The real question in a Haas environment is the credit check and responsible party. If a MSP has 10 accounts that all have HaaS situations with new servers, desktops, etc - who is going to finance the contract period. As an ex-reseller and now a leasing company owner, having the necessary credit lines with your bank to carry all of the hardware over an extended period of time would be difficult for a large majority of resellers. With that option hard to accomplish, any bank or entity giving the credit over the contract period will look for the end user to have the proper credit to make this happen. So though a true HaaS situation is a great solution, I don't know many MSP's who can handle the credit lines needed to make it happen. Unless I am missing something .... if encourage others to comment.

And one other point that I forgot, I would assume that any reseller who is accomplishing HaaS in the truest way, is not doing their customers any favors by selling them white box junk that they put together. The arguement of "well, we are ones who have to support it if it fails" really holds no water for me - as an ex-reseller who owned a hardware centric company. We all know that you paid much less money to put a white box together and based on your margins over a 3 year period, the hardware gets paid back in 8-12 months but for 99% of the MSP's out there, that simply is not a plausable solution and as a CEO, CFO or CIO of a company, its not the best solution for them either when they can get brand named products with manufacturer support if needed. HP can support your customer if Intel has a chipset problem - not so certain that an MSP can handle that level of trouble. So you might be doing your pocket a favor but your not giving your customer the best solution.

The first thing that came to mind when reading this was credit. I see that John has made good comments which point out the fly in the ointment.

It's not as simple as putting the client on the hook for the agreement because the deal is too heavy on soft/service costs and most lending sources are just not going to support that.

I seem to recall a couple of HaaS credit vendors were emerging a couple years ago, but a quick Google search turns up nothing. Nonetheless, there must be something out there.

John's comments are dead-on in regard to the whiteboxes, too. I've been there and done that. Those things are bad for the client and ultimately bad for the VAR, too. Make the hardware repair (and parts stocking) someone else's problem.

As pointed out in previous comments to this article, the key to HaaS is being able to underwrite and capitalize the transaction. This provides the reseller with the required flexibility to make HaaS a distinctive offering.

I believe one other element required for a truely successful HaaS offering is allowing the customer the ability to scale up, or down, without penalty. So that the pricing model is based on a price per server/user. This provides the customer with a more predictable cost structure for growth, or reduction.

Tommy, you raise a fantastic point on resource utilization and planning. Whether you buy or lease, you're getting capacity regardless of how much you use. If you buy too much, you're stuck with it. In a HaaS model, the customer can scale capacity needs on demand. That's a great value proposition, especially when you're dealing with rapidly expanding and shriking companies.

Both have mentioned good points, but the fact is that the HaaS, SaaaS or a managed services such as MPS is Still a lease. The term of the agreement typically has a $1 buyout or some other negotiated value termed FMV. Obivously the financial model of hard and soft costs will affect the monthly recuring as the more soft cost the higher the multiplier!

As a prior VAR, we did lease deals with services bundled for the term of the lease long before industry buzz words of HaaS were around, so to me it is all about marketing and trying to find the value your organziation brings to the end client.

The only real difference I see in the lease is who has the liablity - The VAR holds the liablity not the end user, although there are contracts in place to protect the VAR, if the end user goes out of business - the VAR is still liable for the lease!

As for Whiteboxes, the cost is no longer is a differentiator. So you can not use cost of a major brand vs whitebox anylonger - the computer is now a commodity and as such home grown just doesn't hold the value it did 10 years ago!

We have done quite a bit of HaaS. For us it is definitely NOT a lease. We finance the hardware ourselves.

As mentioned, getting this financing has become more difficult this year. Microsoft is out of the question. We used them exclusively until they set the requirement at 35% for licenses.

A few financing companies have approached us regarding a deal we're putting together now. So it looks like we will get financing, but at a higher rate.

We then provide licensing via Microsoft SPLA. Thankfully, this is now available direct from Ingram Micro.

I've been poked a few times about this, so I'm working to update my HaaS whitepaper with this info.

I have read all the comments but scratch my head with Tommy's - not on the substance of the point but how to execute it. Every lender is going to look at the credit of the end user and unless that MSP is going to take out hardware and start making the payments on behalf of their customer, the model of going up and down with no penalty doesn't work on the equipment side. It certainly does on the services side though.

I do get the points around liability, credit and financing, but I am curious about how HaaS would impact the software business model that has to come along with the involved hardware, regardless of ownership. A straight software licensing agreement is not the issue, the issues will always be around h/w and/or s/w upgrades and compatibility. Who's responsible then?

Is the OpEx impact of HaaS sufficient enough to accept those headaches rather than moving completely into SaaS or cloud computing environment?

John, I've enjoyed your comments on this topic. It prompts me to ask Karl what steps you are taking as the underwriter of the hardware purchase to ensure the creditworthiness of your end user client?

