So the response to the last post (Backup, Cloud, and Something Big Is Coming) was pretty amazing. The problem is that comments and questions have been coming through in private messaging – so anything I talk about isn’t automatically made public (hint: that means that all of you who wrote me should be posting comments!) So I thought that I’d “tease a little more” concerning the announcement.
Let’s compare the business models of a VAR operating solely on a project-based or break/fix services model with that of a VAR who is an MSP (Managed Service Provider):
MSP advantages include:
- Predictable revenue from recurring revenue service contracts.
- Typically better profitability because capital and operational expenditure (equipment and people) can be spread across multiple customers.
- Typically higher gross margins.
- Higher LTV (Long-Term Value) and share of wallet from existing customers due to a deeper relationship with more chances to offer services
- An overall improved corporate valuation per dollar of revenue from investors and acquirers due to the predictability of recurring revenue.
- MSPs are better positioned within the recurring revenue framework to sell cloud services – whether these are IaaS (Infrastructure As a Service), PaaS (Platform as a Service), or SaaS (Software as a Service.)
MSP disadvantages include:
- The business model is very different from the break/fix or project-based model used by traditional VARs – and the commitment to a deeper customer relationship with strict SLAs can be intimidating.
- CAC (Customer Acquisition Cost) can be higher due to targeting customers who assign a higher value to IT and are willing to sign up to a recurring revenue model.
- Customer retention can suffer for a VAR moving to an MSP model due to existing project-based and break/fix customers preferring that model.
- Employee retention can suffer as sales, marketing, technical, and other personnel make the move to a fundamentally different engagement model.
The advantages far outweigh the disadvantages; but it’s important to understand both sides of the equation.
So what does this have to do with what we are announcing? Backup is one of the core services that many MSPs provide – and properly sold can form the foundation for building a business with strong recurring revenue. The problem that I’ve heard for a few years now is that many of the backup vendors offering service provider programs have unreliable technology coupled with depths-of-hell support.
Imagine a backup vendor who offered rock-solid, proven, heterogeneous data protection coupled with the strongest customer satisfaction rating in the industry. That would be something completely different – a backup vendor that not only helped MSPs drive revenue but helped ensure that they were profitable on the services associated with data protection.