I ran into a MSP member on the street today (literally) and we got to talking about the industry. After asking how things were going he steered the conversation towards the cloud and how certain vendors were pushing cloud services to be resold be MSPs as a product offering.
Being the inquisitive person I am I asked how much margin the MSP would be making off of this cloud service: 6 points was the reply. Now, I’m not rocket scientist but I figure the garden variety VAR can make 6 points without breaking a sweat. VARs, even those making this margin in the last decade, wanted more and began their transformation into MSPs in order to improve their lot in life. So, what gives?
Unless today’s MSPs are just glad to be making 6 points, there’s got to be something else to this. Being the student of human that I am and having been an observer of the IT channel for quite a long time, I figured that cloud (including Software as a Service) had become the new hardware. What I mean is that while VARs have pushed hardware and software in the IT channel for a long time, there are some vendors (and some resellers) that insist on bringing the same old relationship that used to exist in the hardware days into the managed services and cloud environment. More simply put, to some vendors, MSPs are just VARs by another name.
Now call me naive but I thought for the last 10 years the VAR community was making this huge transformation into IT services in order to improve margins, create better valuations for their company, and overall improve their corporate lifestyle. Maybe I was wrong.
Scott – this could in fact be happening the way you suggest. However, whatever the reasons it appears that MSPs are being faced with a scenario (at least with cloud) that they operate just like they were when they were a VAR.
I recognize that 6% number and if it is the solution I am thinking it is actually a commission rather than a margin. This particular SaaS solution, email, has been caught in the middle of a price war by the big guys. So it is expected that the margins are going to drop on this particular service.
This does not mean though that the SaaS business model does not provide partners with great margins. There are many solutions that wil still bring 50% or greater margins in this market. For a VAR to demand that though they need to understand the market, what is available, why it is a better solution for the customer and how to build a total solution for the customer around the SaaS application. That is where the fun is..
Lane Smith
Do IT Smarter
Lane – good point and thanks for the clarification. To refine my earlier comment, I think it is well established for MSPs to resell other services, even cloud services. I can’t tell you how many members partner with vendors like MX Logic (now McAfee).
I suppose the point to make is it depends how much of a commodity the service is and whether your margin/commission is good enough.