As published March 11, 2013 in CRN

As an increasing number of VARs add SaaS offerings to their portfolio, those without cloud services will find it increasingly hard to compete for customers – and to maintain profitability without the margin-rich reoccurring revenue streams that SaaS services provide.

In North America, there are ~100k providers that provide IT services. Of this total number, most are hardware VAR/Resellers, and 15-20k would be considered Managed Service Providers. The largest growth opportunity for hardware resellers is with those who can provide their customers with a full portfolio of hardware and managed/SaaS services. There are many reasons the market opportunity here is massive for those who offer both hardware and managed services:

A thicker managed services portfolio lessens the opportunity for a competitive VAR to provide a unique service. 

  1. It helps the hardware reseller stay relevant to their customers.
  2. It provides the opportunity to grow their business by providing everything a customer needs on one bill. 
  3. Adding SaaS services may serve as a disruptive advantage to gain access to new accounts.
  4. Since SaaS services are ‘sticky,’ it will help the services provider to maintain a long and profitable relationship with the customer.

And Then There’s the Money

If the above reasons for offering SaaS services are not compelling enough, think of the opportunity for those services to provide reoccurring revenue. As the article “The VAR’s Path to Managed Services” illustrates, recurring revenue grows over time with greater profit margin than hardware sales. The result, as shown in this example, can easily be more than $700,000.

Channel experts agree that providing customers with more options through monthly services is a key to future success. New technologies, with scalable options for monthly service costs, are appealing to customers. The remaining challenge is in planning a strategy that will take a VAR business owner from today’s hardware-centric business into tomorrow’s SaaS business. Planning advice is offered in the blog “How to Get Your Business in the Cloud.” 

The Cloud Growth Path for Distributors

Hardware distributors also see an opportunity for growing SaaS revenue. They have a huge base of partners who purchase hardware. Why not offer a complete services portfolio to these partner bases and help them develop a SaaS business? Tech Data (TD Cloud), Ingram Micro (IM Cloud Services) and Synnex (CloudSolv) are all helping channel partners shift their businesses by adding SaaS services. They provide a complete hardware portfolio, plus a growing SaaS portfolio to become a one-stop shop for VARs who want to sell both. These distributors also offer resources to grow a managed services business, including training, thought leadership webinars and events, and feedback from peer resellers/MSPs to help the VAR/MSP grow their services business.

Managed services continue to evolve. The move into SaaS services is a huge step, but a necessary one to thrive in a future where customers needs and wants change. VARs and distributors who plant the seeds of a services business now will have an easier time offering the next generation of services as well. 

Andrew Alegria is senior manager of strategic relationships for Axcient.