As we covered in the blog, Managed Service Providers (MSPs) need to choose between being an agent and investing in infrastructure. The agency path may seem tempting at first, but MSPs that want to own the customer relationship and increase the company’s value know that the clear choice, at least for most services, is investing in infrastructure. Even using the agency route to “ramp up” is a risky proposition especially considering that investing in infrastructure is not the risk it was in the past. Most suppliers enable an MSP to start small and scale, keeping upfront costs to a minimum.
Infrastructure Changes the Conversation
Once the MSP decides to invest in infrastructure, the conversation between the MSP and the potential supplier changes. The MSP wants to look for a supplier that enables them to make an extremely long-term decision. Most services that the MSP may provide, like data protection for example, have inordinate switching costs and in some cases require the MSP to continue running the old solution so that data compatibility and availability can be delivered until retention requirements are met.
The MSP also needs to ensure that the solution covers the customer’s entire environment. In the case of data protection this means making sure that all of the customer’s operating systems, hypervisors and databases are protected. In the case of networking, it means making sure that all the customer’s switches are manageable. If the solution can’t provide blanket coverage then the MSP is forced to support multiple solutions which raises their costs and makes them less competitive.
The MSP also needs to make sure that the supplier’s consumption model fits with the MSP’s business model. Consumption is all about choice. Some MSPs will want to buy an annual “all-you-can-eat” type of license and others will want a predictable by the seat license strategy. Obviously, the MSP needs to select a server offering that gives them plenty of opportunity to provide services beyond just installation, like ongoing configuration testing, temporary administration support and regular health checks.
The supplier’s solution also needs to be MSP-ready. An increasing number of vendors see the MSP marketplace as a burgeoning source of opportunities but does the supplier have a product tailored to the MSP market or did they take their existing solution and simply modify their pricing model? MSPs need to look for solutions that are truly multi-tenant, and have a central dashboard for monitoring operations and managing clients. MSPs may even want the ability to brand the solution under their logo so white-label options are critical.
Does the Agency Method Have a Role?
While investing in their own infrastructure is the right path for most MSPs, they still may want to leverage an agency model in certain situations. MSPs just need to make sure that their core offerings are owned by them and not outsourced. An example of where an agency might make sense is when a handful of customers want to have the MSP provide a specific solution for them. Providing this solution via the agency route keeps another MSP from being introduced into the account.
MSPs need to be careful not to be tempted by the allure of the agency model. While it may seem easy to start and maintain, it severely limits the MSP’s value both to its customers and to itself. Investing in infrastructure is not much harder than becoming an agent, certainly there are some upfront costs but those costs are truly an investment which should pay dividends many times over through decrease risk, increased customer retention and increased value.
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