Hardware As A Service Not For Everyone, MSPs Say

This was the opinion of many MSPs who attended this week's N-able Technologies Regional Partner Summit in Boston. The summit, which basked partners of the popular Ottawa-based MSP platform vendor in a day-long string of hardware-as-a-service (HaaS) enablement sessions Wednesday, gave more than 170 N-able partners access to several of the evangelists of HaaS, including Michael Drake, CEO of Master IT, a HaaS provider in Bartlett, Tenn., Ramsey Dellinger, president of MSP on Demand, a HaaS boot camp based in Hickory, N.C., and John Cowan, business relations manager of The Omni Group, a utility computing vendor based in Bermuda.

Under HaaS, providers offer remote IT monitoring and proactive management services as well as hardware procurement and replacement, expenses that ideally should fit into a fixed monthly MSP subscription rate that, if reckoned correctly, saves customers money and profits HaaS providers.

Gavin Garbutt, president and CEO of N-able, an Ottawa-based MSP platform vendors, thinks utility computing is the end-destination for mature MSPs, and HaaS is the path to that destination. By embracing a customer's entire IT network -- software, hardware and all -- MSPs can become inseparable from their customers in the same way that homeowners are inseparable from the utilities that provide them water and electricity.

But HaaS involves a key factor that drove most solution providers to managed services in the first place: low hardware margins. Telling a customer that you are going to monitor their IT network 24x7 to ensure nothing goes awry is one thing, yet telling them to pay you more to replace their PCs, servers and routers when you see fit is a much more difficult sell, MSPs at the N-able summit said. They also noted that the HaaS provider has to work out how to pay for thousands of dollars of computer hardware while living off low monthly service payments.

"Yes, I'm convinced HaaS makes sense. The more painful we can make it for a client to leave us, the better," said Stephen Alexander, president of Third Eye Technologies, a Valley Cottage, N.Y., MSP at the Boston summit.

But Alexander admits he's still waiting to hear a sound plan before Third Eye begins a HaaS program. He said he's not going to risk the livelihood of his business on a HaaS plan that, in almost every economic model, points to a need for Third Eye to carry the hardware costs up front that a customer would spend months, if not years, paying back. If a HaaS customer doesn't need any hardware from the onset of a contract, then money from monthly HaaS payments can be saved to prepare for eventual hardware expenses, but that's a gamble, Alexander noted.

Alexander knows what he's talking about. In 1995, Third Eye began offering a fixed-fee, "all-you-can-eat" IT management and hardware replacement service dubbed Obsolescence Protection. Under the model, Alexander has learned to expect to lose money on a new customer for the first 90 days. Customers that stay on long enough generally become "profitable annuities," he said.

Although Obsolescence Protection appears similar to a HaaS model, it's still one step back from absolute commitment to replacing or upgrading hardware anytime, anywhere under a blanket, binding service-level agreement, Alexander said, adding that taking the step forward to HaaS right now appears just too darn expensive. Two veteran solution providers and MSPs at the N-able summit, Drake of Master IT, and Dellinger of MSP on Demand, each gave answers to how to solve the HaaS equation profitably.

Drake's approach to HaaS is all-or-nothing. Master IT goes in and buys a HaaS customer's entire network and then manages it from there on out, maintaining and upgrading it to keep Master IT's costs low enough to achieve near 70 percent profit margins while satisfying the customer, he said, adding that the HaaS services aren't for resale.

"My deal is this: I buy your infrastructure one time, I pay you book value and tomorrow I'm going to replace a third of the network, then a third next year and a third the following year," Drake said. "If I touch your network, you are going to think I own it anyway, so I might as well go finance it."

Dellinger's HaaS approach allows for a more incremental embrace of a customer's hardware and is more inclusive. MSP On Demand provides aspiring HaaS providers insight into how to sell and maintain a HaaS offering and then introduces them to bankers, who provide financing based on a combination of the HaaS provider's and HaaS customers' credit, he said. Using that credit line, HaaS providers can include select portions (just PCs, oservers, etc.) of a customer's hardware infrastructure in the fixed monthly MSP fees they charge.

Drake and Dellinger agree that HaaS isn't for everyone. Customer adoption rates for HaaS are by no measure stellar. Master IT has signed 14 HaaS customers, and MSP On Demand has graduated two HaaS providers into business.

Brian Mullaney, vice president of sales at Aegis Associates, a Waltham, Mass., MSP and an N-able partner, said there's no free lunch with HaaS: having to buy hardware for a HaaS customer is still having to buy hardware, if you pay for it now or later, with or without interest.

"No matter how you do, the trick is how do you get profitability per user up high enough to cover the HaaS expense?" Mullaney said.

Because of the hardware expense, targeting businesses without vast hardware infrastructures may be the best way to embark on a HaaS program, said Tom Riggio, vice president of sales at Connecticut Computer Service, a solution provider and MSP in Plantsville, Conn. "I see a bigger opportunity with HaaS in smaller customers, where there's lower hardware overhead and more confidence about the service," Riggio said.

Fred Reck, president of InnoTek Computer Consulting, a Bloomsberg, Pa.-based MSP in its first year as an N-able partner, has already tried selling HaaS services to small customers. The proposition went nowhere, he said.

"They were too cost-sensitive, and break-and-fix was actually more attractive," Reck said.

Reck hasn't given up on HaaS, though. The plan now is to brush up on how best to finance a HaaS offering and then aim it at larger customers with IT user counts between 25 and 100, he said.

"A good place to introduce HaaS may be at the same time you introduce managed services, right when a customer has gotten big enough to begin looking to add its first IT administrator," Reck said.