Always a company to spot an opportunity, PC World Business is heavily promoting its remote managed service package to the SME market.

The retail behemoth senses that many of the UK's smaller enterprises are keen to have their IT problems taken off their hands and are looking at the idea of outsourcing their core IT functions, or at least having them managed remotely.

PC World Business is trying to help SMEs make up their mind with the launch of a white paper entitled The Cost of IT Failure to Business and the Case for Remote IT Management.

The paper's central thrust is that SMEs are losing money through poor management of their IT systems, and that it is more efficient for them to hand over these functions to a specialist.

The key question is whether the managed services market is as tempting for smaller resellers, which are closer in size to their SME customers and often have a better understanding of how they work, as it is for giants like PC World Business.

Clive Longbottom, analyst at Quocirca, says: "Theoretically, smaller resellers can provide managed services to SMEs. It should be a no-brainer for an SME to outsource its IT functions to an expert."

Many SMEs have very little knowledge of the IT at the heart of their business, and their IT manager is often simply the person with the biggest PC.

But, paradoxically, the less knowledgeable they are the more they tend to try to control their IT, and the more resistant they are to getting outside help.

"SME customers let their hearts rule their heads," says Longbottom. "They don't like the idea of their PCs being taken out of their control. They are 'server huggers' who need to be able to see their IT kit to reassure themselves."

There is also the question of trust. Many SME customers, even when they can see the benefits of having their network remotely managed, are loath to entrust the responsibility to a small supplier.

"They are worried that if the reseller goes bust then all their data will disappear with them," says Longbottom. "And you can understand their concern."

However, these obstacles are not unsurmountable. "There are precedents," Longbottom points out. "SMEs don't usually host their own websites and they don't usually run their own payroll or accounts, but they see this as like using a bureau, rather than as a managed service."

Resellers, he adds, need to come up with value propositions for SME customers that overcome their objections to managed services and their desire to retain control.

"One example would be backing up the customer's data onto Nas devices that the customer keeps. The key point is how resellers wrap up and package the services to the customer, and how they help customers to run their businesses more effectively," he says.

Finding the right level of service
The provision of managed services and hosting covers a variety of situations and arrangements; the key is finding a level of service that is right for the user and can be competently delivered by the reseller.

"Most SMEs should be outsourcing web hosting," says Longbottom. "Outsourcing specific services, like antivirus scanning, can be expensive, and whether the SME needs it depends on how it operates."

A very small proportion of SMEs need high-level e-commerce systems, and most are just trying achieve very simple aims. The key to offering managed services is to really understand what the customer is trying to do, and not complicate things any more than is necessary.

The criticism made of the channel's provision of managed services is that its offerings often lack innovation and flexibility. SME customers want minimal risk when outsourcing IT functions, and resellers have to be flexible.

Longbottom explains: "They have to meet the customer halfway. What SME customers want is fixed costs, so they are not charged per use or per seat; and they want initial contracts that don't tie them in for too long."

The term 'managed services' encompasses a number of business models:

All of these require different skills from the reseller and varying amounts of investment and commitment.

At one end of the spectrum, break-fix contracts are pretty close to conventional reseller activity, requiring less additional investment than setting up a full-on hosting business.

The reseller will, however, have to make sure it has qualified engineers to deliver the on-site service. Training and retaining skilled technical staff can be one of the hardest parts of the business.

"Users that were burnt by the ASP model are understandably loath to try anything similar again," says Longbottom.

"But as the pace of change continues in the IT industry, many are reviewing their position and recognising that IT is not a core competency. They are looking for ways to minimise their dependency."

But he suggests the likely winners will be the big hosting companies that are tailoring their managed service offerings for smaller customers. At the low end of the hosted functionality market there will be more attrition over the next couple of years.

Tony Kingston, marketing director at Deverill, agrees there is big demand among SMEs for managed services, but thinks it is not viable for small resellers to deliver them.

"You have to be a certain size to provide managed services because you need a critical mass of customers to make it economically viable," he argues.

To set up a centre for remote network management and invest in skilled staff, the reseller needs to have a significant customer base. "Unless a small VAR has the infrastructure in place already, then it needs to partner with someone like us," says Kingston.

For some SME customers Deverill hosts the whole IT environment, but for others it provides only helpdesk support. The customers typically have very small IT departments, or none at all, and are often unable to deal with even mundane problems.

Resellers can sometimes win managed service contracts because a customer has contacted them about upgrading software. On closer inspection, the reseller might find a host of IT problems that the user was only vaguely aware of and can put forward a managed service proposal.

What SMEs need is impartial advice on how to use IT in their business and what it can achieve. Tony Knaggs, manager of the UK IT Centre, which advises small businesses on IT as part of the Business Link scheme, says more and more SMEs need IT support services.

"We are considering providing support ourselves because there is such demand," he says.

"When SMEs are looking for someone to provide IT support and services the central issue for them is trust; they want to go to someone they know. That may mean a large supplier, but equally it could mean a local dealer that they already have a relationship with."

