Wednesday, December 16, 2009

The Last Mile

There has been much discussion around the concept that as SMB IT consultants and VAR’s – we own the last mile to our customers in terms of the technology landscape. Arnie Bellini from ConnectWise has been championing that concept to the IT Nation for the past year or more. For the most part that is largely true. Today, the customer relationship with most small and medium businesses runs through a local VAR who provides the needed hardware, software and services to bring IT into their environment. But a little history lesson may be worth considering as it regards the last mile and the future. As the Bible teaches, we can learn much by remembering what has happened in the past and we have a very relavant teacher regarding this relationship.

Local telephone companies always felt they had the last mile. That was a literal thing for them – the last mile of copper wire that went from their local connection point to the homes and businesses on the end of their wire. It served them well for many years as there was no real option – if you wanted phone service – you paid the local telco to get it. Then came change – lots of change. There was the advent of cellular which allowed customers to use wireless technology to bypass the last mile. Then along came cable tv companies offering telephone service using their wire – so now there is competition from a second “last mile” cable from a nontraditional telephony source. Then comes the Internet which is able to provide VOIP telephony services. The Internet can be delivered in lots of ways – via cable, copper, wireless, cellular, satellite – there are many ways that the last mile for VOIP can enter a home or business. Today there is no control at all for the local telco. In fact, they are scrambling to try and remain relevant in many situations by trying to add services to compete in delivering Internet, cable TV, and other digital services across their once precious last mile advantage. In many cases, they no longer even have a presence with the customers they once owned. It has vanished right before their eyes.

So how does that apply to us in the IT business. We have the same potential problem coming our way. First we have the transition that is being driven by managed services. Today many of the services that we once delivered by dispatching engineers to a local site has moved to remote support. We no longer need to roll a truck and put a person on premise to service a majority of the problems that occur. That means service delivery can happen from anywhere at any time. Many of us have built that competency ourselves, but margins will continue to be squeezed. It will become a comodity of sorts. And more importantly, if the equipment no longer resides on premise but in the cloud, our services at the least must change, but may in fact be non essential at all.

The sale of hardware and software has been a staple for many of us for years. That will likely diminish in the near future. With the advent of HAAS (hardware as a service) which allows a customer to purchase hardware and software via a monthly subscription beginning to gain steam, we will see purchases from our own offerings slip away unless we find a way to deliver that service. We are already seeing this being delivered by the national wireless companies as you can get a netbook with a wireless subscription on a monthly contract. And new partners like CharTec are springing up to enable traditional VAR's to compete in the HAAS space without having to figure it all out ourselves. And the next step will be no on premise hardware at all in some accounts – where it resides in a data center and is utilized via the wire. We have to prepare to see the margins we have been accustomed to receiving from the sale of hardware and software begin to move away drastically or maybe completely in some cases.

Cloud computing is a major game changer. It has the potential to rob the margin from the sale of hardware, software, projects and break fix sources. It also could cause us to lose the managed service revenue stream that many have come to rely on unless we adapt our services to be cloud friendly. There will still be a need to manage things in the cloud, and to manage some sort of end user devices, but those will likely take a different shape and be a virtual desktop in nature. If we don’t have services that are designed to serve the cloud environment, we will likely become irrelevant to our customers and lose this revenue stream.

So the real question is “what does your P&L look like if you lose the margin you generate from hardware, software, projects, break fix and managed services today. For many partners – that is their revenue and the bottom line is very negative. In fact, the business is insolvent. There are no other relevant income streams that can come close to supporting most businesses today. So what should we do? Certainly sticking our head in the sand and ignoring the potential threat is not the correct response.

This is not a doom and gloom post – but rather one to drive you to consider the opportunities that will be available to the partners who figure this new world out. Cloud computing will not happen overnight. There are many opinions on the speed of adoption. From my perspective, I believe there are a couple drivers. One will be the speed at which the new workforce begins to take leadership of the IT management in the SMB. Younger people have never known anything different than the cloud. They have put their email, data, pictures and social interactions in the cloud their entire lives. So they will have no hesitation to make the transition if the change makes sense from a cost perspective. Secondly there will be significant pressure on the cost of cloud services as everyone races to get to the new frontier from a delivery perspective. There will be many competitors – both large and small – who will make a “land grab” and attempt to draw people to the new source of monthly recurring revenue. Those two factors will be significant drivers to the transition. My personal opinion is it will happen sooner than later and within 3-5 years we will see a very different landscape when we consider IT infrastructure in the SMB.

So what should we do if we currently serve the SMB space? I believe we need to immediately embrace this transition and learn how to deliver products and services through the cloud. It begins by implementing them internally and using them so we have an understanding of how they work. The magic and ongoing opportunity for most of us will be in consulting around how to select and integrate with and within the cloud. I believe many companies will have a hybrid cloud model for the near term meaning they will likely push some things off premise into the cloud and retain others – such as line of business and financial applications – in their offices and under their direct control. I don’t believe that will be the final result as people get comfortable with the technology and reliability, but for now, it will likely be a combination of thing locally and across the wire. Most are already comfortable having financial access across the wire as they access bank, 401K and other financial information that way currently. Security has become acceptable in the cloud as people do it daily already.

We have to learn to sell differently, and provide services differently as the landscape changes. We have to learn new skills in how to connect the dots in the cloud and to our local customer networks. There is a “new normal” coming, and if we don’t begin now to learn how it will work, and more importantly how we can remain relevant in that new world, we will quickly find ourselves not in control any longer. The last mile is moving and we have to get started now to ready ourselves for the change. One day soon we will wake up and wonder how it happened as we didn’t even notice the change. But we definitely will notice the effect of that change because the income we currently depend on to make payroll and pay our bills will have dried up and moved to a different mailbox. That will be a very sad day as it will be far too late to make the changes and catch up then. Now is the time to stop and take a look at what is coming. The train has left the station. The only question is whether you will accept that fact and get ready to board.


Chris Chase said...

Excellent Article. So much to learn and implement. weeeeee

-Chris Chase

Ted said...

Great post Arlin. I personally believe that there are huge opportunities for solution providers with cloud based services. Configuration, training, ongoing management, help desk, managed IT services of all sorts are still needed, whether the underlying equipment is on site or in the cloud. Think about the "last mile" as that imaginary space between the brain of the user and the application... someone still needs to bridge that gap with intelligent configuration and business process engineering, excellent training, and responsive ongoing service - that is the last mile where there will still be a ton of profit to be had.

Peter H. Zubert said...

Arlin, Thanks for the great insight. I'm a big fan.