Value-Added Reseller (VAR) or Managed Service Provider (MSP)? The Line is Blurring
Whether starting an information technology business, expanding one or shopping for solutions, it’s important to know why value-added resellers and managed service providers are categorized the way they are. However, as much as these labels give context, the VAR and MSP business models have begun to overlap more and more in recent years. Let’s start with the traditional definitions of these businesses and then move on to see how these labels are changing.
What is a value-added reseller (VAR)?
A value-added reseller (VAR) is a vendor that acquires, sets up, and configures a combination of software and hardware to meet a particular business need, or provide infrastructure technologies for a business just getting started. This can include anything from phone systems to server rooms and company-wide software rollouts. The key component of a VAR is that they usually add value in the form of configuration, setup, and support for your system, with some even including training programs for a period of time following purchase. Afterwards, the customer usually manages everything themselves, with occasional calls to the VAR if necessary.
If a customer’s goal was to set up security for their building, the VAR would be the team setting up cameras, creating your dashboards, and showing clients how to monitor their building.
What are managed service providers (MSPs)?
Managed service providers are vendors that provide ongoing services for however long a customer decides to keep their contract with them. Even in the IT space, software can be part of the package but isn’t a requirement. Some contracts with MSPs, called SLAs, cover services for software clients already own or use under a separate subscription. MSP’s are particularly known for offering:
- Software and hardware support
- Hardware and software maintenance
- Data storage and backups
- Cloud services and cloud system migrations
- System and network infrastructure management
- Network and system security
Many organizations think of and use an MSP as an outsourced IT staff, taking care of all the day-to-day IT tasks at the scale of a larger team, so their in-house IT staff can take care of more specialized projects and rollouts.
In the previously mentioned scenario where a customer was setting up security for their building, an MSP would provide the security guards themselves. They would use the customer’s existing software and hardware (security cameras and dashboards) to provide real-time service (in this case building security.)
SaaS is changing the business
Software as a Service, or SaaS has changed how software is sold. Instead of a single, one-time purchase, most if not all software these days is paid for continuously via a monthly or yearly subscription. These changes in how software is procured provides both challenges and opportunities for many types of businesses, including VARs and MSPs.
VARs now have a new way to gain more recurring revenue. However, this new way to pay challenges their business model. After initial configuration, what’s to stop a customer from choosing a cheaper subscription directly from the software vendor? This is where VARs start to change how they operate. One option is to work with a software vendor to get a commission on subscriptions, while still providing customers the software for a competitive price. Another option is to add additional services on a subscription basis, invariably transforming part of a VAR’s business model into that of an MSP.
As for businesses that have already started as MSPs, SaaS provides particular challenges in that many SaaS platforms are becoming easier to use. This means that a lot of what MSPs were previously most famous for might not be necessary as software becomes more user-friendly. However with every challenge comes new opportunity. Many cloud service providers, such as Amazon and Microsoft, already act as MSPs, but open the door for other MSPs to provide additional administration services on top of what you’d get with Amazon’s AWS or Microsoft’s Azure, with a more personalized touch for clients. Most importantly, however, MSPs can take a page from a VAR’s playbook, and start offering initial configuration and setup services for software in addition to what they’re already offering.
The future for VARs and MSPs
VARs are staring to act like MSPs. MSPs are starting to act like VARs. So what’s the real difference? Is there a name for this new type of service? Firstly, differences still largely depend on the VARs or MSPs being compared. Additionally, since the lines are beginning to blur, many VARs and MSPs can provide customers with a comprehensive and value package regardless of their label. Customers should be encouraged to compare and research VARs and MSPs on a vendor-by-vendor basis rather than depending solely on the labels to make their decision. Regardless, a name for this new type of business where the business models of VARs and MSPs begin to converge, has yet to be determined. Only time will tell.
Whatever path or label you choose for your firm, the Laserfiche Solution Provider Program provides the tools and resources you need to provide cutting-edge software to customers while providing profitable revenue streams to grow your business.
