Magazine Article | January 1, 2017

A Warning To MSPs: On-Premises Computing Is Going Away

By The Business Solutions Network

This top-10 IT consulting and services provider believes MSPs can’t afford to put off selling cloud services any longer.

Businesses are seeing the value of moving to the cloud, and if their “trusted IT advisors” aren’t going to help them get there, they will take matters into their own hands, says Sean Vojtasko, executive VP at Onepath.

To say that Onepath is not your typical MSP and cloud services provider would be a very big understatement. In June of 2015, Onepath Systems merged with Endeavor Telecom and acquired BlueWave Computing. The transaction combined three sizable Atlanta-based IT solutions providers with expertise in managed services, field services, advanced technologies, and building technologies to form a 1,000-employee company under the Onepath brand. Although the privately held company doesn’t make its revenue public, the fact that it moved into the top 10 on the MSP top-500 list in 2016 (up 40 spots over 2015) gives us some indicator of the company’s size and scale.

Many smaller MSPs (i.e., the other 97 percent of IT solutions providers) might be tempted to think that a company like Onepath, which has such enormous bench strength from sales to technical expertise, would have very little value to offer them. But nothing could be further from the truth, says Sean Vojtasko, executive VP of Onepath, who leads the company’s managed services business. Not only does his company have helpful advice to share with smaller MSPs, but hearing and heeding his message could mean the difference between staying in business — or not.

Cloud Predictions From 2011 Are Coming To Fruition Now
Vojtasko recalls reading a Gartner report years ago that gave him pause. “It said that MSPs that had not developed a strategy for selling cloud solutions and services by the end of 2011 were going to be out of business by 2017,” he says. Vojtasko’s previous company, BlueWave Computing, took that advice seriously and not only stayed in business, but posted 40 percent revenue growth in 2012, followed by 35 percent growth in 2013. You can read all about the company’s success in the August 2013 issue of Business Solutions magazine (see “Keep Your Managed Services Customers From Reverting To Break- Fix”)

BlueWave’s acquisition in 2015 was a strategic move made by Onepath to acquire a leading MSP in the Atlanta market and expand its reach and service portfolio. “The goal of the acquisition was to provide IT services from cable to cloud across North America and from one company,” says Vojtasko. “Whether it’s installing digital menu boards at quick serve restaurants across the U.S., or performing systems integration for one of the nation’s newest stadiums, or providing IT support and managed services for fast-growing businesses — Onepath’s vision is to be the easier way to get hard things done for our clients as it relates to their technology needs.”

Onepath isn’t the first story we’ve covered in Business Solutions about acquisitions within the channel. The headline of the November 2016 issue, “When Merging Makes Sense,” highlighted MSP business owner MJ Shoer’s company, Jenaly Technology Group’s acquisition by a larger MSP, Internet & Telephone. Shoer had known the executives at the acquiring company for more than 25 years and described the move as a win for everyone involved

What Jenaly and BlueWave had in common is that they were both acquired on their terms. A lot of other IT solutions providers aren’t going to be so fortunate, says Vojtasko, and a major determining factor of whether they will continue to thrive or not has to do with their cloud strategy. “Two years after Gartner’s 2011 report was released predicting that MSPs that didn’t have a cloud strategy would be out of business by 2017, a follow-up report was released saying, ‘It’s already starting to happen.’”

One of the primary drivers behind this trend, he says, is that businesses are seeing the value of moving to the cloud, and if their “trusted IT advisors” aren’t going to help them get there, they will take matters into their own hands. In the Atlanta area, there are 642 organizations that identify as MSPs, but that label is misleading for a lot of them, says Vojtasko. “When you dig into their business model, you find that many started as break-fix IT providers — or copy and print dealers — and they are now trying to become services providers,” says Vojtasko. “The problem is that they are so focused on selling products and maximizing product margins that it’s hard to make the shift to selling managed services and cloud services. Unfortunately, they don’t have the luxury of waiting much longer; they have to make that move right away.”

The Real Choice For VARs-Turned-MSPs: Partner Or Perish
The pace of business is moving at such a rapid clip that Vojtasko doesn’t think it’s realistic for many IT providers trying to make the transition from solutions provider to services provider to go it alone. “MSPs that don’t have the financial resources to invest in cloud and to train their support staff should seriously consider partnering with a master MSP and cloud service provider,” he says. “This will allow the MSP to retain its customer relationships, while at the same time being able to offer the cloud services customers are demanding.”

