In a struggling economy, business couldn't be better for those providing managed information technology services, such as Steve Reynolds. "It's very profitable in that companies are downsizing," says Reynolds, the COO at FCA Technologies, a Falls Church, Va.-based reseller of Sage's Timberline construction software and Deltek's Vision software for project-based companies.
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"The age-old adage is that overhead walks on two legs," continues Reynolds. "They [companies] are letting go IT staff, outsourcing to us on a fixed rate which becomes cheaper than doing it themselves."
In fact, providers of managed IT services often can't hire fast enough as companies shed IT staff, turning to providers such as resellers and CPA firms that are offering outsourced services.
"The way we've gotten into managed services has been a la carte," says Scott Stevens, a partner with Peoria, Ill.-based Clifton Gunderson. Stevens says that about five years ago, the firm started dealing with the increasing email spam volumes faced by clients. It decided to become a reseller for Postini, which markets Web-based email and security products. From there, the firm has moved to market a full range of managed services
And with governments are propping up financial and industrial companies, managed IT services is flourishing. In fact, it's booming.
It's booming because organizations "like the model because it fixes their costs," says Dan Shapero, SVP of marketing for San Francisco-based Kaseya, which markets systems that can monitor and manage end-user systems for managed service providers. And it fixes their costs because most providers use fixed-price engagements, instead of billing by the hour.
The business is also helped by a shortage of IT staff. Reynolds says there has been a 25 percent decrease in IT enrollment at colleges and universities.
Advantages of Scale
One of the advantages of outsourced services is leverage, he continues. While a senior engineer might handle seven clients internally, that same person can handle three to five times as many when employed by a managed services provider. And it's scale that makes or breaks this business.
"How MSP becomes a profitable business line is that when you make a change for any one client through the software, you apply that change to every client," says Reynolds. "Once you fix a problem, it's very easy to have economies of scale."
Where possible Reynolds tries to hire the staff being dismissed by new clients, although not everyone wants to work as a consultant.
FCA, which bills on a flat rate, has 60 clients under contract and a total of 400 customers that it "deals with from time to time" for technology services, says Reynolds. A client with 20 to 30 users pays between $2,000 and $3,600 a month, based on the number of computers and servers supported.
Customers get more than just technology services. FCA provides on-call chief information officers. Managed Care clients are entitled to one CIO visit annually to help them plan budgets.
Managed services is also a game that many CPA firms play. For example, Clifton Gunderson provides outsourced technology services to about 150 client businesses. Within that group, there are 20 to 25 companies for which the firm is providing full managed services.
"We expect that to grow," says Stevens. "We just haven't taken it to volume. We have picked clients that would be good for this solution."
The firm has eight staff members "that live there" along with being able to draw up services of others. It has a clientele ranging from companies with 10- to 15- user networks to those with nearly 100 users, which Stevens says mirrors Clifton Gunderson's user base.
Services offered include Internet security, networked-based antivirus and round-the-clock server monitoring, utilizing a platform from Fortinet that provides those capabilities remotely.
And remote is the name of the game in making money in managed services. There are a number of providers that offer similar kinds of capabilities. FCA utilizes the Kaseya IT Automation Platform, which provides capabilities similar to Fortinet, including network monitoring, patch management software, software deployment and remote desktop management.
Reynolds says FCA also uses the ConnectWise professional services automation software in tandem with Kaseya. ConnectWise "is really our help desk software. It's where we manage all service tickets from," says Reynolds.
SWK Technologies, a Sage reseller based in Livingston, N.J., which has been in the managed services business for about two-and-a-half years, utilizes the platform from Zenith Infotech. Besides supporting managed services, Zenith also supports related services such as backup and disaster recovery.
"Nearly 100 percent of what we do is remote. There are very few times that we need to go on site," says Matthew Hahn, SWK's director of network services.
SWK monitors client operations via a Zenith-provided portal that lists all workstations, routers and printers being monitored. The system, which utilizes agents installed on servers and workstations, generates reports that can show when systems have been changed and which can often diagnose and fix performance problems before the client is aware of them.
SWK has about 30 clients that pay from $350 to $500 a month. SWK bills clients in advance monthly. If onsite visits are necessary, the company discounts its hourly rates. Hahn has a staff of two and also utilizes two outside contractors.
In many cases, the work performed by SWK is fairly routine, but can prevent problems. It's just that many companies don't take care of these issues, says Hahn.
"Do you have anybody on a regular basis who cleans out your temporary directories? Who makes sure any updates you are going to apply don't have known conflicts?" says Hahn, describing some of the mundane tasks SWK performs for managed services clients.
SWK tests patches before rolling them out to clients and Hahn says it's this kind of regular basic maintenance that can make a big difference in performance on clients' systems.
Although SWK resells Sage software, and its own Mapadocs mapping software, it sells its network services to a wide variety of clients.
"We include it in all our proposals whenever appropriate. Our network services department has clients that are running our software applications. We have other clients that are not," says SWK CEO Jeff Roth. However, SWK also sees its managed services as a foot in the door to pitch other products.
The company is also becoming more aggressive in selling related services such as disaster recovery and remote backup.
"When clients have us managing their network, they will ask what other services and products we have," Roth says. "Everybody uses an accounting package."
Hahn says this is an area in which there is a lot of competition for business.
"Everybody is in some way or another involved in managed services," notes Hahn. "We are doing full-bore all services. Others are kind of putting their toe in the water-everyone is looking for new revenue sources."
Another CPA firm offering managed services, Boston's Vitale Caturano, follows many of the same practices, supporting IT remotely. It utilizes Level Platforms for remote monitoring and administration and also uses ConnectWise for managing service-level agreements and managing agreements, projects and utilization.
But the firm also offers the kind of advisory services accounting firms are known for and that means going on site.
"There are some routine things we do on site," says Diego Rosenfeld, director of Vitale's IT outsourcing practice. "But most importantly it's around strategy and planning. That can include in participating in steering committee meetings and capital and operating budgeting for the year, and for project management.
While Rosenfeld prefers fixed fee engagements, he says Vitale utilizes variable and time and materials pricing as well.
"Our preference is to be fixed fee. It's a little bit more expensive," he says. "But for the clients, they get to smooth out their peaks."
Because of its emphasis on advisory services, Vitale is more expensive than competing MSPs, about 35 percent more than the competition, according to Rosenfeld.
Vitale pitches itself as a one-stop shop that can also develop applications, provide risk and compliance services, along with business report writing. Rosenfeld pictures Vitale as being more like Accenture than like other MSPs.
Help for MSPs
Providers don't have to worry about having to offer all services. In September 2007, Kaseya began rolling out an IT services group that provides what it calls outcasting.
MSPs can hire Kaseya to provide specialized services under their own names, especially in vertical markets.
"They can still provide front-line support and help desk services without having to become a networking expert and always keep a full-time Exchange administrator on staff," says VP Shapero. The service can also be used when there's a spike in business and the provider doesn't want to hire staff.