managed services in 2014: pricing and positioning - dave sobel

ANZ Conference 2014

Dave Sobel,

Director of Partner Community, GFI MAX

Managed Services in 2014: Pricing and Positioning

Who?

Dave SobelDirector of Partner Community

» Joined GFI in 2013, putting the GFI community into the executive team of MAX

» 2 years prior leading partner and community growth in vendor channel

» 10 years experience as CEO of MSP, focused on Washington DC metro

» 20 years experience in IT channel and consulting» Microsoft MVP for Virtualization» Author, Virtualization: Defined» CompTIA Community Chair and Executive Council» MSP Mentor 250 member, SMB 150» Contributing writer: Channel Insider, CRN, Tech Target, MSP

Mentor» Former HTG facilitator, member

@djdaveetwww.davesobel.com

State of the Market

» Fastest path to revenue has become critical to staying in business for SMBs with cost control still paramount.

» Expansion to new products and segments propels growth for SMBs

Source: Techaisle Global SMB Surveys, 2013

Source: Service Leadership Newsletter, July 2013

Global 2013 SMB IT Spend will be US$438 Billion.

Source: Techaisle Global SMB Market Sizing, 2013

Clients becoming more aware of cloud services

Source: CompTIA’s 3rd Annual Trends in Cloud Computing study. Base: 474 U.S. Businesses (aka end users)

Customer demand for cloud solutions

Source: CompTIA’s 4th Annual Trends in Cloud Computing Base: 400 U.S IT channel firms with Cloud offerings

Customer demand for cloud solutions

Source: CompTIA’s 4th Annual Trends in Cloud Computing Base: 400 U.S IT channel firms with Cloud offerings

The Math Problem

Let’s look at the revenue first

0

500

1000

1500

2000

2500

3000

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

On premise Revenue

Cloud Revenue

The average deal size for an on-premise opportunity is $40.5K

The average deal size for a Cloud opportunity is $21.5K

Simply replacing on-premise opportunities with Cloud opportunities will impact your business

if you do NOTHING else….Standing still is probably

not an option… Graph represents cumulative revenue over 7 years Calculates 10 deals per year at average deal sizes listed

But gross margin is really the game

The average margin for an on-premise opportunity is 24%

The average margin for a Cloud opportunity is 23%

The basic margin is roughly the same, but the total $s are still less

AGAIN, if you do NOTHING else

….Standing still is probably not an option…

0

100

200

300

400

500

600

700

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

On premise Margin

Cloud Margin

Graph represents cumulative revenue over 7 years Calculates 10 deals per year at average deal sizes listed Calculates margin using average margin listed

If you can grow your business by 15%

Cloud is fast-growing market segment

If you can transform your business and grow at 15% greater pace than your current on-premise business

BUT…this is still not the total story…

0

100

200

300

400

500

600

700

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

On premise Margin

Cloud Margin

Graph represents cumulative revenue over 7 years Calculates 10 deals per year at average deal sizes listed and grow new

customer acquisition by 15% per year Calculates margin using average margin listed

If your transformation yields Best-in-Class Margins

This is where the cloud business becomes compelling…

Graph represents cumulative revenue over 7 years Calculates 10 deals per year at average deal sizes listed and grow new

customer acquisition by 15% per year Calculates margin using BIC margin (Y1=24%, Yr2=40%, YR3+ = $54%)

And some Solution Providers are experiencing 50+% growth

… and here is what that model looks like!!!

This does not include additional services or business opportunities as a result of offering Cloud solutions

0

100

200

300

400

500

600

700

800

900

Year 1 Year 2 Year 3 Year 4

On premise Margin

BIC Cloud Margin

Graph represents cumulative revenue over 7 years Calculates 10 deals per year at average deal sizes listed and grow new customer

acquisition by 50% per year Calculates margin using BIC margin (Y1=24%, Yr2=40%, YR3+ = $54%)

Pricing Models

Value Pricing Model

• Aka “All You Can Eat”• Price based on the entire package• Price based on business benefits• Calculate downtime pricing for that customer, and

pricing is below that.

