Companies are developing IP to offset reduced hardware sales and increased price commoditization on basic IT services. To wit, a recent Penton reader study revealed that 47 percent of VARs and MSPs are generating at least 20 percent of their revenue from software development.
In the heart of the hub of innovation that is Research Triangle Park in North Carolina, WingSwept is building a diverse technology business that could be the model of the future IT solutions selling.
The Garner, N.C., company has a variety of go-to-market revenue streams including managed services and custom website development for customers in select industries. But it complements these services with a healthy dose of applications development. Why? According to founder and CEO Jay Strickland, the intellectual property (IP) that WingSwept has developed wins business that it wouldn’t otherwise get, buffets the company from margin erosion and helps to differentiate it from others.
Not something you could fathom for your company? You may want to reconsider. Again, take WingSwept.
A decade ago, the company specialized in break-fix services. But then it began venturing into managed services, learning from other practitioners as it built its business. About that time, WingSwept developed a case management software application for inspector generals that it has sold to more than a dozen government agencies at the Federal, state and local level. Today, software represents one of three go-to-market revenue streams that WingSwept maintains. While Strickland says the software development arm of his company has “nothing to do with its managed services practice,” it is a vital piece of the company, just the same.
“If you tried to classify a business likes ours, it might look very, very atypical. [The Harvard Business Review] would call it a shared services business model where you literally have very different business units and different P&Ls managed under one roof with one finance department, on HR department, etc.”
A smaller scaled-down version of GE? Pretty much, says Strickland, whose company has been profitable for the past 78 months in a row and has been called best in class by Service Leadership and others.
What he calls “atypical” may not actually be. In fact, quite a few managed service providers, VARs and IT consultants have jumped into the software development business. Some companies develop fully formed products that they take to make under brand names, while others cobble together integrated solutions that they sell over and over without a brand name. And still others build one-off solutions for customers that dazzle beyond expectations. (For a great example, look at the work that Cisco, Oracle, NetApp and AWS business partner Open Systems Technologies (OST) of Grand Rapids, Mich., did for the Mall of America in Minneapolis. In this video, the Mall’s management sings the praises of the company, which built a custom enterprise mobile application to help the mall process amusement park tickets.)
Companies are developing IP to offset reduced hardware sales and increased price commoditization on basic IT services. To wit, a recent Penton reader study revealed that more than one-third of VARs and MSPs are generating at least 20 percent of their revenue from software development. What is more, better than one-in-five generate 50 percent or more of their sales from software development. A recent CompTIA study, meanwhile, found “6 in 10 channel firms expect considerable growth in their own custom application development practices.”
In this series of stories for July, The VAR Guy, MSPmentor, Talkin' Cloud and The WHIR look at different ways the trend is playing out in various markets. Here at MSPmentor, Editor-in-Chief Aldrin Brown examines the need to protect one’s intellectual property—and how expensive it can be. Over on The VAR Guy, Kris Blackmon looks at ways VARs can cash in on IP development, while Nicole Henderson, Editor-in-Chief of Talkin’ Cloud, shares five considerations when building an in-house development team.
To be sure, building in-house IP is not new. In fact, certain VARs have been distinguishing themselves with the vertical market applications developed for hardware platforms such as the IBM AS/400 since the 1970s and 1980s. But today the need to differentiate oneself amid growing price commoditization is prompting more companies to look to IP as a hedge against margin erosion. They are being fueled by the emergence of greenfield opportunities around business analytics and the Internet of Things, and by a multitude of new technologies and go-to-market options that give partners flexible options.
In its IT Industry Outlook study for 2016, researchers at the trade association CompTIA singled out the rise of public cloud technologies as a distinct catalyst for change. “…The public cloud is enabling some solution providers today to create their own IP—chiefly SaaS applications—that they will offer customers alongside vendor solutions,” CompTIA concluded. “This is notable in that app dev is a business line not typically in the channel’s wheelhouse and also one that carries potential for developing their own IP.”
One of the most vocal proponents of in-house IP development is Howard M. Cohen, an industry consultant and Penton Technology Xpert. A former IT reseller and longtime industry gadfly, Cohen knows a thing or two about important transitions in the IT channel. This one, he believes, is among the most significant because it pushes solution providers to adopt not just new skills and technologies, but new business models and go-to-market strategies as well.
A few years ago, Microsoft convinced Cohen that there would be a significant “evolution of solutions” that partners delivered. Instead of basic infrastructure, which Microsoft itself now provides through the Azure and other platforms, partners would be expected to provide technology know-how that solves business problems.
The implications of that message to Cohen were clear: the ability to make money selling basic infrastructure business will diminish over time. No doubt the move to sell business intelligence, mobility and collaboration technology will sustain many companies for several years to come. But the ability to thrive and distinguish oneself in the market? That will come from selling your own, homegrown innovation and value, Cohen says.
So were do partners start? Several ways.
Some partners will develop IP moving customer data between platforms. Others will develop IP without coding, using building blocks that customers do not have the time to integrate themselves. Some infrastructure providers will attempt to develop code themselves, although the business of delivering infrastructure and developing code are very different.