Most of my consulting clients who are involved in HaaS have made the decision to purchase the equipment themselves. However they have limited their HaaS offering to certain parts of the network such as firewalls both from a financial standpoint and as a "test the waters" strategy.

So, how do you decide what clients are credit worthy enough to take the risk with?

Good points all. I own my own VAR business and my own leasing company. The combination of the two is very powerful. We provide our managed service appliances (firewalls, NAS boxes etc) through a leasing arrangement between my leasing company and my VAR business. Then we "rent" the devices to our clients.

From the leasing company standpoint, all the depreciation flows through to my leasing company (an LLC) and therefore to me personally. A very nice tax situation.

I would strongly recommend all VARs try and setup their own leasing company. The real trick these days is to find the financing. We utilize a bank, but I have had a 24 year relationship with the bank and therefore have been able to get funding.

Ted: You're a smart operator. When I owned JDMI, Coach Capital was our leasing company (which is owned and is still owned by me though I sold JDMI in March). To answer the other question, D&B, personal credit scores, bank and trades and if a large enough transaction, audited financial statements for 2-3 years. IF a reseller is going at the HaaS marketplace by owning all of the hardware and taking payments, welcome to the computer rental business where I have seen many companies fail because of depreciation and lack of utilization. I don't believe a "true HaaS environment" includes a VAR buying hardware from their favorite distributor and giving it to their customer to pay for it with a monthly payment.

All: This is an interesting discussion. I am a true Flat Rate IT provider, which includes equipment and have been doing it for a year and a half now with pretty good results. By using this HaaS model I have been able to increase my bottom line by about 60%. There are many factors to building a good HaaS business model. One is to find a good partner provider of the equipment, which I have. The partner I use calls it CharTec. If you want to know how it's done and increase your profits, with no money out your pocket, search for CharTec and you will find the first 3 hits from a Google search are the answer! As for the comments about white boxes, remember, computer parts are computer parts now days. If you use the same parts as the big vendors you'll get the same results as they do.

Financially there is little difference between leasing and HaaS. Leasing and value, there is a quite a bit.

The things that are different are:
- Typically there is a buy value after a term - e.g. $1 after 3 years
- There IS a term in leasing - not typically one for HaaS
- Hardware is often wrapped with software and services as "Pre Fix"
- HaaS is more like rental because as long as you pay, you will get firmware and hardware upgrades and replacements
- Service on HaaS is better as SLAs are tuned to keeping you as a customer beyond next month
- With a lease, you are obligated to pay for the remainder of the term or you suffer a penalty. With HaaS, it is more like a utility where you pay month to month
- With a lease, you pay for the hardware, whereas for HaaS, you pay for the value or service delivered.

Subtle, but it is a difference.

I don't believe HaaS will eliminate leasing because of the barriers to HaaS, mainly the financing aspect as others have said.

We've been searching for our best option. Can solve the "soft costs" using co-branded leasing companies. However, most sources that are attractive to our ideal program have a 10 mil. annual run rate requirement.

Would be interested in Ted Warner's model of how to enter leasing. Sounds like a Great Idea. (wink)

Steve E - I'm not so sure I agree about your parts point. An Intel chipset that you procured at MaLabs might be the same product found in an HP desktop but believe me when I say, if there is a problem with chips (and we have seen some significant issues with chips over the past 18-24 months), I feel a heck of a lot safer as a corporate account knowing that HP is going to take care of my problem rather than MaLabs.

I have been doing Haas and Saas for over 9 years there is always good and bad to any businees propasition but I have found cLeints want all the benefits and none of the risk. It is a lot easier to sell our services (where we REALLY make money)if we give the hardware to them to use and charge them monthly for it. The trick is to make sure you have it in your agreements that the equipment is a rental or a lease from you to them to use with no option to buy. It also gives you more hooks into them as a business partner, we use an appliance for Unified threat management, Backup and Network monitoring. It is you it is a lot harder if they have to give back your equipment and you can use it elsewhere should you part ways. For us the hardware is a lost leader to make the Saas money and we provide most of our Saas remotely.

Please forgive me in case someone made this comment already, but I didn't have time to go through each remark.

Basically, my two cents is that Cloud technology will begin to marginalize both of these concepts to a large degree in the next 36 months. Here is what the Cloud gives you that neither leasing or HaaS can or will compete with:
-Elastic computing
-Unlimited scalability
-Multiple remote data center options
-Pay only for what you consume
-Build up/tear down with no restrictions
-Secure, compliant (at least in our case, can't speak for other clouds)

I wouldn't profess that 100% of hardware would ultimately yield to the cloud, but a large enough portion of it will.

Steve: Are you giving these customers named brand computer products or white box?

John C, while I agree cloud computing has a great place for all of us to make some killer margins and to Virtualize a lot of what use for a lot of the same reasons you stated, but there will always be managed devices needed at the office and home office that will need to reside within thier four walls and there will allways be a place for smart MSP's to make money managing these devices. If you want to take it to the next level then a smart MSP will start to create items for the cloud that they can also manage as Haas/Saas.

