Wrangling over services revenue

As profit margins on IT products remain slender, some network vendors are attempting to shore up their channel partners by suggesting a stronger focus on professional services. For our purposes here, these services can be defined as everything you buy that doesn’t get shrink-wrapped, downloaded or packed in a box. They include the expertise required to figure out the exact upgrade you need, make it work, make it talk to your legacy systems and keep it working.

Encouraging channel partners to focus on professional services makes sense; after all, customizing IT offerings to clients’ needs is what they do for a living. From a market standpoint, there is sufficient revenue potential to attract the value-added resellers (VAR) and integrators that would deliver these services. But a growing number of manufacturers also are pursuing this opportunity, and the two sides are often at odds with each other.

“I spend a lot of money on training and payroll for experts who can figure out what the customer needs, and then go in to do the install and configuration,” says an executive from one East Coast channel partner. “I certainly don’t want to watch that investment fly out the window – especially when I’m only picking up a few points on the equipment itself.” Vendors, on the other hand, argue that their own branded services provide greater consistency across the board.

The outcome for end users can be a mixed bag. On one hand, a competitive market helps to reduce costs. On the other, a strong vendor presence in the local services market can reduce competition as a result of the vendor’s economies of scale. Also keep in mind that when vendors offer services, they are far less product-agnostic than most VARs’ and integrators’ offerings tend to be.

Some of the best options let partners resell specific elements of overall vendor service offerings in order to give the channel first pick of the services around which they will build their business. This also is favorable to end users because the channel partner isn’t faced with an all-or-nothing proposition, and therefore can focus resources in their chosen areas.

Buyers are advised to ask plenty of questions when purchasing a service contract. If something goes wrong, who will come to the rescue? What are their qualifications? What is the size of their staff in the event that a truck roll is needed? Can they address all the technologies used by your company? What commitments can they make regarding service-level agreements or the speed of response?

In addition to straightforward questions and answers, a certain amount of “gut check” comes into play here. Most people who have been in this business for any length of time have some idea who they can count on in an emergency. While nobody ever hopes to see bad things happen to good networks, such an event often can go a long way toward discerning sales-speak from genuine customer commitment.

Presti is research director of IDC’s Network Channels and Alliances service. He can be reached at kpresti@idc.com.