08 Jun How Third Party Maintenance Grew To Be A Real Alternative
I’m Ken Peck, president of Smart 3rd Party in Atlanta, and I want to give you some insights from my 30+ years working with IT vendors, OEMs, support companies, equipment brokers, and thousands of end-user companies like yours. That’s why I wrote 3rd Party Maintenance – The Ultimate Guide.
You probably have some knowledge of Third Party Maintenance (TPM). Its roots go back to the ’70s, but the industry really started to flourish in the 1980s. A report from the Journal of Information Systems Management in 1988 stated, “Beginning as an innovative idea in the early 1970s, the third-party maintenance industry realized revenues of $1.4 billion in 1986. This flourishing industry offers opportunities for vendors and customers alike.”
In the early years of computers and IT we were totally reliant on big manufacturers like IBM, Unisys Digital Equipment Corporation (DEC), and Hewlett Packard. Our customers just needed to build their systems and infrastructure and it was kind of like the Wild West. The need for new technology, software, equipment, and innovation was limitless. Everyone felt like they needed to build a network, be competitive, and always have the newest and best technology. Many millionaires were made, and it seemed like this might continue forever. Everyone thought that we would see new technologies and approaches to IT management coming at us all the time.
IT managers and purchasing professionals tried to ride herd while many network, server, storage, and connectivity vendors flourished as our infrastructures grew. The opportunity to look for outside partners to manage all or part of your infrastructure arose. Companies like Sorbus, Bell Atlantic, MAI (Management Assistance, Inc.), and Interlogic Trace were the early market leaders in the TPM space. When Bell Atlantic acquired Sorbus in 1984, Sorbus employed 2,200 people generating $118 million in revenue. (Source: Washington Post, September 6, 1984.) By the way, these early market leaders don’t exist as separate companies today. The industry has really grown since the mid-1980s.
It was about this time that I was attracted to this industry for a few reasons. First, I loved technology, and I always wanted to see if I could keep up with new generations of network infrastructure and communication equipment. Second, I realized that the big companies always seemed to have an advantage over some of my friends and colleagues who worked with mid-sized and smaller companies. It’s the American way to pull for the underdog, and I’ve always had a “soft spot” for smaller organizations. I saw a real opportunity to help these smaller companies, and TPMs would definitely be classified as the underdog facing the behemoth OEMs. Frankly, this industry has been very good to me. Over the years I’ve sold hardware, software, and services dealing with all aspects of the IT industry. So, I’ve dealt with the large OEMs, and I also know the frustration that many of my best customers had when OEMs withdrew support on equipment just a few years old, or sunset product lines after an acquisition. Or, they were faced with monumental maintenance support contracts that kind of felt like the OEMs had a gun to the heads of my customers.
Eventually, I realized there was a better way. I didn’t come up with the idea for TPM, but I realized that there were several companies offering support, service, and equipment that allowed my clients to substantially reduce their costs and work more on just running their businesses instead of chasing their tails trying to keep up with the “techno-wars.”
This has become my passion: to help the reseller community, small IT service companies, as well as IT and procurement professionals find a more cost-effective way to operate while eliminating the perceived risk. I realize that many of you may be struggling with how to evaluate and access the right services, vendors, and contractors so TPM can be another partnership to enhance your infrastructure. This book gives you the knowledge and tools you need to begin this process.
Why TPM Is Such A Hot Topic
In simple terms, the environment for TPM has never been stronger. The two main drivers are:
- IT Infrastructure Costs are under extreme pressure and typically need to be reduced.
- Many IT Assets have useful lives that extend well beyond what the manufacturers will support or allow.
While some would like to say that our economy is roaring, the fact is that many sectors are still under extreme cost pressure. C-Level executives know that they can grow businesses and be competitive with sound IT strategies. But they constantly pressure IT executives about the replacement of assets and software that appears to be working just fine. Procurement professionals do their best to monitor costs, but there is a tension with the IT executive and the end users. IT costs are seemingly gobbled up just to maintain the status quo, while C-Level executives are clamoring for more to help them grow and compete in a global economy. Frustration can be high on all levels.
