control a critical focus. In such an environment, we’d expect an approach like managed print services to thrive.”

Jamie Brothwell, print general manager at distributor and retail services provider Exertis, says: “We see MPS (managed print services) as a huge growth engine. With ongoing investment in UK businesses from overseas and the relentless pace and progress of digital and connected services, we believe that 2015 is the year that MPS will take off.”

Big retailers can also be customers of managed services, too. MSP (managed services provider) Claranet found that 93 per cent of organisations in the retail sector are outsourcing at least part of their IT estate to managed services, which is more than any other sector. The research predicts that the amount of IT estates managed by MSPs in retail is expected to grow to 22 per cent by 2020, with each organisation consuming an average of four managed IT services. 

IT provider AAG Systems made managed services its primary focus around 18 months ago, and hired an entire team at the start of 2015 to solely manage that area of the business. It plans to shift its revenue income over the next three years so at least 75 per cent of it comes from managed services.

AAG’s director of business development and Network Group’s B2B director Joey Hemingbrough discusses the challenges faced: “It was challenging for us as we’ve come from traditional break-fix. There are a couple of lingerers and older clients who are unwilling to let go of their break-fix and make the move, because it’s a massive shift for them. I think it’s down to perception – there’s a belief, certainly in smaller businesses, that managed services is only something that would benefit larger companies. That’s not the case but the mindset in the wider market is changing.”

Annodata, another provider of communications, managed print and IT services, has seen operating profits rise by a record 682 per cent to £5.2 million for the year ending June 30th 2014, which it says is due to transformational work the business has undergone in providing enterprise-grade managed print and ICT solutions over the past 18 months.

WHAT’S THE COST?

Firms are making more money from managed services, but what if a customer breaks their printer or other IT equipment regularly? It is understandably a worry that the set payments may not cover all the work needed in some cases. But there are ways of combatting this situation.

AAG’s Hemingbrough explains: “What we always do before on-boarding any client is a full audit, because you don’t want to take on a can of worms without knowing it. If then a system becomes problematic once you’ve taken a contract on, in the terms and conditions you reserve the right within 12 months to review that.

“There are different ways of pricing a managed service. We’re trying to move towards IT as a service and effectively a monthly tickbox. I know it sounds basic but it works really well. It’s like one model fits all and lets the company pick and choose exactly what they need.”

Managed service experts (from left to right): Synaxon UK’s Derek Jones, Exertis’ Jamie Brothwell, Epson’s Peter Silcock, Claranet’s Simon Bearne and AAG Systems’ Joey Hemingbrough

Another concern is that although the money-saving benefits are great for businesses, could managed services impact suppliers if for example cartridges are lasting longer, meaning less stock is sold in the long run?

“Yes, but the reality is, if we look at the way the market is going, it is becoming incredibly niche and paradigm-driven so although most of us consume content on a display, the requirement to print still exists and the cost to serve the customer is increasingly competitive,” says Mark Ash, general manager for Samsung UK’s print division.

Simon Bearne, sales director at Claranet, adds: “An important consideration is to find an MSP that can be flexible to customer needs. Many organisations are increasing their use of outsourcing providers in bite-sized chunks, service-by-service, meaning their requirements could change significantly in a short time.”

Westcoast’s solutions director Paul Harman comments: “Cloud, mobility, security and big data are key growth areas, and ‘as a service’ demands from the end user has resulted in more of a consultative approach to selling IT. Many resellers are having to change the way they do business and grow their sales into more of a consultative role, replacing products with services.” 

BOX CLEVER?

Several execs we say that distributors could be doing more to make it easier for their customers to sell managed services. 

“There are way too many options at the moment for managed print: you have the actual vendor’s programme, distribution programmes, third party options, and everybody wants a slice of the profit,” says Synaxon’s UK MD Derek Jones. “The distribution partners Synaxon works with who offer MPS seem to be getting it right for our members – PrintSense via Ingram’s is great example. It is important to choose the right partner from billing platforms to remote management tools.”

Oki’s Andrew Hall adds: “The opportunity managed print services presents resellers and distributors is clear. The trouble is too many dealers are continuing to let themselves down by failing to deliver the most effective and consultative pitch into target organisations. Distributors can play their part here in ensuring their resellers fully explain the service when required and offer a range of resources to cater for all
client needs.”

Distributor Westcoast is partnered with HP, Lexmark and Samsung in the managed print service market and has its own MPS programme called Document Flow, which passes manual labour to the vendor, allowing the reseller to focus on its core offerings.

Supplier Exertis also works with Samsung, Lexmark and Oki as vendor partners in the MPS space.

Jamie Brothwell from Exertis says: “By virtue of us working with so many print brands, the biggest challenge we face is taking multiple concepts to market from our vendor portfolio. Our print specialists’ expert knowledge enables them to find the right solution for the reseller and, ultimately, the end user. We’re always happy to chat to new and existing reseller partners to help them fine-tune an MPS strategy that meets their end-users’ needs.”

So do subscriptions mean the days of selling boxed product could be numbered? 

“It depends entirely on the content of the box – software as a boxed product is possibly going to disappear whilst shifting tin or tech accessories will always be relevant,” says Synaxon UK MD Derek Jones.

“Provided the ‘boxed product’ reseller stays close to market trends and his offerings remain relevant, then of course his day will never be over.”

Gemma Glen, head of Ingram Micro’s print division, comments: "To Derek’s point, PrintSense has been designed and built specifically for the IT channel, and we’ve kept the process simple for our resellers to ease their adoption and without having to invest upfront with specialist resource and infrastructure.

"PrintSense makes it possible to take over an existing printer fleet with no contractual requirement to replace printers at the start of the contract or at any time during it. That means there are no upfront costs for end users to meet, so they can start to realise savings – typically from 20 to 30 per cent and the reseller gains recurring revenue."

One thing is for certain: managed services is growing fast and it’s not going away any time soon. Whether it’s right for your business and your customers or not is another matter, but it’s now a more viable sales avenue for retailers and smaller resellers.

Hemingbrough concludes: “If you look at PC World which offered the Knowhow service, they didn’t do a great job, but everything is becoming about people-centric value add. 

“There’s a good opportunity for retailers to become real experts in this area – there’s a big appetite for it on the consumer side.”

Further reading

It’s managed services week on PCR. Read more managed services content here.