Vojtasko’s view concurs with other research from Gartner, which says that the Infrastructure-as-a-Service (IaaS) market has been growing more than 40 percent in revenue per year since 2011, and it is projected to continue to grow more than 25 percent per year through 2019. The same research also finds that by 2019, most virtual machines (VMs) will be delivered by IaaS providers. And by 2020, the revenue for compute, IaaS, and Platformas- a-Service (PaaS) will exceed $55 billion — and will likely pass the revenue for on-premises servers.

Vojtasko suggests that in a way similar to how the cloud enables companies to purchase IT resources as a utility, smaller MSPs can procure managed services offerings through larger MSPs and cloud providers. “Our company is already being used by other MSPs to set up high-end Cisco flash storage and/or VMware networking environments and to manage cloud platforms on behalf of their customers,” he says. “We resell our services to smaller MSPs similarly to how they would purchase cloud services from Amazon — on a month-to-month subscription basis.”

Some of the value-added distributors like Tech Data and Ingram Micro also are offering outsourced managed and cloud services to MSPs as an alternative to building their own cloud data centers and having to expand their support teams. Ingram Micro, for instance, has a Cloud Marketplace where MSPs can procure dozens of cloudbased solutions and services covering categories such as communication and collaboration, security, vertical markets, cloud management, and infrastructure. For an additional fee, each service can be implemented and supported by an Ingram Micro-badged employee, and the MSP can even use the support services to train its team and eventually bring the services in-house. “While we see some value on what distributors are doing, some tend to suffer from the same challenges VARs face, which is making the mind shift from selling products to becoming a service-oriented organization,” says Vojtasko. “That’s where companies like ours have an advantage because we take a consultative, vendor-neutral approach that’s focused on solving customers’ business challenges rather than selling products.”

One case in point he cites is a major project his company did with US Auto Sales, a 400-employee used auto dealership with 17 locations throughout Georgia and South Carolina. Each year around tax season, the dealership sees a big spike in sales as customers spend their tax rebates on used vehicles. “Years ago, the dealership invested in extra laptops, desktops, and software to accommodate the influx of temporary salespeople brought in around tax season,” says Vojtasko. “The problem was that when the busy season was over, the dealership had extra computers lying around not being used, and within a few years they would have to go through the same process all over again. After consulting with the client, we determined that a Desktop-as-a-Service offering made much more sense, which moves the software and computer power to the cloud and allows the client to purchase what it needs on a month-by-month basis. The only equipment needed on-site is a thin-client device, which only requires a few kilobytes of memory to boot into a browser. Plus, we can manage it more easily compared to an on-premises project, so we can charge less for support.”

Many VARs and MSPs will see the above example as a foolish move because Onepath would charge a small fraction of what another company would charge for new laptops, desktops, on-premises software, and a maintenance package. But Vojtasko says there is another element at play that the old sales mindset overlooks. “The dealer saved so much money using our Desktop as-a-Service offering that the management team looked at other areas of their business they needed help with, and they asked us, ‘Can you rewrite our ordering and financing applications?’ They’ve also opened additional dealerships since we started working with them, and we’ve been able to redeploy the thin clients to those locations.

“In the Atlanta area, there are 642 organizations that identify as MSPs, but that label is misleading for a lot of them.”

Sean Vojtasko, executive VP, Onepath

“Some distributors just don’t have the DNA to offer these kinds of services in a way that’s price-competitive for MSPs,” says Vojtasko. This becomes evident when they push one vendor’s products over another rather than focusing on what’s best for the customer. “MSPs should check into a few options before making their cloud service provider selection and choose one that allows them to be consultative,” he says.

Choose Customer Satisfaction — And EBITDA Will Follow
One of the biggest hesitations companies have about making the move from selling solutions to services is dealing with the initial loss of product sales revenue. But Vojtasko says that making the transition is well worth it in the long run. “If you have happy customers and give them a competitive price, why would they go anywhere else?” he says. “EBITDA [earnings before interest, taxes, depreciation and amortization] is nice, but if you’re retaining customers and adding net new customers, you’re going to grow gross profits, and EBITDA is going to follow. It’s smarter to focus on having a sustainable workforce where workers are paid fair wages and given the opportunity to receive certification training and testing and to develop in their roles. Our customer and employee retention rates are 96 percent on both sides. Plus, our revenue retention rate is above 100 percent. Our customers spend more and more money with us because we have a broad portfolio, which we continue to invest in as well. Show me an IT solutions provider that wouldn’t prefer these results.”