In the Margins

Posted: 2/2004

In the Margins
Managed Services Help Resellers Raise ARPU
By Tara Seals

A local chainsaw company needs
to link its three retail locations with headquarters, in order to use an
inventory management application that will streamline operations and bolster
profitability. The problem is such a network would require at least two in-house
technical personnel to maintain the cost of which would outweigh the
benefits of the application. The solution is outsourced network management and
applications. These so-called managed services, often sold on a
monthly subscription basis, place networking and other converged voice and
data services within the reach of small and midsized firms by eliminating
the need for technical personnel or on-premises equipment.

Smart service providers and resellers are meeting new demand
for more sophisticated computing and communications services by packaging
everything from managed network monitoring and firewalls to outsourced Web
conferencing into a WAN sale. For resellers, managed services represent new
opportunities by overcoming cost objections while generating higher margins than
commoditized circuits and routers. By layering the services onto a WAN sale,
resellers can increase the average revenue per customer and reap larger profits.

The bundled approach does more than open customer doors. We
found that over time our channel partners have specifically gone towards
offering a bundle as theyve been challenged by price erosion and margin
pressure, says Cliff Young, CEO of ClearPath Networks. So [with outsourced
services], they can realize ongoing managed service revenue streams, plus there
are better margins.

ClearPath Networks is taking on the smaller enterprise market
with plug-and-play WAN solutions using a shared infrastructure. Resellers
can offer such customers a completely outsourced LAN/WAN environment, including
ClearPaths network reporting, device monitoring, SLA compliance, firewall,
intrusion detection, content and URL filtering, and antivirus and anti-spam
services. Each end-user organization has a customized management portal, called

Another company, Mariner Systems Inc. (MARSYS), offers a range
of managed services, from hosting applications to full project and program
management of mission-critical systems. Rick Maharaj, director of professional
services at the company, says it was a no-brainer to package them for
rebranding. Service providers could offer the same things, without actually
having to go through the headache of research and development and actually
creating it themselves, he explains. Companies want to be able to resell assessments and
deployment schemes and compression and e-mail and security and storage and
consolidation all these things that add value to their sales. But, a lot of
it was beyond what they could provide. [Now] they can pick up a service and go
to market, and we go in and do the work for them under their brand name, and it
works out well for everyone.

Centra’s hosted Web conferencing

As one example, MARSYS offers a disaster recovery package as a
payas- you-go model. The client doesnt have to go and purchase this very
expensive and hard-to-manage expertise required for storage area networks, says Maharaj. A medium-sized company that isnt quite
ready to purchase this kind of equipment and the yearly licensing fees that
come with it can be set up to comply with Sarbanes-Oxley in less than two

Such turnkey solutions not only make it easy for the reseller
and the customer to deploy needed technologies, but are necessary for technology
to penetrate the second tier of accounts that might lack IT resources, experts
say. Principally, the dividing line between large corporations and smaller
businesses is not the need for applications but the total cost of ownership, explains ClearPath Networks Young. It requires people
with specialization to implement. So for smaller businesses looking at
applications, its difficult for them to understand how soon theyre going
to get the payoff, how well it will work for them and what the real costs are
going to be.


The managed service opportunity goes
beyond data network oversight. Centra Software Inc., for one, is in the process of ramping up
its reseller program, targeting service providers and even large conferencing
providers such as AT&T Corp. and MCI for its outsourced Web conferencing
service with integrated VoIP. Most of these guys are coming at it with the
converged solution perspective a single neck to choke, says Michael
Tupanjanin, vice president of strategic alliances at Centra. Instead of
having disparate solutions, customers can just go to one place and get
everything under one umbrella. Resellers are integrating Web conferencing with
the other applications they offer and being a single point of contact for
customer service.

For instance, integrating the solution into a CRM system, PBX
or legacy system would be a way for resellers to bring value to their accounts.
So when youre doing a Web conference, you can actually initiate a Web
conference from the CRM application, record the session, then store it back into
the system in the notes section, explains Tupanjanin.

In another example, Sylantro Systems Corp. offers service
providers and resellers an integrated communications platform that lets them
package services along with a WAN that would replace on-premises phone and
communications services (PBX services and conferencing, among others) for $45 to
$75 per month per employee. Theres a lot of margin associated with these services, they definitely
increase the ARPU, and theyre more strategic, because now resellers are
providing a real mission-critical services, its not just a pipe, says
Laura Thompson, vice president of corporate marketing at Sylantro. End users
definitely want more simplicity, and right now they pay lots of different bills
to lots of different communications suppliers and it can be overwhelming. When
they look at buying a new IP PBX, the price tag is a bit overwhelming. All those things contribute to customers turning to a
one-source supplier.

The key to marketing managed services successfully, say
industry players, is not just costeffectiveness. The service or application also needs to solve a business
need. Its not talking about technology; nowadays, the CIOs arent really
interested in that, says MARSYS Maharaj. They want the bigger picture,
because really IT software and hardware is there to solve some kind of business
problem or help make things more productive.

For instance, Centra signed a resale agreement with
International Video-Conferencing Inc., a conferencing integrator. IVCi will
offer Centras solution as a managed service, and will market it as a way to
make inefficient meetings efficient again. Partnering with Centra and
integrating their premier Web conferencing applications into [our portfolio]
provides IVCi with the ability to enhance a companys existing communication
environment, while reducing costs and increasing productivity, explains Adam
Zeitsiff, CEO at IVCi. Centras solutions provide process automation
before, during and after the event, resulting in enhanced meeting efficiency.
Too often we see companies being forced to use conferencing tools ill-suited for
their specific application.

Similarly, GoBeam Inc. will target the midmarket by reselling
Sylantro Systems Corp.s hosted communications services for PBX station users.
The offer has options for adding and migrating users to advanced IP Centrex
capabilities selectively traditional phones can be enabled with IP Centrex
services or continue to use PBX capabilities. This solves the business need of
giving workers needed productivity tools, such as hosted directories,
click-to-call, Microsoft Outlook integration, unified messaging and
conferencing, without requiring additional investment in PBX equipment.

MARSYS takes it one more step, offering customized
applications management, so the chainsaw company could turn over the inventory
management application along with the network management to a third party. Its
Snapshot assessment service takes an application and helps resellers to perform
an audit. For us, application management is not just taking someones
application and managing it. We try to understand why the application is in
existence, what the main purpose is, explains Maharaj. Then, we try and
understand the business requirements, how this application is serving their
customers or other needs. Once we gather that, then we can start to talk about
the actual architecture and layout of the system, then an assessment, then down
to the code level.

All of this activity will place managed services providers in
a good position, according to the analyst firm Gartner Inc. A November 2003
report titled Big Revenue Opportunities to Emerge for Managed Services,
says managed services have evolved into a necessary core product for the
survival of carriers and systems integrators and are expected to contribute
significantly to their future service margins as commoditization ravages the
telecommunications markets.

Enterprises, says the firm, need a single, flexible,
integrated end-to-end solution capable of supporting a range of converged
business applications, such as multimedia/video services, voice and content
hosting. The challenge for service providers during the next year is to develop
an effective approach to plug their technology/ process, resource and
industry-specific capability/ expertise gaps that would prevent them from
widening market reach and fully exploiting the most lucrative portion.

Momentum does seem to be building. SBC Communications Inc.
announced it would deploy IP Centrex in 100 cities by the end of the year, using
Sylantros hosted voice-software suite. I think were definitely getting to the hockey stick,
says Thompson.

Centra Software Inc.
ClearPath Networks
Gartner Inc.
International Video-Conferencing Inc.
Mariner Systems Inc.
Sylantro Systems Corp.

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