Published on March 26th, 2014 | by Louella Fernandes2
Adapt or die: Why the channel must embrace MPS
By Louella Fernandes • on March 26th, 2014 • in Articles • 6,870 views • 2 Comments
It is not the strongest of the species that survives, nor the most intelligent, but rather the one most adaptable to change. Leon C. Megginson.
Low margins, hardware commoditisation and the growth of cloud computing is dramatically changing the landscape for traditional print channel players. Many are keen to take advantage of the growing managed print services (MPS) opportunity which promises longer term customer relationships and recurring revenue. Although the shift from the transaction-based hardware sales to an MPS model can be a challenging process, Quocirca’s recent channel MPS study reveals that channel partners who have made the commitment to adapt their business model, are reaping the benefits.
The SMB market opportunity
SMBs are actively exploring MPS as a way to reduce the burden associated with managing their uncontrolled print environments. Most SMBs are reliant on printing, but with typically no or very few IT staff, it is often a distraction from their core business. In addition to their primary job responsibilities, business staff may have to order ink or toner, book service calls or deal with daily printer problems. Only 10% indicated that their print related IT burden was decreasing, with 30% expecting it to rise over time. The ad-hoc approach to print management is both a cost and productivity drain for SMBs, with many now turning to MPS to address these concerns.
According to Quocirca’s study, the top driver for MPS adoption is to reduce consumables expenses, which many SMBs are seeing rise as a result of increased colour printing. At the basic level, an entry level MPS (or basic print service) wraps hardware (leased or purchased) with service and supplies on a cost per page basis, paid for either monthly or quarterly. Often this is supported by proactive service and automated supplies replenishment, SMBs get the benefit of predictable expenses and a reduced IT burden as an MPS provider handles support and consumables delivery automatically. This avoids the need to manually order new ink and toner, or stockpile consumables, freeing up SMBs to focus on running their business.
The need for better vendor support
With SMBs showing more interest in MPS, they are looking for trusted partners to work with. Quocirca’s study revealed that while the channel overall recognises the value of moving to MPS, most individual organisations are still at the early stages of their journey. While almost 60% of channel partners are transitioning to MPS, less than a quarter have evolved to a full MPS model.
Those that are making the transition are certainly expecting growth. On average, MPS is representing about 18% of reseller revenue today with expectations for this to rise to 25% by the end of 2014 – with the UK and German markets most optimistic about growth. Quocirca expects MPS to rapidly mature over the next two years, as more vendors and distributors drive more channel engagement through their MPS programmes.
In a market characterised by a range of diverse competitive offerings, the channel is having mixed success and face mounting obstacles in its transition to MPS. Much of this is due to the diverse nature of the channel – smaller channel partners may not have the resources or acumen to make the shift, while larger resellers, who might be better equipped, may still be taking measured approach, still primarily focusing on their transactional business.
One of the major hurdles to transitioning to a services led model is the potential disruption to cash flow. In contrast to the traditional hardware-centric model, in which the customer pays for everything up front thereby generating immediate revenue, the revenue from a services model is spread over a longer period of time.
The channel is therefore looking for more support from vendors. However, Quocirca’s study revealed that vendors are not meeting expectations around financial incentives and financial support. Vendors need to close this gap – if not rectified this could be a major stumbling block to the channel adoption of MPS. If vendors can provide the financial support to help them get started with MPS, there will be many long term benefits for their partners from a recurring revenue model. Rather than experiencing the cash flow peaks and troughs of selling hardware, regular, unchanging payments over a longer period of time help long-term planning and, can set the stage for an on-going expansion of services.
Perhaps the most effective and feasible approach is a hybrid model where the reseller introduces MPS into their portfolio whilst continuing to generate legacy streams of revenue by selling hardware. This can help manage cash flow to ensure services develop at the right pace and don’t drain resources from current operations. Potentially, a MPS business may hit an inflection point around the same time hardware sales reach a declining tipping point.
Channel maturity drives success
MPS is clearly working for those that have made the investment and commitment. Those resellers that indicated they have evolved to a full MPS model are the most confident and optimistic about it. They indicate that they have been highly successful in creating a new revenue stream, improved profit margins and developing a more proactive relationship with their customers.
Indeed, one reward for enduring the initial risks related to reduced cash flow and additional investments in the development of a MPS business is the so-called “long-tail” effect, that is, the possibility to access new customer groups. For instance MPS providers could offer services to a wider variety of customers (for instance those using managed IT services), but also expand their penetration with existing customers through offering additional software and services.
This is a potential strong differentiator for the channel organisation that needs to respond to growing interest amongst SMBs in mobile printing, secure print and document workflow. Indeed, over 30% of resellers are already offering such capabilities with an additional 35% planning to offer them in the future. In particular, the channel will need to think strategically about partnerships needed to introduce integrated software bundles that have high business relevancy for specific SMB segments.
For resellers, transitioning to MPS is more than converting customers to a subscription-based fee model and services. To start with, it requires planning and commitment to a progressive approach to MPS. The channel cannot afford to rest on its laurels – if does not make the leap to a services model its risks stagnation and eventual irrelevancy.
Fortunately, the channel is well placed to take advantage of the SMB opportunity for MPS with most vendors now offering comprehensive MPS support programmes. As a highly valuable asset in reaching the SMB market, vendors will need to effectively manage and motivate their partner ecosystem and develop the programs to drive the capability and commitment. The channel may have a set of challenges to overcome as its capitalises on the MPS opportunity, but those resellers with the best chance of success will be those that move quickly into this market with a clear understanding of the needs of their SMB customers.
Read Quocirca’s European Channel MPS Priorities report.