Recognizing Managed Print’s Value to the Channel31 Aug, 2015 By: Larry Walsh, The 2112 Group
The world is now based on services. Everywhere we look, services are the prevailing business model. Our operating systems, cloud computing resources, systems maintenance and management, applications, and even staffing are increasingly based on a recurring-revenue model and services-based delivery.
So why is it that managed print services (MPS), introduced a decade ago, remain an underappreciated and underutilized model among resellers, solution providers, and imaging dealers? The simplest answer: friction.
While MPS is viewed by many as an ideal way to introduce cost efficiency to the highly wasteful printing arena, solution providers and businesses alike fail to see the need for active monitoring of printers and network workstations. Moreover, they see little need to change their existing print infrastructures and habits.
Two trends could change the channel’s poor perception and low adoption of managed print. First, services are fast becoming the consumption model of choice for businesses of every size, from enterprises to SMBs. Second, additional services sold into existing managed services accounts are the primary driver of solution provider growth.
According to The 2112 Group’s 2015 Midyear Channel Performance Report, solution providers – managed service providers (MSPs), value-added resellers (VARs), systems integrators, and other resellers and consultants – expect to grow their revenue and profits by at least 6 percent in 2015. More significantly, four out of 10 solution providers expect sales revenue to increase by at least 15 percent this year.
These growth numbers are significant given that the overall IT marketplace is contracting. Analyst firm Gartner is forecasting that global IT spending will shrink by 5.5 percent in 2015 – essentially wiping out five years of growth. Raymond James says IT vendor profits are buoyed by healthy margins, not new sales. And even the more optimistic forecasts show that IT spending is either anemic or slowing.
The problem facing vendors is that the transition from product to services isn’t easy. Products – particularly hardware – often carry high selling prices that are immediately recognized as revenue once a product is sold. A service engagement, however, could have very high total deal value, but the payments are spread out on a monthly, quarterly, or annual basis. The result is a seeming retraction in revenue, rather than expansion or a one-to-one exchange.
Over time, though, vendors will start to compound their services revenue and show even greater profitability. Companies such as Salesforce.com and Google are good examples of this, as they started with a recurring revenue model rather than a replacement revenue problem. Another example is Amazon, whose Web Services make up just 9 percent of Amazon’s overall sales, but 39 percent of its profits. Companies such as Microsoft, IBM, and Hewlett-Packard are struggling to replace their legacy hardware and software revenue with services, which accounts for some of their sales and revenue shortcomings.
The channel, though, is not having that problem. According to data from 2112’s 2015 Midyear Channel Performance Report, solution providers have already made the transition from product sales revenue to recurring revenue though managed services, and services revenue is the foundation of their businesses. In fact, the average solution provider is generating more organic revenue through services than it is through the resale of vendor hardware and software products.
So why is the adoption of MPS so important to the future of the channel?
The 2015 Midyear Channel Performance Report reveals that much of the channel’s growth is coming from existing accounts, with managed services consumption expanding. Solution providers tell 2112 that finding new customers is their biggest challenge. In the absence of new account acquisition, solution providers are selling more services to existing customers. More services come in the form of more of the same or the addition of a new service, such as managed print.
Managed print services complement existing managed services, such as network and endpoint monitoring and management. Through MPS, solution providers can do more than just ensure that customers have reliable printers and document management. They can also help with the economics of printing to ensure that customers are spending appropriately on their printers and consumables. And, in doing so, solution providers will accrete more recurring revenue and sustain profitability.
So why hasn’t MPS taken off in the channel? There are a number of core reasons:
- Low Value: The prevailing perception is that managed print isn’t lucrative. Managed print services often carry low price points and, correspondingly, margins. Solution providers don’t see how they can make money by monitoring printers. Conversely, managed print providers say it’s like a license to print money: Printers don’t require as much management as servers or switches, making MPS low-impact with high returns.
- Printing Is in Decline: That much is true. The number of printed pages is falling as more people and businesses print fewer documents, forms, and other information in favor of e-mail, texts, and digital images. While the number of printed pages is declining, the cost of maintaining printer fleets is not, which opens opportunity for services.
