Thursday, June 14, 2007

Cracking the HaaS Nut

HaaS 1.0

So there's some buzz in the community about HaaS -- Hardware as a Service.

Well, we've been pondering this for some time.

We've talked to other consultants, clients, suppliers, and financiers. The main thing we discovered is that

. . . No One Gets It . . .

I'd define HaaS as follows. Includes

- All hardware
- All software
- All service labor

- wrapped into one nice monthly payment.


Perhaps the closest analogy is a lease. But while most leasing companies will include installation labor, they do not want to include ongoing monthly payments. After all, what's the point of financing 36 monthly payments inside 36 other monthly payments? After all, a lease is financing secured by the hardware and software.

So, Issue One is financing.

Issue Two is ownership. Who owns the equipment? If the whole deal is somehow financed with the end user as the named lessee, then the end user owns the equipment. If you are named in the financing, then you own the equipment. The advantage to owning the equipment is that you have the assets on your books. In case you want to use this in valuing your business, it might be good to have the assets on your books. The bad news is that they're depreciating assets.

Issue Three is related: liability. We all hope nothing ever goes wrong. But, there is a "worst case" scenario to consider. If something does go wrong, whoever has their name on the lease could end up owing a bunch of monthly payments and losing the equipment.

I think the chance of this is rare, but my crystal ball is a little cloudy.

So what's the upside?

Money.

Right now, we sell the average desktop machine with MS Office licenses, monitor, and UPS. Profit is about $275.
Our managed service offering is $60 per pc per month. So this machine gets us $2160 in three years.
Of course we have to pay for labor, as well as Kaseya or Zenith agent.
Total profit is just over $2,000 in three years.

With HaaS we finance the wholesale price of the equipment at less than $40/PC/month.
Same costs for labor and managed service agent.
But with HaaS we charge the client at least $149/month.
Now Profit is about $3,500 in three years.

Very rough numbers. This is about 175% of the profit without HaaS.

Our first deal went very smoothly at $149/mo. We asked the client how much he would have been willing to pay. He didn't have a precise number, but we went back and forth a bit and I think $159 would have been no problem; at $179 he would have delayed and thought about it. I think at $169 he would have thought it was a bit high but signed anyway.

Of course your mileage may vary.

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The bigger picture is that, with these kinds of numbers, we're going to be a lot more flexible about what we cover.

We've listened to clients, and they've told us: "We don't want a line between what's your responsibility and what's our responsibility. We want you to include everything."

So that's our goal.

With managed services we spend a fair amount of time educating the client about what's covered and what's not. We see HaaS as the next step: There needs to be a real good excuse for something to not be covered.

We've developed a formula for pricing HaaS so that we can be completely flexible on hardware and software (no cookie cutter required). This also allows us to show consistency: If you have two servers with different configurations but about the same price point, their HaaS agreements are going to look about the same.

Stay tuned. You'll hear more soon.

10 comments:

  1. Karl,

    Thanks for sharing your thoughts/processes on this. I can see that as your HaaS customers scale up, you would start getting larger discounts on hardware and especially licensing, decreasing cost.

    Look forward to more!

    ReplyDelete
  2. You are very correct.

    We've been going through Microsoft financing for these.

    We worked the first deal up above $5,000 in order to save 2% on interest rate.

    MS keeps track of what you've financed in the last three months. So the more deals you make, the better your rate.

    ReplyDelete
  3. Daniel Koster5:15 PM

    Your Service Agreements book was a great starting point for developing a contract with a client and figuring out how to start offering a managed service plan.

    I have been trying to think up ways to integrate hardware into the service plan as a way to allow my clients to budget for new hardware and plan for new upgrades. HaaS is exactly what I was looking for.

    Are you going to spit out a new book (or amendment to your existing Service Agreements book)? I'm anxious to get some clients on an HaaS plan right away and could use a sample contract and any other lessons you have learned and can share.

    ReplyDelete
  4. Thanks for asking.

    I'm not planning a book on HaaS, but I am working on a white paper that will spell out everything we're doing. It will have spread sheets and what we consider to be the "magic formula."

    Your mileage may vary, of course.

    It will not have a service agreement, but I'm including a paragraph-by-paragraph description of what I think you need in a HaaS agreement.

    To make sure you don't miss any announcements, please sign up for my email newsletter at www.greatlittlebook.com.

    ReplyDelete
  5. Ramsey Dellinger5:02 AM

    Karl,

    I am the president of MSP On Demand, LLC. We offer a very compelling HaaS program for resellers to deliver HaaS under a single contract with the resellers logo.

    The challenges you talk about are similiar to the challenges I faced when I was a reseller myself delivering HaaS.

    I decided to develop a program that helped resellers deliver HaaS in a more efficient way than just combining third party vendors. We combined them but made everything transparent to the clients.

    I would welcome the oppurtunity to discuss ways to develop books - how to papers on HaaS in order to help everyone understand it better.

    I delivered HaaS for 9 years as a reseller and currently have 35 resellers in our program.

    Ramsey

    ReplyDelete
  6. Just a question for you about Microsoft Licencing. I spoke to a licensing guy here in Australia and he was insisting that the software would need to be used by the owner. We couldn't tranfer the licence for the life of the agreement. He was adamant we would need to sign an SPLA and rent the software on a monthly basis to comply with the licencing terms. You don't mention this in any of your materials so I take it you haven't done this!

    ReplyDelete
  7. There is a "rider" to the SPLA agreement that allows you to use the SPLA licenses in rental equipment. This is what we do.

    ReplyDelete
  8. Karl,

    I'm hoping this Haas Nut is still relevant and wonder if you essentially create a new pricing item for each system or HaaS Equipment Schedule?

    ReplyDelete
  9. Jamie, HaaS is still very relevant.

    Please clarify your question.

    Do you mean what's the cost to add new equipment to an existing agreement? We calculate that based on current pricing. We don't say that folks can buy future equipment for the same monthly as the original equipment.

    We are also not limited to any specific configuration. Because we have a formula based on the retail value of the equipment when new, we can throw in switches, phone systems, fax machines, or whatever we want.

    Hope that's what you were looking for.

    ReplyDelete
  10. Karl,

    Your answer covers my question from an sales view.

    However, I was really asking from an accounting standpoint. Each new piece of equipment gets a new item in the accounting system?

    Thanks.

    ReplyDelete

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