• Single flat fee• Can include Remote, Onsite, Lab/Bench, or all

• Pricing is custom and can be more complicated to calculate

Per Device Pricing Model

• Simple pricing based on device counts• Per Server, per desktop, per network, per

printer, etc

• Can lead to selling on price not value• More complicated in mobile world

Many parts to mobile ecosystem

3G/4Ge.g., Verizon, AT&T,

O2, Vodaphone

Device+OSe.g., Apple, Samsung,

Google

WiFiCarriers, corporate or

public networks

Per User Pricing Model

• Priced base on people• Can be type (Knowledge worker versus kiosk

worker) or can be flat• Eases problem with mobile and services

Tiered Pricing, aka Gold/Silver/Bronze

• Different services in different tiers• “Middle” option easier in sales process

• Key to success is single SLA across tiers

The Pick 5 Model

• Combine a la carte with Tier• Three or more successively higher priced categories with option to

assemble a service• Pick 5 from:

• Phone Support• Remote Support• Patch Management• Managed Security• License Management• Case Management• Backup Management• Monitoring

A la carte Pricing

• Pick and choose from menu of services

• Many decisions

• Hardest to sell and maintain profitability

Monitoring Only

• Monitoring and Alerting only

• Appeals to groups with in house IT

• Easy parallel service with break/fix offerings

The By Vendor Model

• Manage by the number of vendors managed• Microsoft, Dell, IBM, AV, etc• Count the relationships, and bill based on

that.• Drives out complexity• Confusing for immature MSPs

Drivers to cloud

Source: CompTIA’s 3rd Annual Trends in Cloud Computing study. Base: 415 U.S. IT or Business executives (aka end users) using cloud solutions

More platforms = More complexity

More mobile devices than computers

Areas of focus in mobile strategy

Source: CompTIA’s 2nd Annual Trends in Enterprise Mobility. Base: 502 U.S. IT and business executives

1.0 Position: Outsourced CIO

2.0 Sell: What they want now

3.0

Goal: Managing User Experience

Position: Outsourced CIO

1.0

Top technologies SMBs view as most complex to understand

Source: Techaisle

Ways of surviving economic downturn

Source: Microsoft SMB Insight Report

»Relationship

»Differentiation

Network Assessment

New Service Provider License

Network Assessment

Prospect

Assess Engage

Why clients use an MSP

Source: Techaisle, 2012. Base: 140 respondent organizations that used more than one vendor for their cloud business applications.

Local matters

81% want local

Local matters

Personalized Remote Support

Sell: What they want now

2.0

Top solutions SMBs need

Global 2013 SMB IT Spend will be US$438 Billion.

Source: Techaisle Global SMB Market Sizing, 2013

Clients becoming more aware of cloud services

Source: CompTIA’s 3rd Annual Trends in Cloud Computing study. Base: 474 U.S. Businesses (aka end users)

Customer demand for cloud solutions

Source: CompTIA’s 4th Annual Trends in Cloud Computing Base: 400 U.S IT channel firms with Cloud offerings

Customer demand for cloud solutions

Source: CompTIA’s 4th Annual Trends in Cloud Computing Base: 400 U.S IT channel firms with Cloud offerings

Drivers to cloud

Source: CompTIA’s 3rd Annual Trends in Cloud Computing study. Base: 415 U.S. IT or Business executives (aka end users) using cloud solutions

Goal: Managing User Experience

3.0

More platforms = More complexity

More mobile devices than computers

3G/4Ge.g., Verizon,

AT&T, O2, Vodaphone

Device+OSe.g., Apple, Samsung,

Google

WiFiCarriers,

corporate or public networks

Many parts to mobile ecosystemPrivate Cloud

Systems running on Eucalyptus or

Openstack

On-premise systems

Internet

Public CloudE.g. Salesforce,

Dropbox, or AWS-hosted system

CommunicationsE.g. Lync, Skype. Or native function

Mobile webStandard website

functionality

3rd Party appProcured through

standard app store

PeripheralsE.g. Keyboards or health monitors

Custom appBuilt internally or

outsourced

Areas of focus in mobile strategy

Source: CompTIA’s 2nd Annual Trends in Enterprise Mobility. Base: 502 U.S. IT and business executives

Difficulties of mobility adoption

Source: CompTIA’s 2nd Annual Trends in Enterprise Mobility study. Base: 502 U.S. End user companies

Mobile security a major issue for companies

Source: CompTIA’s 2nd Annual Trends in Enterprise Mobility study. Base: 502 U.S. End user companies

Challenges in supporting mobility

Source: CompTIA’s 2nd Annual Trends in Enterprise Mobility study. Base: 490 U.S. End user companies with some mobility adoption

Manage by User, not just device

Manage by User, not just device

Device provisioning methods

Source: CompTIA’s 2nd Annual Trends in Enterprise Mobility study. Base: 502 U.S. IT and business executives

1.0 Position: Outsourced CIO

2.0 Sell: What they want now

3.0

Goal: Managing User Experience

Maturity

Source: Service Leadership Newsletter, July 2013

Contact infoDave SobelDirector of Partner Communitydave.sobel@gfi.comOffice: 1-919-379-6469Mobile: 1-703-582-3600

Dave Sobel

Director ofPartner Community