- Managed Print Isn’t Managed IT: Printers are an often undervalued and underappreciated technology. The perception is that they’re not very complicated, particularly when compared to servers, routers, and endpoints. Managing printers and printed pages isn’t the same. While some print services have been integrated with managed services tools, such as remote monitoring and management (RMM) platforms, the skills for understanding, diagnosing problems with, and repairing printers is different than it is with other technologies.
- More Consultative than Technology: Managed print operates on a recurring-revenue model, the same as many other IT managed services. However, MPS providers earn more money through value-add services, such as document-needs assessments, printer deployment strategies, and budget planning. When a business is more focused on technology, providing value-enhancing services is a departure.
- Money Is in Consumables: The margins on printer hardware are practically nil. The margins on managed print services are competitive. But the real money remains in consumables – paper, ink and toner, and fusers. Managed print providers can make consumables part of their delivery package, but that requires handling product and logistics that’s substantially different that servers and PCs. And partnering with consumables providers decreases the lucrativeness of a deal.
- Customers Don’t Understand: Above all else, market awareness and marketability of managed print services pose the biggest obstacle. Customers simply don’t understand why they need MPS or what benefits they derive from managed print. To them, managed print services lay bare the total cost of printing, which is more a detriment than a benefit. Many customers really don’t understand the economics of printing, as printing is often diffused through several different operating budgets. Getting customers to consolidate budgets and recognize the value of cost savings is challenging, especially when they perceive printing as a technology that doesn’t require much support.
While these aren’t insignificant challenges, they’re not insurmountable. Managed print is a potential bonanza for managed service providers as it opens the door for more recurring revenue and professional services engagement. To capitalize on MPS, solution providers need to commit to several changes in their perceptions and business models.
- Market Managed Print: Consumers are largely uneducated about managed print services and its benefits. Solution providers need to market the value of managed print, make their customers aware of the benefits, and demonstrate results. Managed print is not an automatic sale, and it shouldn’t be treated as such.
- Look Beyond Managed Print: The model involves more than just monitoring printers for failures and consumables replacement. Providing professional services such as document-needs assessments, printer architectures, and print budgeting are the value-adds to MPS that make its economics clear to customers while generating additional revenue for the provider.
- Recognize the Engagement Benefit: Managed print services, like other IT services, open a window into a customer’s operations. The intelligence generated by MPS is invaluable in helping to identify additional sales opportunities, such as equipment replacement or complementary technologies. Managed print intelligence is a driver or net-new sales.
- Consider Automatic Revenue: Selling consumables replacement services and/or subscriptions – even when delivered by a third-party – will supply additional revenue. While it may not seem like much, consumables revenue is virtually automatic and low-impact under the managed print model.
- Don’t Ignore Revenue Accretion: Managed print services may not bump up revenue significantly right away, but it will over time – especially when coupled with other managed services. And managed print can augment existing managed services revenue when bundled with an entire package.
Managed print is a proven model that yields benefits for solution providers and customers alike. Consumers of managed print often have a better experience – technologically and economically – than those without. Managed print providers often have higher revenue and greater customer loyalty than those that don’t offer MPS. Ultimately, managed print services have a greater impact on a solution provider’s business than mere printer management.
At a time when most solution provider growth is based on managed services and expanding those services within existing accounts, managed print is one of the most accessible and marketable offerings available to the channel.
Larry Walsh is CEO and chief analyst of The 2112 Group, a business strategy firm focused on improving the performance of technology companies’ direct and indirect channels. Mr. Walsh specializes in the development and execution of channel programs, disruptive sales models, and growth strategies for companies of all sizes. A seasoned journalist, analyst, author, industry commentator, and founder of Channelnomics, Walsh previously served as editor of Information Security, VARBusiness, and Ziff Davis Enterprise’s Channel Insider and Baseline Magazine. Follow him on Twitter @lmwalsh2112