Have you wrestled with the economics of purchasing a software application vs. paying a monthly fee to a managed service provider (MSP) for access to the application? You’re not alone. I have found that in most cases the specialization and economies of scale of an MSP delivers greater value than trying to do it yourself.

A couple examples of this for our company was in our decision to use a hosted project management solution by Clarizen and a hosted Microsoft Exchange solution by Mailstreet. For example, for us to purchase, install and manage our own Microsoft Exchange server, we estimated that it would cost us at least $10,000 in the first year alone for hardware, software licenses, installation fees and ongoing administration. Instead, we pay less than $100/mo for our employees to have access to MailStreet’s Hosted Exchange service, allowing us to add and delete users any time we need to. For those partners, contractors and customers that need email boxes from us, we simply provide them an IMAP mailbox from our hosting provider, 1and1.com. This approach has saved us thousands of dollars a year and many hours of headaches we used to have trying to manage our own email server in-house.

Our customers find themselves needing to make this same type of evaluation as they consider using our cloud-based monitoring and information management tools – a service offering we call Monitor+. We have learned firsthand that the total cost of ownership (TCO) of developing, integrating and supporting all of the components of Monitor+ over the past 3 years has been much higher than we expected… despite how much due diligence we initially did. Fortunately, we have been able to spread that cost across multiple customers over a period of years and thus we are able to offer very competitive monthly fees.

When considering all the direct costs associated with creating the Monitor+ service offering, I believe our partners and/or customers would end up spending nearly 80% more to acquire and support all of the applications that comprise Monitor+ vs. paying the Monitor+ monthly service fee we charge. When requested, we help our customers evaluate the "rent vs. own" costs for themselves, and typically they end up choosing the MSP option verses trying to develop a proactive monitoring solution on their own. Ultimately, Monitor+ frees our customers and/or partners to focus on their core business and avoid the risk of disruption of their voice and data services.

Depending on your tax situation, the after-tax cash cost to finance the development, installation and support of an integrated application platform like Clarizen, Mailstreet or Monitor+ would favor an MSP option. Since MSP fees are expensed, a growing company can essentially use the MSP’s capital. In today’s environment of tighter credit and a scarcity of cash, most companies should have a bias to a managed service or cloud computing as part of maximizing after-tax return on assets/equity.

What do you think? If you found this post useful, please leave a comment, share with your peers, or subscribe to the news feed to have my future posts delivered to your news feed reader.

A friend of mine who used to work at Gartner invited me to attend an event hosted by the Colorado Chapter of Society for Information Management. At first I was a bit hesitant to accept the invitation because I was not familiar with SIM Colorado and I was afraid it might just be another sales "networking" event. After doing a little research, however, I discovered that there are SIM chapters around the world that consist of information technology experts, including CIO’s, CTO’s and emerging IT leaders. Their mission is to help develop the next generation of effective IT leaders by establishing a forum to bring together IT professionals from across industries.

Suffice to say, my friend convinced me to attend the event and I found it to be very valuable and enjoyable. However, when the key note speaker announced what the "ice breaker" activity was going to be to kick off the evening, several of us looked at each other in shock and considered sneaking out the back door. You’ve heard of "Speed Dating"… well we were asked to introduce ourselves to 6 different individuals and spend only 2 minutes clearly describing who we were and what we do for our companies! They called it "Speed Networking"!

After all the groaning and moaning around the room subsided, we began the terrifying activity of talking (and intently listening) to one another… and I’m happy to say everybody survived the ordeal. What this forced each of us to do was to convey who we are and what we do as IT leaders in words that are not laced with techno-jargon, but are easy to understand by anyone. By the 6th person, most of us felt pretty good about how we could summarize what we do in a way that was both concise and interesting… what many refer to as your elevator pitch. Here is what mine ended up sounding like:

"At Telizent Communications, we help companies proactively monitor and maintain their business telephone systems. Just like regular medical checkups help prevent heart attacks, our proactive health checks help prevent telephone systems from having major outages by alerting us of symptoms before major problems occur. Telizent can always revive a downed phone system after the fact, but consider the impact that an outage can have on your company financially as a result of lost sales, or on your reputation due to poor customer service, or even on your employee safety due to them being unreachable on the phone. As CTO, my role is to architect and manage our proactive monitoring and maintenance SaaS toolset that we call Monitor+.  It is designed to prevent telephone system outages."

I had the privilege of meeting IT leaders from Microsoft, Frontier Airlines, Great West Life and many other prominent companies and state agencies in Colorado, and the "elevator pitch" that I had finally come up with above actually made the conversations with each of them even more valuable. So how about your elevator pitch? Are you ready as an IT Leader to convey what your company does in a way that most anyone could understand? I’m not sure I did a great job with my pitch above, but I can tell you that it has helped reduce my fumbling for words to describe what we do at Telizent Communications.

If you found this post useful, please leave a comment, share with your peers, or subscribe to the news feed to have my future posts delivered to your news feed reader.