Part of the problem for small resellers is that new customers naturally want referral sites and customer references. Knaggs says there are a number of websites being developed that allow resellers to list their reference sites and show, for example, whether they have indemnity insurance.

"That will make it easier for the SME to make an informed decision about which supplier to partner with," he predicts.

It will not, of course, make it any easier for a reseller to break into the managed services market if it doesn't have reference sites, but an understanding of what the small customer needs will help.

"The biggest problem is that SMEs speak a different language to technical people. The challenge is making sure both sides understand the other," states Knaggs.

This is often set out in the service-level agreement, but it is important not to hide behind technical language to create unrealistic expectations.

Build on traditional reseller skills
Mark Crocker, marketing director at network storage distributor Zycko, says resellers should build on their traditional skills. "The easiest way for resellers to provide managed services is selling and installing storage products," he says.

"The reseller needs to provide front-line support. It is about helping the customer manage its data, not just installing disks but putting policies and procedures in place."

More and more SMEs are aware of the need for some form of businesses continuity, not least because it is demanded by their insurers, auditors and suppliers. So it is a good area for the reseller to target.

Crocker says reseller margins in the data storage market are huge, as it is perceived as a black art. "If the reseller is willing to add value than there is massive potential there," he says.

The obvious advantage for the reseller in opting for the 'on-site storage' model is that it requires less upfront investment than running a remote network management service. The key, believes Crocker, is for the reseller to make the commitment in getting skilled up in network storage technologies.

For the reseller that wants to get more involved in helping customers run their businesses, but is not equipped to move into full-blown managed service provision, a number of larger companies are keen to partner by providing the services on the reseller's behalf.

Interxion, a specialist co-location and managed service provider, runs a string of data centres across Europe and offers a secure data service offering remote backup to SME customers.

"The only practical way for us to target these customers is through resellers," suggests Anthony Foy, Interxion's managing director.

The typical SME customer, says Foy, is a small retail business with a number of sites and no in-house IT skills. These are the businesses that need an effective and automated remote backup and monitoring service.

"The opportunity for resellers is just starting. The managed service market carries a lot of baggage because of the hype surrounding ASPs, but it is still in its early stages," he adds.

What resellers want when they provide managed services is to move from a sales model where they get just a one-off payment for supplying kit, to one where they get recurring payment for providing on-going services.

"The reseller can offer our data backup service as part of a package, either white-labelling it or using our brand. That enables it to move into a recurring revenue model," says Foy.

The decision for a reseller about whether to make the commitment to provide managed services is a difficult one. It can entail a big investment, and there is a clear perception that it is a big boys' game and that more consolidation will take place in the market.

But resellers have one clear advantage above even the largest of the hosting companies: no one knows the SME customer as well as they do.

Reaching a reasonable agreement
The service-level agreement (SLA) is an important consideration for the reseller aiming to provide managed services to the SME customer.

The agreement should cover the level of service the user can expect from the reseller, and what levels of recompense it will receive if the promised service is not delivered.

In practice, the hardest part of the SLA is aligning IT objectives with business ones, making sure that the reseller and the customer are both speaking the same language. The SLA should begin by outlining the 'must-haves' that both sides agree on.

"You don't need a lawyer to draft the SLA," says Dai Davis, consultant at legal firm Nabarro Nathanson. "That would be overkill."

The SLA, he explains, provides a measure of the damages that would compensate the user if fairly minor things go wrong, and deals with specific issues like how quickly the reseller should get an engineer to the customer site.

The best person to draft the SLA would be a computer consultant who understands how the user's business works and what it is trying to achieve.

But, adds Davis, there is something more important to consider than just the specific details of the SLA, that resellers often ignore.

"The vital area lawyers can advise on is limitation of liability. Customers can and will blame the supplier when things go wrong, and this needs to be addressed," he warns.

The central question about liability between a customer and its supplier is about what can be considered 'reasonable'.

It clearly would not be reasonable, for example, for the customer to blame the reseller for problems with BT phone lines that affect the customer's network and were out of the reseller's control.

Equally it would not be reasonable for resellers to try to exclude themselves from all liability if they have installed faulty kit.

"The basic rule is that you can do whatever you can later justify as being reasonable," observes Davis.

For this reason, it is important to get an agreement in writing that covers the question of liability when the reseller wants to provide managed services.

"Small suppliers tend to know that they need some form of legal contract when they offer managed services, and often they just reuse a contract that they have received from one of their suppliers, with a few minor changes.

"So they are not adequately covered when they enter into these outsourcing agreements," says Davis.

Limitation of liability is the one area on which the reseller needs to get outside advice when planning to provide managed services.

CONTACTS

Deverill (01202) 785 000
www.deverill.co.uk

Interxion (020) 7375 7070
www.interxion.com

Nabarro Nathanson (0114) 279 4000
www.nabarro.com

Quocirca (01753) 754 838
www.quocirca.com

UK IT Centre (01727) 813 717
www.mybusinesslink.co.uk

Zycko (01285) 868 500
www.zycko.com