How Managed Services Can Boost Profit Margins
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- September 19, 2012
Say you’re a technology manufacturer selling computers, monitors, printers, and server equipment. Price competition on hardware is already fierce, and third-party support and service providers threaten your ability to lock in lucrative maintenance and repair contracts to service that equipment. Where, then, can you turn to develop new and sustainable revenue streams?
One answer lies in “managed services” — a fast-growing trend at original equipment manufacturers (OEMs), according to preliminary research from the Technology Services Industry Association‘s yearly benchmarking survey, and one that is quickly becoming an integral part of manufacturers’ offerings. Why? Because offering customized packages of services locks in consistent, long-term revenue based on service as margins on hardware and software evaporate.
Creating New Revenue Streams
Think of managed services as a hybrid package of several traditional services: on-site field service support (repairs, installations, maintenance); remote support (the call center); education services (customer training programs); “business optimization” consulting services; and professional services (project-based offerings to help implement and integrate new technology), plus newer offerings like remote IT hosting. Or, as a recent TSIA white paper explains, “The transition of printer companies migrating from simply selling commoditized printers to offering managed print services is a classic example.”
“Starting a year, or a year-and-a-half ago, we started seeing a real spike in interest for this within technology companies,” says Thomas Lah, executive director for the TSIA. Lah says the managed services umbrella is even expanding to include a few new ideas: outsourcing and hosting. That includes OEMs offering to host a company’s IT infrastructure on remote servers, providing e-commerce technology, or outsourcing entire departments to the OEM.
Avoiding the ‘Race to the Bottom’
“For instance, Seimens has a ‘unified communications’ offering,” Lah says. “So instead of selling an email and voicemail system that they install for you on-site, they build a mailbox that’s hosted, and they call it a managed service. The customer stops paying for a technology. They’re now paying for a service. So it’s flipped from a product sale to a managed-service sale.”
“The economic engine of technology providers is shifting,” Lah says. “They’re making less money on technology — there’s less margin in hardware, and there will be less in software, so catalyst No. 1 is that how [tech companies are] making money is shifting. They need to find new revenue streams, so they’re looking at managed services.”
How exactly does a company move to managed services? ”There are just some fundamental questions: Are you [offering] remote delivery? Onsite delivery? Are your resources dedicated to a single account, or multi-account? Service-level agreements, contracts, how do you make sure those are profitable — those are all key questions,” Lah says.
Image via SmallBizTrends.com.