By Brian Albright, Business Solutions magazine.
The Hardware-as-a-Service model saves costs for the customer and provides recurring revenue and new client opportunities for the VAR.
The principles behind the Hardware-as-a-Service (HaaS) model are hardly new to most VARs and integrators. Combining elements of managed services and hardware leasing, this approach reduces capital expenditures for clients while providing recurring monthly revenue for the VAR. In the printer space, however, it’s a relatively new concept, and while the benefits for the client are pretty straightforward, some VARs may be hesitant to take the plunge.
For customers, HaaS presents a way to move their printing costs from the capital expenditures (CapEx) budget to the operational budget, providing a predictable monthly bill for the hardware, consumables, accessories, and asset maintenance. Costs can be reduced, and internal IT resources aren’t required to support the hardware. If there’s an issue, the reseller is responsible for fixing the problem or replacing the hardware.
“This is a turnkey solution for them because they can now have a working, supported, and managed solution without exhausting any of their own resources (i.e. employee time, IT bandwidth, etc.),” says Kevin Price, founder and CEO of AccuCode, which introduced its own HaaS service just a few years ago. “It can easily be bundled with media contracts to create a by-the-label pricing model that includes all the hardware, software, service, support, labels, and ribbons. Essentially it’s a one-stop shop where they can get all the necessary components to get a bar code printing solution up and running.”
Removing the burden of equipment purchases and the associated accounting also provides benefits. “It’s a worryfree situation, where the printer hardware, service, and sometimes even the consumables are all in a single monthly fee,” says Paul Lehmann, AIDC business unit manager and senior director of business development at Printronix. “Being able to spend operating budgets, if structured properly, will allow ‘instant-on’ [i.e. they can expand the printer fleet on the fly, rather than being stuck with whatever they bought under the CapEx model] flexibility if required.”
VARs, on the other hand, get regular recurring revenue and improved margins, along with improved customer loyalty and retention — there are far more customer “touches” possible under this model than a one-off hardware sale or even under a traditional maintenance contract. There are also more additional services and add-ons that can be wrapped up in a HaaS printer package, including media and consumables, along with remote management and support.
“There’s also an expansion of the addressable market simply because the customer doesn’t have to have the big budgets or IT bandwidth in order to implement a HaaS solution,” Price says. “It also eliminates competitive bidding, because the HaaS model is such a unique and affordable value proposition that competitors can’t and won’t match your low prices.”
Lehmann also reiterates that getting away from capital expenditure budgets, which are often set months before a project is deployed, opens up additional opportunities. “VARs who embrace this model can continue to make money up front, remove their credit risk, and get to the always-present market of customers that have needs that they haven’t budgeted for,” he says.
Shift in Cash Flow, Operating Philosophy
The transition is not easy for everyone. The cashflow model will change, and not every customer will want to adopt HaaS. Companies with large IT staffs and substantial capital budgets will likely continue to purchase under the CapEx model.
“The HaaS model will start slowly and then continue to grow consistently,” Price predicts. “If you don’t have the financial resources to purchase, own, and operate your own HaaS device pools, find a business partner who can give you a turnkey program and a share of the recurring revenue.”
There’s also the matter of pitching this model to your own internal sales team. “The programs that have had the greatest response for us allow the VAR to make all of the commission that they normally would in a traditional capital expenditure model, but because of the ongoing service revenue, there is potentially more commission to be made in the long run depending on how they sell the package,” Lehmann says.
Price adds that involving the sales team in the planning stages before rolling out HaaS is critical. “My recommendation would be to start educating your sales team on the value of building recurring revenues and earning a residual commission from the sales,” he says. “I’ve also seen models where the salesperson is paid all up front or for the initial term of the contract and then not on renewals. I prefer the model where everyone participates in the recurring model, because it keeps all the objectives aligned.”
Financing may also require some creativity. Some OEMs provide their own direct financing, but not all of them are actually structured for this revenue model. “They may quote it that way, but then they want the entire three-year contract paid up front or even annually for that matter,” Price says. AccuCode had to enlist a financing company to provide the service on a large scale and has since launched its own HaaS channel program. “We can do it turnkey, but then we end up owning the equipment and providing partners a percentage of the recurring revenue. It doesn’t really matter to us who handles the end customer’s billing and collections, just as long as we get paid, so it’s not really an account control issue at all.”
The most important thing for VARs to do is to prepare for what Price says will be an inevitable shift from hardware/ software sales to a services-based model across all categories. “Monthly subscriptions for software, hardware, or services are now 60% of our revenue and two-thirds of our profit contribution,” Price says. “We believe this is the future of almost everything we do as an industry. At some point in time, companies in our industry will be fighting for survival. I suspect that is months, not years, away.”
Plan your strategy now, and identify products and customers that will be the best fit for the HaaS model. Then line up vendor partners, and develop a program. “Start to have the conversations with customers about moving to a variable monthly service, but do this after you’ve set a program that will work with your vendor,” Lehmann says. “If you don’t have a firm understanding of how it works with your vendor, you don’t have a product, and you’re not ready to take it in to the customer.”