Tuesday, August 21, 2007

What’s your value proposition?

Since my last post, I’ve been reflecting on what others have been posting in comments and elsewhere about partnering with Microsoft, Software without service, and the like. One thing that strikes me about the “infrastructure” side of the work we do is that from a business perspective, delivering infrastructure is really just a necessary evil. If you think about it, infrastructure is certainly the biggest “risk” in terms of the relationship (managing expectations, delivering services, and closing the project), the most capital-intensive (outlays for equipment), and the most difficult to manage from a labor perspective (preventing overruns and the like). Now we certainly do business on the infrastructure side, and we still deliver equipment and infrastructure to our client’s “server rooms”. Are we profitable on a project-basis? – maybe… but I liken it to selling razors. We deliver infrastructure (the razor) at or above our cost, but we make our real margins as we work-up the services stack. What I mean by the services stack, is going from a break-fix shop, to having some type of “managed services” offering, to eventually becoming the trusted advisor and/or virtual IT Director for the businesses that our clients own. As we work up the stack, it’s these “softer skills” that are the most profitable… getting infrastructure on-site is the just the hook that we use to deliver everything else that we do… and the more I think about it, the less I care if I’m delivering via the cloud, or via equipment. To use another analogy… think about gold rush of the 1850’s… sure maybe guys like Hurst (think Microsoft, Google, and Dell) made vast fortunes, but most of the miners (SBSC’s and IT Pros) just scraped by, or worse, went bust. In between, were the guys and gals that moved up the stack, and sold mining tools and equipment. It’s these types of businesses that thrived as people went out seeking their fortune. Look at the SMB IT segment, who’s moving up the stack today, and what exactly does the stack look like?

So I’m looking at the cloud and thinking about IT infrastructure… be it OWN’s offerings, or the various platforms that you can use to build-out solutions… think 3TERA, Amazon, and Sun (and to a lesser extent VMWare, and Virtual Server). The utility/grid computing folks are in business to deliver scalable infrastructure that “just works”, so that they can insert their “infrastructure-tax” (just like the Google advertising tax, or the Microsoft Windows tax) into tomorrow’s solutions. Why? Because it’s zero-touch (and has higher margins than selling boxes). You design a really good scalable “grid”, and you sell computing as a utility to companies that want to offer some type of application or service (this should all sound very familiar). The ASP (for lack of a better term) then treats the utility as an incremental cost of doing business, and can factor it into the solution they’re delivering. What’s great for the grid-folks is that they make money as their customers are successful, but they can offer the utility virtually zero-touch, and as we all know… zero-touch and scalability is where the money is.

Taking into account services via the cloud, where are we – as SBSC’s and IT Pros – going? We’re probably not going to go out and build our own grids (the grid-folks of tomorrow will be the Dell’s and HP’s of today), because grids already exist in some form today; they’re inexpensive, highly complex, and evolving. The one-man-shops and network plumbers who just deliver infrastructure are the businesses at the greatest risk – because they’re going to get squeezed from both sides (i.e. the cloud, and service providers with a niche further up the stack). Next up are the better-run small companies that just do break-fix – it will be slower in coming, but any one of us who can present a reasonable value-based argument is going to be better able to deliver services than that bunch. Next up are the vast majority of us who deliver some mix of managed services, break-fix, and block-hours. We’re the ones who need to be seriously considering how we deliver services – either partnering to deliver infrastructure via the cloud, building our own clouds, and/or moving further up the services-stack. To go back to the mining analogy… if we as SBSC’s, and IT Pros are mining gold… what do we need to do? Well, selling our services to each other is one good option, and moving up the stack to become virtual IT directors, developers, and the like for our clients is another. But as we look at some of the niches within the stack, there’s only so much room… how many different OWNs can the SMB community support… or how many MSPUs can provide really valuable mentoring to the SMB IT community? Sure, maybe we have a rising tide effect going on – but I’d venture that there will only be so many players further up the stack. Now maybe those companies have businesses that do work throughout the services stack… but they each have their own niche and value proposition that is unique and that not everyone in the community can readily deliver. So they’re better miners than us within their niches, and as a result are less vulnerable to a Microsoft or Google.

The future is unwritten.

That's true... and we don’t know how the grid computing game is going to play out just yet. But we can make some informed guesses based on past technology cycles, and I think we really need to be prepared in order to compete and stay relevant. Does that mean I won’t be selling infrastructure tomorrow? No, I probably will be. But I’ll probably be delivering infrastructure via the cloud and via equipment, focusing on service as a subscription, and I’ll keep moving up the stack delivering “IT Director” services to my clients. At the end of the day, it’s about the relationship that you have with your clients, and how good of job you’re able to do at scaling your offering, while remaining competitive.

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