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Exclusive: Is flexible billing the new reseller battleground?

By Heather Wright
Wed 22 Jun 2016
FYI, this story is more than a year old

Moheb Moses, CompTIA ANZ channel community director, might be an advocate for the managed service models currently sweeping through the IT sector, but he’s also firm in his belief that one size will never fit all.

And it’s that concept that he believes will lead to another big evolution for the channel sector.

“In the past, technology expertise was a differentiator, so partners who knew more about a technology were able to win business because of that,” Moses says.

“But as we evolve to more sophisticated end users and so on, that becomes less of a differentiator.

“Instead, a new and interesting differentiator that will start to occur is innovation around how you bill customers.”

Moses, who is also the co-founder and director of specialist channel sales consulting and training firm Channel Dynamics, cites the example of the telco sector, as one the IT sector is about to mimic.

Early mobile phones were purely consumption based with users paying – handsomely – for what they used. But over the years, it wasn’t changes in the mobile technology which drove adoption, but instead innovation around billing, with the introduction of offerings such as capped plans, packages with SMS’ included or clever bundling.

“No one model is perfect, but having a variety of different models allows you to target different customers and bring on customers who may not have used the traditional consumption model that existed when I first got my phone,” he says.

“If you’re my 80-year-old mother you need a different plan to the one I use, and a different one from the Gen Y customer who loves texting.

“It’s not about having the best model, it’s going to be about having a range of models and having the flexibility to offer a range of models to customers who have different needs,” he says.

Moses says a range of managed services offerings, along with traditional selling models, will be needed to accommodate different customers.

“A partner being able to offer, for example an outcome-based managed service model, is going to be able to win customers who find that valuable.

“But by the same token, there will be some customers who still want to pay for stuff up front.”

Moses says managed services happen at varying levels, from the basic level of a reseller selling a customer hardware or software and then managing it for a monthly fee, through to the more challenging option for traditional resellers of having the entire technology package, including any hardware and software, delivered for a  monthly fee, with no upfront cost.

“That has a financial implication for partners, and it has been a challenge for them,” he says.

But there’s also another managed services play coming to the fore: outcome-based managed services, which tie not a technology outcome, but a business outcome, to the monthly recurring fee.

He cites the example of one MSP working with an airline company, where the MSPs billings are based on the number of tickets the airline sells.

“It’s much harder, there’s a lot of complexity and thinking that needs to go in behind that. Effectively, what the service provider is saying is that they will have skin in the game and establish systems to make the customer successful.

“It’s an extreme example and it’s one you can only do when you have an understanding of the customer and a relationship with them.

“But when you can do that, you’ve got a very, very close relationship to a customer and you become very valuable to them because you are no longer just a technology provider, you are genuinely that overused term of a ‘trusted advisor’.”

The risk factor

However, Moses says IT resellers also have another issue to contend to, beyond just the move to managed services: the issue of risk management and it’s not something just for those considering outcome-based models.

“In the past we’ve always had to manage risk but in the traditional model the risk is do I install it as per our contract and do I get this software and hardware up and running as per our contract.

“That’s the extent of it. Whether it achieves what the customer wants is actually not relevant – it wasn’t a risk we had to factor in within the traditional capex model.”

However, the ease of moving providers when using a monthly recurring model service, means added incentive to ensure customer’s business needs are being met – and added risk.

“Risk now doesn’t just involve installing software and hardware, it now includes achieving an outcome for a customer,” Moses says.

While the finance sector is built on the idea of managing risk, for the IT sector, it’s still a new concept.

“I said one area of differentiation will be different billing models, but I think one of the other areas that will differentiate profitability of businesses is going to be their understanding and ability to manage risk.

“In the IT industry, because of its very nature, the more the service provider takes on and the more risk they are taking on, prices continue to come down.

“So we have risk going up and return going down and the only thing that allows that to work is volume. If volumes keep going up, you can accept that lower price with the higher risk. But once volume peters out, that equation doesn’t work anymore.”

Moses says the ability to understand and manage risk and return will be a crucial skill for MSPs once the market stops being a rapid growth segment and becomes ‘business as usual’.

“There will always be technology changes, but what we have is a fundamental change to the way we procure and use technology and that has a whole bunch of ramifications that I don’t think we understand yet in terms of the way people will find new applications to do things they wouldn’t have thought of before.”

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