Key Drivers Of Frustration
Pain might be a better word than frustration, but we all are caught up in it. I’m sure you can relate to the following trends I see from dealing with many customers:
- Cost pressures: customers feel like the cost freight train is running them over.
- OEMs rush the refresh cycles on IT assets well before true useful life
- Manufacturer support and maintenance is often quite cumbersome and confusing. Due to the OEMs sheer size, it creates dealing with difficult systems, rules, and processes that are not always customer friendly.
- When a problem or support issue is identified, there can be extreme confusion working through multiple vendors, and equipment suppliers to fix the problem. Conflicting Service Level Agreements (SLAs) slow down fixes. Users pay the price.
- Vendors and OEMs are constantly selling “new and better” when all that’s wanted is “working and cost-effective.”
Surprising: Third Party Options Not Well Known
While TPM options have been available for 30+ years, surprisingly the market penetration is really quite low. In fact, my experience tells me that less than 10% of the companies who could realistically use viable Third Party Maintenance do so. In fact, some industry insiders peg market penetration at 7%. Most aren’t even aware of the options or don’t really consider TPM as a viable alternative.
Why such low market penetration? I’d offer these observations:
- The OEMs like Cisco, Dell, NetApp, etc. have done a marvelous job of selling their services. They use fear (or as we like to call it, FUD: Fear, Uncertainty, and Doubt) as a major de-motivator. They make it appear that working with an alternative vendor for third party support may jeopardize their whole IT infrastructure.
- Against this backdrop and the pressures of keeping their IT systems up and running, IT executives have not really bothered to educate themselves on the options. They hear what the OEMs tell them and say they’d rather be “safe than sorry.”
The good news is that this perspective is changing. TPM companies have reached a level of maturity and sophistication that allows them to compete more effectively with the big OEMs. According to Gartner, the TPM industry sees their revenues growing, despite a shrinking market of OEM maintenance. The overall IT maintenance market is about $39B with TPM accounting for $2.5B and on track to increase 25% by 2020 while OEM maintenance will decline. And, many companies have seen tremendous benefit from working with third party vendors. Finally, IT executives and procurement specialists are much more receptive to TPM now because of cost pressures and the frustrations we’ve mentioned before.
Accenture, perhaps the largest global business and IT consulting company in the world, said in one of their industry trend reports from a few years ago:
“Don’t Ignore the Trend Toward Third-Party Maintenance Options for Hardware Support: As our clients look at various ways to optimize their IT cost structure, increasingly, third-party maintenance options for hardware support look like a no-brainer. The quality of third-party support options continues to increase, offering not only significant savings potential, but better global coverage. Most enterprises want a direct global support model, and as a result often look to their largest hardware supplier to manage global hardware support; however, no single supplier has a truly global support model. Although these large hardware providers are ideally suited to provide support for their own hardware, the reality is that most companies have a diverse mix of gear (i.e., servers from one vendor, storage gear from another, networking gear from a third) not to mention a mosaic of data center software. The primary supplier will end up using third-party services to support the hardware/software outside its own brand or in certain geographies where it lacks coverage. This prime/sub-contractor model results in higher costs for the enterprise, and potentially lower service levels. This begs the question, why not go to a third-party maintenance option directly rather than rely on the primary OEM?
Key Action: Whether considering outsourced support for the first time or re-examining existing agreements, be sure to consider third-party options. Despite complexities such as unbundling existing hardware and software maintenance agreements, the savings potential can be substantial (30-60 percent), not to mention the benefits of inventory management services, flexible SLAs, and other benefits.”
As recommended by Accenture and many other IT experts, you will want to study this book and find ways to evaluate TPM for your shop.