Are VoIP Managed Services The New Frontier?

You don’t often hear the phrase ‘voice over Internet Protocol (VoIP)managed services,’ despite the growing popularity of managed services. But one managed services provider (MSP) in Dallas believes applying its IT outsourcing managed services experience to the VoIP space will allow it to squeeze more revenue out of the local VoIP market. David Johnson, cofounder and VP of The Fulcrum Group, fully understands the ups and downs of rolling out a managed services product, but expects that becoming a VoIP MSP will be key to achieving the company’s projected 15% growth rate in 2009.

Rich VoIP Market Worth Facing Technology Hurdles
Fulcrum identified VoIP as a viable second managed services offering after its revenue from VoIP deployments and hosted VoIP mushroomed over the last few years. “VoIP has been on fire the last few years, especially with companies with fewer than 100 employees,” says Johnson. While VoIP accounted for none of the company’s revenue four years ago, today it accounts for about 45%. “But, while we were selling a lot of VoIP, the ongoing revenue past that was limited, and we wanted to capture recurring revenue from those customers.” Johnson says SMBs such as professional services companies (e.g. CPAs, law firms, financial advisors) with high-capacity telephony needs are typically a good fit for managed services because they lack IT staff.

While the VoIP market remains fertile, MSPs sometimes delay jumping into VoIP managed services due to the lack of a managed services monitoring and management platform geared specifically for telephony. That doesn’t bother Johnson for several reasons. “We are still waiting for vendor support for VoIP managed services, but we have always had to monitor our clients’ systems manually, so that isn’t really a big challenge,” says Johnson. Additionally, the technology platforms on which VoIP is built tend to be stable and suffer from less downtime than other technologies. Plus, VoIP monitoring differs from technologies such as storage and security because VoIP MSPs don’t have to watch over servers or infrastructure where several people have constant interaction with the network, which raises the chance for human disruptions.

Johnson knows managed VoIP is a viable business model because companies like Avaya and Nortel have been successful at it in the enterprise space, which makes him confident of turning a profit. “Other businesses have done managed services in the telecom business for years — we just called them maintenance agreements,” he says. Lastly, Johnson points out that VoIP managed services is more about maintenance and updates to VoIP platforms than emergency fixes. “Customers face most problems because it is easy to fall behind on updates to their VoIP software, since those updates can happen as often as four times a year,” says Johnson. Handling software updates, often remotely with no impact on the customer, is one part of the managed services pitch Johnson will present customers.

Sell Unique VoIP Value Propositions
Because VoIP differs from other commonly serviced technologies, Johnson couldn’t just repeat his existing IT outsourcing managed services value proposition to his VoIP customers. Instead, he is developing a low-cost support system for voice and then marketing that value proposition first to his existing customers, then outward. “We will charge per phone or headset, and we will take care of all the major software upgrades as well as any support needs the customers have. And if there is an issue, we will contact the vendor and work through the resolution,” explains Johnson. Nothing earth-shattering, but still a proposition that frees customers from wrestling with their VoIP systems.

To market the new VoIP offering, Fulcrum does plan to follow the same path it took with its successful IT outsourcing managed services product. Fulcrum starts with a letter that introduces the managed services concept to its existing customers, but doesn’t provide many details. After following that letter with a phone call to set a 30-minute appointment, the company sets the stage with customers by asking a simple question: Do you want to run your IT department (or VoIP) or your business? Then the salesperson launches a PowerPoint presentation about what services Fulcrum offers and how those products can benefit the customer. “We focus completely on what the customers are going to get out of it,” says Johnson, which is mainly the freedom from any IT or VoIP responsibilities.

As can be expected, there are objections that stand in the way of some sales, including Fulcrum being a victim of its own good customer service. “We have had existing customers say they really like the current relationship they have with us, and we have to gently explain why we want that relationship to change from a reactive break-fix one to a proactive one,” says Johnson. Beyond that, cost is the common hurdle. “We explain that with our rate per hour for servicing their system, if they have only a few service calls each year, they are already spending more than if they sign a managed services agreement,” says Johnson. Key to VoIP managed services is the concept that an MSP wants to price its services to make a little bit of revenue each month, but it also wants to improve the customer’s system so that, over the long run, the number of service calls decreases, which increases the MSP’s profits.

To help support its managed services sales pitch, Johnson says Fulcrum completes a total cost of ownership analysis for clients. “We look at what the customer is spending, the outages they have, what they paid us for past changes and software upgrades, how often they have done upgrades — all of those factors,” explains Johnson. “Then we really focus on how, for less than $500 a month, a customer can improve its business from a communications perspective.” The bottom line, he adds, is that businesses won’t commit money every month unless they are sure of savings in the long term.

Drawing on its experience with its initial managed services offering, Fulcrum has found that when it completes a cost analysis, one of three scenarios unfolds. “Most times, we will cost a customer less money than they are spending on IT now, and in those cases, we’ll close about 90% of that business,” says Johnson. If the Fulcrum proposal is about equal in cost to the current customer expenditures, the company still closes the deal about 50% to 60% of the time. Interestingly, even when the managed services proposal for the customer is more than current expenditures, Fulcrum has found it still signs about 25% of those contracts by offering more value in terms of proactive support.

 

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Lessons Learned Smooth Managed Services Expansion
With its value propositions firmly in place and a marketing plan tested during the company’s last managed services rollout, Fulcrum expects to start offering its VoIP managed services this month. It is also readying a managed security services offering for launch later this year. The painful lessons Fulcrum learned the first time it attempted to become an MSP have helped the company as it adds new managed services offerings. “Several years ago, we purchased a network monitoring platform for $50,000. Then we wasted three years and hundreds of hours in labor tweaking it, and with the downtime we experienced, it was a disaster,” says Johnson. “We just didn’t know what we didn’t know at that point, so we struggled.” That lesson was costly, but valuable.

After the initial setback, Fulcrum returned to square one, talking to successful MSPs and devouring books about the MSP space. “We’re part of the Ingram Micro VentureTech networks (a consortium of Ingram Micro partners focused on the SMB space), and we met many MSPs at those conferences and got to drill down with them on their businesses,” explains Johnson. In addition, the company digested advice from books such as The Guide to a Successful Managed Services Practice (from MSP University), which Johnson says is full of detailed, practical suggestions.

Then, in late 2007, Fulcrum felt prepared to try managed services again and focused its early marketing efforts on existing customers. “We had a year-long campaign geared toward our top 100 clients. We started with a letter, then we met with 80 in person, sent proposals to 20, and closed 12 contracts that first year,” explains Johnson. While that fell short of the company’s goal of 20 contracts its first year, it still meant Fulcrum added $25,000 in recurring monthly revenue to its books in 2008. Johnson expects a similar return from VoIP and the security services offering in 2009. His sales goals include securing 20 VoIP managed services contracts and 20 security services clients, plus an additional 20 new IT outsourcing clients. While Fulcrum’s revenue goals remain high — it is projecting 15% growth — it is realistic about the role VoIP managed services will play. “The revenue goals are smaller for VoIP since the average VoIP managed services customer will spend about $500 per month, but we are still expecting to increase our monthly recurring revenue by about $5,000 to $7,500 a month in 2009,” explains Johnson.

Johnson suggests VARs interested in managed services do two things: research by talking to successful MSPs around the country and in various technology spaces, and then make a plan and jump in. “Read a lot, talk to MSPs that are successful, but also talk to some people who failed in their MSP businesses, because seeing what they did wrong can be illuminating.”