MSP Zenith CEO: 'Time To Draw the Line' At Outsourcing Managed Services

When the man behind Zenith Infotech says VARs need to "draw a line" at outsourcing managed services, it's like Dr. Phil saying sometimes more communication really isn't the answer. It gets your attention.

Zenith and its energetic CEO, Akash Saraf, burst on to the MSP scene a few years ago with low prices for its hosted network-monitoring and data-recovery services. These days, many Zenith competitors have paid that vision the ultimate compliment by rolling out their own versions.

CRN sat down with Saraf to discuss everything from the commoditization of managed services to the threat to MSPs from the likes of Dell and the Geek Squad.

CRN: Vendors of desktop and server monitoring and management tools have been offering hosted versions and changing their entry-level price structures in recent months. Do you feel like this is, in some way, a reaction to what Zenith Infotech has been doing?
Saraf: I don't know about reacting. We are taking a very different approach. I mean, Silverback, Kasaya, N-able, Level, are more in the model of selling a product. We, from day one, came up with the model of, you know, we didn't see the future of every small channel partner being interested in buying a product. And we came up with, well, what if we could handle that heavy lifting for you, so you could focus on your customers? And Ingram saw that model two years down the line and they came up with Seismic -- not that they're doing that well -- but we're just in a different space altogether and we are very clear to our channel in saying that, look, if you're just looking for a tool, then maybe you should go to our competition.

CRN: You guys were really among the first movers in hosting ...
Saraf: Hosting and actually, not only hosting, but actually doing the remote fixes. Hosting the tool is pretty easy, but actually doing the remote fixes and doing it in a disciplined fashion, doing it for like 6,000 customers, is a very different thing.

CRN: It's interesting, because as much as Zenith has done, we're starting to see more MSPs that are mature peddling out their own NOCs and network management capabilities to peers.
Saraf: You're right. I'm seeing a lot more of the mature MSPs adopt the model faster, because they've gone through that hard grind of making it work themselves. So they appreciate the value of it. A lot of the new players in the market, the newer VARs, they still think about it in terms of buying a product, and think you make money from the day after [you buy it]. And then after six months they realize, look, that's not happening. And that's when they come to the conclusion that this running our own NOC, it doesn't make sense. We say, don't give up control of your own help desk, your own contacts

CRN: But they can use your help desk if they choose.
Saraf: They can. But we encourage our partners to have their own. It's only for the really small partners, like two-man shops, husband-wife, where they're both out in the field and they can't field calls. I was never keen on the help desk, but some of our partners said, look, we just can't handle it.

CRN: Some of these companies, they'll even supply you with field engineers.
Saraf: See, I'm kind of skeptical about that model. We're kind of a happy medium. On one side, you have do it yourself. On the other side, you have people who say, just resell what I do. Now when you do it yourself, it's expensive and very capital intensive. But if you're going to just be reselling another man's service for a 10 percent margin, why would you even be in that business in the first place? I think one has to draw a line where you stop outsourcing, where you keep certain things to yourself.

CRN: What are your impressions of the past few years, where there's been a lot of pressure on VARs to become MSPs? You know, buy this product, open the box and presto, you're an MSP.
Saraf: I think being an MSP is a lot more than buying a tool and building a NOC. It's a big change in the organizational mindset. And as ugly as it sounds, 50 percent of the channel is not, sort of, tuned to an MSP model. I tell this to people and they fall off their chair, but I don't expect more than 20 percent of the channel to make money off this. There's guys who'll do it and they'll survive, but they'll just maintain the status quo.

NEXT: What Saraf thinks about big vendors getting into managed services.

CRN: What about the big vendors getting into managed services and going direct? I just found out, you know NEC, they make monitors ...
Saraf: NEC, yeah.

CRN: They've got a managed services offering, it's direct, it's still small. It's in Houston, or in the Dallas area, I think.
Saraf: Well, take Dell. Dell is putting a network management card in every server. What do you think is Dell's intention? Do you think Dell is channel-friendly about it? No. They want the channel's business. And I don't know what to tell the channel to prevent this from happening, except for saying, make sure your 30 or 40 key clients are locked in tight. And you're not gouging them. So long as you don't gouge them, they won't switch for a 10 to 15 percent price difference. Because if Dell is even 20 percent cheaper, your client won't ditch you. But if you're pricing at five times over them, then you have a problem.

CRN: So would you say that MSPs today would have an interest in not commoditizing managed services?
Saraf: See, it's an interesting thing. But it's going to happen; whether you like it or not, it's going to happen. There's multiple layers to look at. I think the server monitoring, the desktop management, is going to become a commodity, like it or not. But what we're seeing in the channel is they're sort of graduating to becoming the customer's IT department.

And that's not commoditizable, because well, take one of my channel partners. He's a virtual CIO for 20 of his clients. Dell can't produce a virtual CIO. So what we're saying to the channel is move to that virtual CIO level and wrap your managed services around that. Then you're very hard to shake off, because the client can't unpick something you provide and go buy it from Dell, and go, "I'm only going to use you when I need you."

But if you're just saying I want to do desktop and server management, then, yeah, I think you're in for trouble after some point in time. I think the smart guys realize that, look, commoditization will occur. But if you can move up the chain, where you do application design work or business design work, that's very hard to commoditize because that's very one-to-one, that's very personal. And the quality of manpower you need for that, you know, Dell can't assembly-line 20 business analysts out there.

CRN: Or the Geek Squad.
Saraf: I'm not too worried about Geek Squad, except I'd say for the channel that goes out to the less-than-10-user market. I'm very worried for them, because that's a market that Geek Squad will take over. Geek Squad or Dell. But the moment you start looking at 25-, 30-, 40-user environments, the customers need something more professional.