The old days of services were the good old days for any IT company. The story of the engineer who arrived to upgrade a mainframe, flicked a switch and promptly charged the customer £300,000 has long since passed into legend.
In these days of constant pressure to move over to services, resellers have to deal with increasingly demanding customers. The days when a customer could do without 24-hour support are mostly behind us. But now their needs are different.
The good news is that a lot of the old service offerings are now packaged and can be sold easily with only minor tweaks to tailor them to customer requirements. Users who find themselves swamped by technology seek experts to keep their systems running. They are willing to pay a premium for everything from asset management to 24-hour maintenance and disaster recovery, and manufacturers are offering sophisticated products for easy resale.
The other factor driving service level agreements (SLAs) is the rise of the application service provider (ASP), although some analysts predict that many ASP's offerings will not work because of a failure to properly specify or live up to SLAs.
James Governor, software analyst at Illuminata, said that many of the 500 or so ASPs currently operating in the US will fail because of poor service provision. Another area where SLAs are becoming increasingly popular is in network uptime. As networks become the arteries of commerce, users are more willing to invest in the proper SLA that will keep their businesses operating.
Researcher IDC asked network managers what they considered to be the most important aspects of SLAs. According to the company, the latest figures show that "a reinvention of network management is in step with the demands of the internet era of computing and the emergence of SLAs".
Elisabeth Rainge, research manager of IDC's network management research programmes, said: "Both IT and business managers rely on SLAs as formal or informal contracts. The agreement functions as the ultimate objective to which virtually all management resources are directed."
Last year, the IDC 500 Census of Network Executives showed a growing enthusiasm for SLAs. Almost 90 per cent of executives surveyed required overall network availability in service provider SLAs. The figure is up from just 30 per cent in 1998.
Network response time is the second most important criterion for service provider SLAs. Almost 80 per cent of network executives want guaranteed SLAs for internet service availability from their service providers.
On the supplier side, the two big guns in the channel - Compaq and Cisco - are vying to be seen to offer the service provider with the best solution in slightly different but rapidly converging markets. In May, Compaq announced plans to spend $1bn on upgrading its services, with $150m earmarked for Compaq partner marketing.
Compaq is well aware of the expected surge in the services sector. It is attempting to allay fears that its services arm, formerly the huge services division of Digital, will take all the services revenue from its channel. It also intends to address the unease in the channel with new programmes.
Lynx Technology, a Compaq systems service provider, claims that a quarter of its turnover is based on support contracts where it does everything from ecommerce services to network support. Tony Rabone, development director at Lynx, accepts that there is still a lot of suspicion in the channel surrounding Compaq's motives, especially when it comes to services. However, he says the company is slowly allaying fears.
"Compaq is sub-contracting more warranty services to the channel, which is good because the warranties are becoming more extensive," he said. "Often, customers settle for manufacturers' warranties instead of buying extra services packages."
"There is a general trend in the SME [small to medium sized enterprise] market away from desktop support contracts. There are far more spares around and companies keep buffer stock to hand. And with the extended warranties available, increasing numbers of customers find that sufficient. But you can't package everything. The customer's need for support is growing every day," he added.
At the same time, Rabone believes the sensible approach is to make services a two-way street. "If you have a customer outside your geographical area, it might be better to resell Compaq enterprise services. The business is splitting from provision of services directly to customers, to the provision of warranties for manufacturers," he said.
Comstor, Cisco's biggest UK distributor, is reselling Cisco's SmartNet service offering. According to Nigel Lambert, reseller business development manager at Comstor, the attraction of this is that resellers can buy the standard package and then offer their own unique services on the back of it.
He sees SmartNet as a logistical operation. It is Cisco's main support contract, which Lambert says is ideal for resellers that cannot afford to build big support networks.
"If you have a managed services proposition, you can merge it with SmartNet, brand it as your own offering and front it to your customers. Obviously, resellers want to own their customers and this gives them the opportunity to do so," said Lambert.
