As a business manager, you lead the fight every day for sustainable profitability. You spend much of your time devising ways to stay profitable on shrinking product margins and rising labor costs. You have one good project and then a bad one, and the cycle repeats. In the end, the blended gross margins on your installation work is likely to be somewhere between 20% and 30%. After making payroll, paying suppliers and normal business expenses your net profit can be 10% or less. Sound familiar?
Many integrators have concluded that product and installation revenues alone are not sufficient to support a healthy organization in the long term. Following the lead of the IT integrators who made this transition in the 1990s, smart security integrators are moving from an installation to a service focus. Services offer several distinct advantages over simple installation revenue. Services provide the opportunity for higher gross margins, less risk, higher customer perception of value, more impact on the valuation of your company and an increased opportunity for repeat business. These are all great reasons to be focused on building service revenue.
Setting your strategic direction toward building a stronger recurring monthly revenue (RMR) base is a great first step to achieving higher revenue and profitability goals. Now, you’ll need to make a series of tactical decisions on which services to offer and how those services will be delivered and supported. For years, the primary security industry service has been alarm monitoring. It’s the most basic type of service — simple to install, with a clear value proposition and well-defined service parameters. Some integrators chose to make the investment in their own central station and others created partnerships to outsource this function. Both models work. Individual businesses made the choice between in-sourced and outsourced generally based on a judgment of how their resources could be deployed to provide the best return on investment for the least risk.
Integrators looking for a next-generation service to offer will likely hit upon access control and video as potential product lines. Here they are faced with the same choices as in the alarm business, build it yourself or outsource it. Again, both models work, but building it yourself still requires a significant commitment of time and resources. Another difference in hosted access control is that the business model is a bit less defined than alarm monitoring. Some companies offer self-service hosting where the customer makes use of a remote application, but essentially operates the system as if it were on site. Other companies offer “managed services,” which rolls up the hosting of the software with other common access control functions such as cardholder administration and report generation. The services you choose to offer can be customized to fit the markets you are trying to address as well as what your customers want to buy and the resources you have available to deliver those services.
Let’s look at the basic options available to integrators today seeking to add next-generation recurring revenue services to their product portfolios.
The Hosting or Hosted Choice
Following is an evaluation of the pros and cons of self-hosted versus outsourced hosting solutions.
With a self-hosted solution, the access control manufacturer provides software that you install in your datacenter and establish as a shared hosting infrastructure among your clientele. Acquisition costs for the hosted access software can range from $5-$50,000 depending on the system. The integrator will then need to add the datacenter environment, broadband network, computers, UPS and, of course, the IT resources required to operate the system. Fortunately, several companies such as Rackspace, Amazon and Microsoft offer something known as infrastructure as a service (IaaS).
IaaS costs vary from a few hundred to several thousand dollars per month depending on factors like computing resources, bandwidth consumption, fault-tolerance protections and professional services required. Using an IaaS provider will reduce the upfront expenses and ongoing resource commitment, but the integrator will still generally be responsible for maintaining the application and for handling such issues such as uptime, data privacy audits and information security.
Another option is to shift responsibility for the operation and management of the complete solution to a software as a service (SaaS) provider. SaaS providers take responsibility for all items mentioned in the Rackspace example, plus provide the core software application, data privacy and data security.
Web-hosted products are centrally operated at a datacenter and shared among thousands of different companies. This model is called a multitenant SaaS application. Other examples of SaaS products for business are Salesforce.com, Workday and NetSuite. Forrester Research says the SaaS market is growing at 25% per year. This is because SaaS customers leverage the infrastructure and operational capability investments made by SaaS companies rather than making those investments themselves.
Since the infrastructure is shared among many users, SaaS applications are robust and cost-effective. The entire application is accessible from a browser and can generally be used on any computer or mobile device. Web-hosted solutions are also self-provisioned, scalable on demand, and typically purchased on a “pay-as-you-go” basis. It’s not necessary to purchase any application software to operate a SaaS product. This has greatly lowered the barriers to entry in many industries and generated a wave of new growth in small business.
Among the main differences between an outsourced (SaaS) and self-hosted application is the integrator will need only a computer with a browser to set up and manage SaaS. The SaaS provider should handle everything from the software application to the computers and datacenter environment. SaaS companies will provide a service level agreement (SLA) that guarantees the operation of the system at a particular availability level such as 99.999%. “Five 9s,” as it’s called, translates to less than six minutes of downtime per year.
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Access Control ·
John Szczgiel ·