Free firewall weekend (and other fun with upselling)

The problem is, none of your current customers are buying your fancy new products. For the first month or two, your sales people were actively working with existing customers, determining who would buy the new product. While there was a little interest early on, the sales people now seem to be focused on new prospects rather than on mining the installed based you have already won. As much as you push them to upsell into your installed base, they just don't want to do it.

What happened? Weren't managed services supposed to provide a path to fame, fortune and fiscal solvency? The fundamental problem is that we have two competing agendas here. Service providers have one set of goals, and data center customers have a different set.

Most service providers offer multiple service levels with corresponding pricing. The lowest service level is often the most standardized product offering and attracts the most competition among various service providers. Consequently, it has the lowest price and lowest profit margin. Beyond this level, providers attempt to differentiate and offer customers more services with correspondingly higher prices and margin. In the data center market, collocation is the basic service, and managed security and performance services represent the higher-margin products.

Once a tiered pricing structure has developed, a service provider must upsell advanced services to customers to generate a high degree of profit. If the customer simply buys the basic service, the service provider will often just break even, not generating any actual profit. Additionally, today's advanced services are also becoming commodities, and services at the lower end of the value spectrum will often end up bundled with the basic service offering as competitors seek some sort of advantage. As contracts come up for renewal, customers will renegotiate to get the best prevailing price given the current market conditions.

Customers resist new offerings

Unfortunately, customers will also be very resistant to accepting any new service products once they have a working installation. Today, buying a new managed service often involves installing and reconfiguring various hardware products that help implement the service. The planning and installation cycle may be long and may even force some amount of site downtime. As a result, installation must wait for an appropriate maintenance window.

This situation works against the service provider because it slows the adoption of services. In fact, when faced with such a long planning cycle, with its consequent opportunities for disruption and downtime, many customers will avoid buying a new service even when they know they need it. Consequently, most data center sales teams find high resistance to post-installation upselling and thus concentrate on initial installations where customers are just getting things working for the first time. While it is easier to make an initial sale, the lack of post-installation upselling robs the service provider of valuable high-margin revenue and saddles it with a data center full of customers purchasing lower-margin services that are decreasing in price over time.

Adding services painlessly

The solution to this dilemma is to reduce the disruption caused by adding new services and thus make the process as painless as possible. Next-generation equipment is now arriving that promises to alter the sales dynamics of IP service delivery forever. This new class of product, called a virtual service switch, delivers advanced IP service products to data centers in a virtualized, multi-customer format. These new switches allow data center operators to provision new IP service products in minutes, without causing any downtime for customers. Because the provisioning process is so non-disruptive, data center sales people can now overcome some of the customers' objections, and the sales process is much more successful.

With virtual service switches, a data center sales person can proactively call a customer to offer a new service and complete the installation before the call ends. The customer will see no disruption to his existing networking traffic and no downtime for his application or Web site. Let's take a look at an example.

First, the data center sales person or account manager will use a management system to monitor the customer's traffic patterns, looking for performance or security problems that could be solved by one or more of the data center's managed service offerings. In some cases, this process can be automated with management tools. In other cases, it must be done by hand.

Once the sales person has identified a customer with a problem, the sales person calls the customer, describes the observed problem, and positions the service as a solution. The customer is told that the service can be installed and running before the phone call ends, with no systems downtime and no disruption to traffic flows. If the customer finds any problems after the service is installed, he can cancel the service on a moment's notice.

With no objections remaining, many customers will opt to at least try the service, knowing that they can discontinue at any time without fear of downtime. (With a virtual service switch, adding a firewall is as easy as drag-and-dropping the service template into the virtual rack for the customer, as shown in Figure 1).

Overcoming sales barriers

While virtual service switches reduce the pain of installing data center IP services to near zero, there are other barriers to the managed services sales process. Even if the service provider can make installation completely painless, many customers will find a reason to avoid buying. In many cases, the service seems either too expensive or of not enough utility for the customer to actually want it. In these situations, the customer may already know that he has a performance or security problem but just does not realize its magnitude.

Service providers in other markets have solved this problem by offering free trials of a given product. For instance, cable TV service providers frequently offer "free weekends" for premium movie channels, allowing customers to experience the product on a trial basis in the hope that they will recognize the value of the high-margin, premium service and subscribe to it. During the weekend, customers will receive the channel without having to pay for it. At the end of the weekend, they automatically lose the channel and must call the service provider to subscribe if they want to keep it. With the barrier lowered, customers get the opportunity to experience a service they aren't sure they really need, without fear that it will cost them something if they decide they don't like it. Who can resist something free?

In the old data center environment, offering a free trial of a managed service would have been suicidal. With services dependent on the installation and configuration of possibly multiple service appliances, the cost of setup and teardown were prohibitive. The break-even time of most managed-services offerings was 12 months or more. If a customer decided to cancel the service in anything less than this, the service provider ended up losing money. As it was, this payback period was too long; it certainly would not support a "free weekend" trial period.

Virtualized services enable new model

Today's virtual service switches remove this barrier. Because virtualized services can be provisioned and de-provisioned in minutes through an automated interface, service providers can easily offer one or more customers a free service trial without worrying about losing money if the customers decide to discontinue the service. This new model allows data center sales people to mine the installed base of customers and increase the overall revenue they generate. Let's take a look at how this might work in practice.

A service provider might start offering a new managed service in a given data center. To kick off the service introduction, the sales force calls all current data center customers and offers them the new service, irrespective of need, for a trial period of one month. Customers who decide to continue service past the trial period will be charged a monthly fee. Those who cancel the service will have it removed with no charges or disruption. When offered a product that can be installed with no disruption and no cost, a sizeable fraction of the customer base will opt to at least try it. The conversion of any of those trials into paying customers can represent a sizeable revenue stream for the service provider. Also, because the service will often be a high-value new service, the service provider will realize higher margins.

New switches revolutionize service delivery

One of the biggest problems with today's data centers is that the old infrastructure does not support traditional service provider sales techniques aimed at upselling. Virtual service switches, now arriving in the market, promise to revolutionize managed service delivery and allow service providers to gain incremental revenues and profits from an installed base of customers who were previously resistant to change. Virtual service switches allow service providers to provision and de-provision managed performance and security services with no downtime or disruption to customers. As a result, sales people can upsell into the installed base and offer free service trials to customers who would not otherwise have chosen to experience the service.

Dave Roberts is Founder and VP of Marketing for Inkra Networks Corp.

Visit Inkra Networks Corp. online.