Resellers are up to speed with the services they need to offer, and it is distributors and manufacturers that have been slow to respond, he added. "Resellers know there is demand out there and we are doing our best to give them the services they need to cater for that. It has taken us a while to realise what they need."
Apart from opting for a manufacturer's solution, the alternative is to develop your own from scratch. However, unless you are Computacenter, this may prove to be uneconomical. The company has spent at least 10 years developing a services model called Prism which it can tailor to most customers' needs, and it has the finances to back it up.
Alongside the ASPs, the main area where SLAs come into play is in outsourcing contracts. While outsourcing was once the preserve of big corporates and large government organisations, it now reaches down further than ever into the market.
According to analyst Gartner, by the end of 2000 half of all organisations will entirely outsource one or more of the major end-user computing functional areas, such as desktop services, network systems management or help desks.
What end-users like about outsourcing is the peace of mind it provides. Resellers should be aware that in the age of the internet, shoddy service is not an option. Research analysts' websites reveal how services, and SLAs in particular, are the focus of the moment.
Joseph Butt, an analyst at Forrester Research, believes there is a long way to go before SLAs come up to scratch. "For firms struggling to keep pace with rapidly rising infrastructure complexity, managed service providers with SLAs offer an easy way out," he said. "But buyers should beware. Few providers deliver what customers really want: realistic guarantees of availability and commensurate penalties for service failures."
View across the pond
While Butt does not sound like a friend of the service provider, he does have some useful advice for both sides of the fence, especially as some of the figures being bandied about in the US are likely to affect the UK market.
"Web hosting turnover will reach $19.8bn in 2004, up from $1.4bn in 1999," he said. "Users' push towards high-end ecommerce sites, coupled with vendors' focus on web solutions, puts hosting on a path to the stars."
But the ability to exploit these new web-based turnover streams will depend on a changing set of expectations among customers, and more importantly, quality of experience and quality of service.
Sophie Mayo, worldwide services research manager at IDC, said: "The scope of the services provided by IT services companies has been evolving. From product services to system-related services and business process services, it is more difficult to identify IT services offerings that do not involve solving a business problem."
"As a result of this change, the big names in the IT industry are no longer seen as the experts. As happened during the revolutionary era of the PC, the smaller fast-growing entrepreneurial companies with specific expertise are meeting the demand for a new kind of packaged offering," she added.
And Mayo sees threats from unlikely sources. "It will probably take five years before any company can seriously mount a challenge to the supremacy of IBM global services. However, no services provider should be complacent. The threat of eroding market share won't come from only traditional IT players. When customers look for a logistics solution, for example, they might direct their attention to Ryder Integrated Logistics or UPS, which have not been on IT services providers' traditional radar screen," she said.
Ironically, it would seem that the only service providers that don't treat their customers with contempt are funeral directors. This is because there is no chance of any repeat business in that game.
One source recently told of an incumbent supplier that re-tendered for the public sector outsourcing contract it was running by simply re-submitting the original tender document with higher prices. It had not even bothered to read the new document.
In an ideal world, none of your customers would even have the office number. But realistically, in the future they are going to want more contact via fax, mobile, email and Wap phone. And ultimately, customers from the smallest to the largest will be looking to off-load any technical problems onto their suppliers.
From manufacturers' warranties to ensuring the customers' business-to-business marketplace is always accessible, the only way is up and out for SLAs.
They do not have to be a burden - a drain on resources in a high-cost, low-margin market. The right SLA can open doors and close deals. The ASP and hosting markets are set to expand rapidly, so the next-generation service providers should be working on their agreements now.
- Services are no longer money for old rope.
- The growth of the ASP market is boosting the importance of SLAs.
- The need for constant network uptime drives a need for watertight SLAs.
- Resellers have options which range from using SLA services provided by distributors and manufacturers, to developing their own.
- The right kind of SLA should be an asset, not a weight around resellers' shoulders.
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