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With managed services revenues, January doesn't have to be a slow month

It's that time of year again, when pre-Christmas urgent tasks take priority and new projects are put off until business resumes in force after Australia Day. Yet while Australia's extended holiday season may be a favourite time for workers, it creates big challenges for resellers trying to keep revenues rolling in through the traditionally dry January period.
Holiday-minded workers are only part of the problem: traditional hardware buying cycles also cause issues by creating a November end-of-quarter bump that leads into the January trough. With hardware revenues being diverted to more aspirational areas such as digital transformation projects and cloud, many businesses are opting to delay hardware purchases altogether and squeeze the life out of their existing gear.
This trend is reflected in Gartner spending forecasts (i), which predict that device spending will drop from 5.4 percent of ICT spending this year to just 3.8 percent of the $US3.7 trillion to be spent on ICT next year (ii). Data-centre spending will drop from 1.8 percent to 0.9 percent over the same time, while communications services and IT services will both grow as a proportion of overall spending.

Services focus

As IT services grow in importance, many resellers are moving their revenue base from a dependence on erratic hardware margins, to more-regular revenues funded out of growing Operating Expense (OpEx) budgets.
For Brett Lodge, managing director of Adelaide-based reseller Subnet, leveraging Interactive's hardware maintenance managed service has proven to be a great way of smoothing out revenue streams while helping customers extend the useful lives of their hardware - something that is particularly common in the company's core education market.
Spotty seasonal revenues "were one of the biggest pain points we faced," Lodge says. "If customers don't want to buy new hardware, they're trying to extend the life of their server base for an extra couple of years - so we're seeing a massive uptake in warranties and support."
Monthly warranty extensions not only help stabilise revenues from the traditional buying splurge in November - when schools would buy new equipment in anticipation of running upgrades and patches while students are away - but help Subnet shift customers to cloud-based application platforms while retaining their old, out-of-warranty equipment as a disaster-recovery platform.

Shifting revenue

The addition of annuity-based services has driven a "massive shift" in the company's revenue streams, where hardware sales used to dominate but services now comprise more than 80 percent of Subnet revenues. Subnet's 40-odd staff are working more effectively, leveraging Interactive's managed services into a broader strategic picture that has helped it begin supporting customers with 300-plus seats.
Recurring revenues from extended warranty services have proven equally helpful for reseller CBM, which is including Interactive hardware maintenance services as part of its managed-service offerings.
"People don't like spending Capex these days and the cycle for server replacement went from 3 years to 5," says managing director Geoff Smith, "and recently even that's not enough. People don't like Capex and having Opex-based maintenance is very beneficial. They get one bill per month and it's consistent."
Opex-based services have helped CBM build a recurring revenue stream through the holiday season.
Readily available maintenance services can be doubly useful because change-averse customers can plan technology activities knowing that their legacy equipment is supported. This lets resellers focus on spending January tackling outstanding projects around things like communications services and cloud migrations, rather than just keeping the lights on.
"Planning is the key to making sure you can do business in January," Smith says. "Most organisations and people are on holidays, and unless you've already ticked those boxes prior to the break, you're putting yourself into the situation of creating a quiet time instead of a busy time."

 

i Gartner 2017, IT Spending 3Q17 Update: Top 10 IT Markets Strategic Planners Must Track in 2018 - See article
ii Gartner 2017, IT Spending Forecast, 3Q17 Update: Top 10 Market Opportunities in 2018 - See report
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