“As-a-Service” Model: Resolving Reluctance About the Cloud

 In Cloud Servers, Managed Service Providers

An as-a-service business model requires a complex change of direction for the MSP who has mastered the art of hardware & software sales. It can also create immediate frustrations around revenue stream.

Clearing Skepticism Around Flexible Consumption Models

The persistent focus on the benefits of flexible consumption models overlook the real uncertainties of transitioning from hardware & software sales.

For MSPs offering IT infrastructure services, the transition to the cloud requires a conscious decision to stop selling physical assets with immediate revenue streams. Instead, these MSPs decide to sell virtual services with long-tail revenue streams.

Simply put, it can be an arduous journey.

The transition from the traditional hardware & software sales model requires a significant operational shift for an MSP. The following post highlights the fear, uncertainty and doubt that MSPs may face when transitioning to the cloud.

Fear: Customers won’t understand what they’re paying for.

After years selling tangible hardware and software, some MSPs struggle with the concept of pay-as-you-go IT infrastructure. They fear that the customer won’t value a virtual, cloud-based service the same way they would a physical, on-premise server. The concept of selling a virtual server that can’t be seen, touched or heard can be hard to get your head around!

In actuality, cloud-based infrastructure increases the value of a customer’s experience. The shift away from on-premise hardware eliminates the headaches associated with infrastructure maintenance. If the infrastructure is in the cloud, there is no hardware to maintain and update. There is no space that requires special air conditioning. There are no power outages to be concerned about. You – the MSP – own all these responsibilities. Not the customer! Moving to an as-a-service model gives your customer greater freedom.

Moving to the cloud means MSPs resell cloud-based infrastructure. Instead of buying and reselling a physical server, MSPs resell a white label cloud solution hosted in a partner’s data center. The final product made available to the customer offers the same functionality – just hosted in a different location.

Like with hardware set-up, customers will require professional services to prepare and maintain their cloud infrastructure.  The difference is: updates can be done remotely, and not on-premise. That means customers don’t need to be available on-premise to facilitate hardware upgrades or deal with emergency issues.

Uncertainty: Will the cloud be as profitable as hardware?MSP-xaas-as-a-service

For MSPs accustomed to making significant hardware sales, transitioning to the cloud can cause alarm around declining immediate revenue.

The immediate gratification of a hardware sale no longer exists. The revenue stream changes from a “Cash in hand” scenario to a long-term revenue opportunity.

Admittedly, this will be quite a shock for traditional MSPs.

Transitioning to cloud sales requires a shift in short-term revenue expectations. The lifetime value of the cloud-based service can be significantly higher than a traditional hardware solution. The difference is that the revenue is now distributed across a period of months, instead of being generated up-front

Hardware vs Cloud-based Server Sales Revenue

  Hardware Cloud

 

Lifetime Revenue
(5 years)
Cost of a new server $20,000 $20,000
Cost of cloud server $400/month $24,000

*Note: Prices are meant for comparison and scale. Not actual costs.

Revenue generated by professional services can’t be overlooked. Customers that transition to the cloud still require the same level of service and expertise as those previously using on-premise servers. The set-up of a cloud-based solution is as labour intensive, as is solution maintenance. From this perspective, MSPs won’t see a change in immediate or lifetime professional services revenue.

Hardware vs Cloud-based Professional Services Revenue

 

  Hardware Cloud

 

Lifetime Revenue
(5 years)
Professional Services – setup $5,000 $5,000 $5,000
Future services $200/month $200/month $12,000

*Note: Prices are meant for comparison and scale. Not actual costs.

Doubt: Customers won’t stay loyal.

The process of on-boarding a client to the cloud is infinitely easier than upgrading an on-premise server. By making a full data back-up in the cloud, cloud-based infrastructure can be spun out in a matter of minutes.

So if it’s so easy to onboard new clients to the cloud, what will keep them around?

The hassle of migration and the quality of relationships play a key role in customer retention.

Planning the architecture of a new cloud solution requires time and effort. This takes a key piece of most customer’s professional services budgets. While the pay-as-you go approach means customers aren’t locked in by contract terms, the effort required to spin up a new cloud instance prevents most companies from dedicating time and budget to other IT initiatives.

Data security also plays a big role in customer retention. Data is the most vulnerable when moving it from one cloud location to another. Cloud service providers put security measures in place to ensure data stays secure. All the same, most customers won’t want to risk their data security for a lower potential cost with a new MSP.

The quality of the ongoing customer service relationship also prevents customers from abandoning their MSP. For both the MSP and the cloud provider, a new cloud customer presents the opportunity to offer unparalleled service. Attentive service eases customer fears about disaster recovery, and helps build trust and rapport.

Cloud-based IT Infrastructure also presents the opportunity to work collaboratively with the customer to develop a long-term view of their business strategy. By taking the time to understand the customer’s needs, goals and objectives, you can become a core part of their technology team. When it comes time to deploy new IT solutions, you’ll be the first source they’ll turn to.

Identifying the Real Threat: Irrelevancy

The benefits of cloud computing, and all forms of as-a-service infrastructure, are undeniable. As more of the market accepts and seeks out these virtual services, the real issue is not the lasting power, but the relevancy of those MSPs that don’t offer cloud-based services.

 

If the prospect of declining immediate revenues is daunting, consider this: your business may experience general decline – and even death – without adoption of new IT solutions.

White Label Cloud Solutions

The transition to the cloud, and to an as-a-service model, doesn’t need to be daunting.

Cloud providers build their businesses by offering white label cloud solutions. These same providers offer extensive expertise to help MSPs pitch new business, and to plan migration. One of their suggestions may continue to support your hardware sales business; gradually redundancy of hardware may serve some customers more effectively than a wholesale transition to the cloud.

Curious about how your business can work with a white label cloud solution? Contact HostedBizz today. We offer cloud solutions, extensive sales and marketing support, that can pave the road into the next generation of your business.

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Cloud migration and cloud infrastructureTraditional MSP Transitions to Cloud