MAKING THE TRANSITION
This is even a problem at the management level of partner businesses themselves - put simply, many of these operators don’t have the business acumen, the will, or the funding to completely restructure their business overnight. As Nolan puts it, “It’s not just about running IT, it’s about running a business.”
“Some of the partners that we’re seeing fall over are not necessarily delivering a bad service, they’re not necessarily delivering a bad product, they just don’t know how to run a business where they’ve changed from big lumps of revenue to incremental month on month revenue. It is a different business to try and run and make a profit,” Nolan said.
“Let’s face it, some IT professionals who are really, really good at what they do are not necessarily the best business managers in the world. It’s not just about the revenue coming in, it’s the cost to going out as well. So if you’re a system integrator that has just resourced stuff when you had a big sale, and then when those resources are thrown in on a contract basis - when you’re providing a month to month service - you’ve got to have all those resources on call all the time so those upfront costs are there.”
The transition period is the most difficult, often requiring businesses to run on little to no margin until the business has been transformed. Nicholas said it is almost like running two businesses side by side.
“You’re running your traditional managed services business on one side, and perhaps eight years ago that was 80 per cent of your revenue. Today, it’s just 20 per cent and Cloud is 80 per cent, but you still want to hang onto that 20 per cent because you know that one day they will come over and you are their trusted advisor,” he said.
“There’s no doubt that once you’re there, the new model is much more profitable – and stable," Gage said.
“It’s that transition period that’s critical. It’s irrefutable that it’s a more profitable business model because you’ve got that annuity revenue, you’ve got that short turn drop in revenue, but you move away from that, the peaks and troughs associated with a traditional services disappear and you end up with a more valuable business,” he said.
Nicol agreed that it’s a huge opportunity for those that want to seize the day – locking customers to long term, valuable contracts – especially when transferring customers to the Cloud.
“The services transition of the customer either from an on-premise to a Cloud, or from another provider to your service, either that’s a services opportunity or an opportunity to get the customer committed to a multi-year contract as part of you delivering those services to a client. It’s huge,” he said.
“The cost of delivering a Citrix desktop is pretty cheap, but if you add all the services, helpdesk, exchange, or whatever it might be, that’s a much more significant service. That’s where your money is.”
Red Hat’s Garro said the change is an important one, and has kept the market on its toes.
“That’s a good thing for all of us because we’re delivering more value to the customer and you don’t have that level of complacency that comes with three years until refresh. So we’re all on the hook whether you’re a vendor, partner, or distributor. I think we’re delivering more value today than we were in the old days.”