Monitoring as a Service, Part 2: The Business Model

This blog was first published on Service Management 360 on 24-Jul-2013.

After my wife agreed on the business idea for Monitoring as a Service (see my previous post for the story), her first question was about the business model and how it might pay out.

To overcome this challenge I created a spreadsheet where I listed the important elements of a Monitoring as a Service solution:

The service catalog

The list of services I wanted to offer was the starting point. I tried to be as precise as possible and identified the service items that I would and would not charge to my customers. I included everything that is essential for performing and preparing the service. So we also may call this work items.

After having established the service catalog, I added the following columns to my calculation sheet and added the appropriate numbers for each work item:

  • The customer price

  • The labor expenses to run the business

  • The hardware and software expenses

This led to a win-and-loss calculation for each work item. The distilled numbers showed a positive outcome, but there was something missing in my calculation:

The initial investment

Before I can start with the business, I have to prepare myself to have all work items available for delivery. This is the investment I have to take ahead of time. Adding this enabled me to understand how often to sell a specific service and how valuable it is.

In the sample calculation shown below, I based the projection on IBM Monitoring products (this is where I have deep experience), and I planned the activities and numbers accordingly.

The first interesting discovery was that the software expenses are not as critical as often reported. Adding additional services reduces this quota dramatically. Imagine 24/7 support (not in the calculation) or problem fixing services. Problems arising in the customer environment could now be quickly identified and also handled according to the service agreements in place. It is up to me, to get valuable service agreement in place with my customer.

Reporting is another service I will offer to my customers. This ensures, that the customer is always aware of the value the Monitoring Service generates. The customer will receive a set of reports showing the availability and resource usage of its IT components and also will see, which actions have been taken by the service to achieve these availability results.

The investment for setting up and getting up to speed with monitoring can be pretty high. That’s why a lot of customers don’t monitor or do so only to a very limited extent. This investment pays back with the number of managed systems, and for service providers with the raising number of customers.

The above chart highlights and is a direct outcome from the calculation sheet. I assume I’m going to be able to convince one new customer every month, and every new customer has approximately 50 managed systems. If I do so, I will have a win of about $700.000. (end of projection after 20 customers).

The calculation sheet gives you some insight on which areas to take special care for. The ramp up investments are pretty high. The preparations for delivering the monitoring service have to be planned well and have to be reviewed carefully to minimize expenses in that area. These costs dramatically drop if the preparation phase can be shortened and the delivery model is supported by the product itself. With IBM Smart Cloud Application Performance Management, IBM provides a new software distribution model with preconfigured virtual machine images, including everything you have to have to set up a reliable monitoring and reporting infrastructure.

Especially for businesses that currently have no or only a little experience with professional, enterprise class monitoring, it is essential to get guidance how to set up such a service, regarding repeated installation, packaged monitoring solutions and multiple instance management. IBM Software Services is available to help you minimize these initial costs.

Getting this Monitoring as a Service offering properly prepared is one key factor for a successful business. The other key is the identification of the correct customer set. Monitoring services require a good, trustful relation between the service provider and the customer. It is essential that the customer accepts the fact that the service provider is able to control the monitored systems in a holistic approach. This is often true in small businesses, where the machines are already maintained by the service provider. This offers the service provider the ability to add valuable services like 24/7 monitoring, off-hour office support, automated alarming and so on.

These items might be worthwhile to add to the offered services catalog and will be drivers to create an even deeper relationship with your customers.

In my next post I will discuss the steps to prepare for a Monitoring as a Service request. So stay tuned to Service Management 360 for more.

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