John White boxed but not home grown, Custom built Appliances from a verfy large OEM and all name brand parts insides. We private label them becasue at the end of the day clients want one throat to choke (mine) usually. :) White Box allows us to keep the same image and look while technology gets better and cheaper which increases our margins.

There are a lot of good points. I just want to remark on the part about Whiteboxes. I build Whiteboxes and use The Major Brands like Intel, Seagate, and have no problems with RMAs while under warranty. I just replace the parts out of pocket and use the replacement in a new box.

Mark- It's interesting you mentioned Intel chip sets! I used to work at Intel and did so for 12 years. Loved it! Michael says he builds whiteboxes as well. I actually don't build them but the company that I get them from does and they use the Major Brands. I put my brand on the whitebox! See, I'm not using my money, I'm using my partners, Chartec. When I have a problem I run an RMA and replace, it's that simple.

Steve Ferman has the idea as well. I've used HP's, Dells etc. When I had a problem (and it's me having the problem, because I get a flat fee from my clients) I just get an RMA and back in business. When there are problems I'm spending my time thus costing me money, meaning my clients and my goals are now the same. If I feel I need to replace a server, which I've done, there are no questions asked. With Dell, hp etc.I have to jump through there hoops.

Chartec is the way to go. Think of it this way. How many of you have had clients that just didn't want to replace equipment but needed to in the worst way? You were constanty being called making there stuff work. I have switched those clients over to the HaaS model and they are some of my best happy clients. Oh, and every 3 years I go in and replace workstations and 4 years for servers, all under the plan.

The key is not to sell on equipment, sell on the services and all you provide, the value, and the equipment is a bonus. Like Steve says above, it makes your client sticky. It's not for every client, it for the client I'm looking for.

Steve F -

I do agree that regardless of how the market is shifting deployment methodology best practices, there will always be a measure of hardware and devices at the customer premises. It therefore makes sense to offer a HaaS model for those devices (printers, routers, thin clients, a few servers). My point is more that at the rate of migration for everything from server to desktop infrastructure to the cloud, the once 'huge' opportunity for HaaS is simply not that huge. Or at least not be big enough to warrant the amount of white space it gets from pieces like Larry's.

Here's the deal folks: You will find that as customers realize more and more that they DON'T no longer need to have much hardware in their offices and broom closets, they will shed, not accumulate. And that will start with long term financing deals that tie up valuable capital and keep the IT dept in a proverbial straight-jacket.

I would challenge any MSP looking at their next customer deal (server refresh, desktop consolidation, etc) to pit a pure play cloud infrastructure solution and let the customer decide. You will be pleasantly surprised at the outcome. Cloud infrastructure WILL make you more margin, integrate nicely with your MSP service structure and you don't need to have to become a finance company to facilitate the business... ;)

Just my thoughts....

J

Wow... It’s not often I see a real discussion on HaaS. Like some of you, I offered HaaS when I was a reseller for 10 years, now today I operate a HaaS reseller program. My Book –“How to HaaS” just went to the publisher last week. So here are my points for what it is worth.
From a Business Process standpoint, HaaS has 3 basic parts. Payment Structure, Operations (Product & Support) and finance. Since we are talking lease comparison, I will stick with financing.....
In order for Leasing Companies to become a part of a HaaS solution, it has to fit with the structure of all the Business Process parts... seamlessly. In order for the reseller to use leasing as the funding arm on the contracts, you have to streamline your business process to meet expectations. Examples……
1. Reseller Branded (lease) Contracts - Because of the increase in service delivery, Clients want to know the relationship is mutual on all aspects of the contract. How effective would Verizon be if they sold their contracts with Bank of America logos on the front?
2. Contracts should only show payment and terms - If you use lease companies to fund contracts, then you must only show payment & term on the contract. Example: How much interest do you pay on your sprint bill? YOU DO NOT want to get into to the finance game with HaaS.
3. Asset assignment - Under a lease the residual/assets should be assigned to the reseller. The reseller needs to be able to manage, support, fix and control the equipment short and long term. This way the reseller also gets to take advantage of Depreciation.
4. Service Pass/through billing - When a reseller sells a deal, they should be able to fund the earned revenue portion and pass through the un-earned portion. Therefore giving them a single payment structure.
5. Funding percentages – This should go away. Most leasing companies demand a percentage of soft-cost vs. hard-cost. If the contracts are based on a dollar buyout, then this should not affect what is soft and what is considered hard.

These are the basic scenarios.. Overall, leasing is a great way to do HaaS based deals. Credit is based on clients, you get cash for your cost plus, you have a contract that has been tested legally and most important a long term stickiness that forces both parties to make things work.
I think Chartec has a good model; however you have to be careful you don’t sell yourself out of business with the “I rent to you – You rent to them” model. If your company cannot handle chopping up your profit you receive in cash over a 36 month term, then you have to find the right mix of funded deals vs. rental base deals.

MSP On Demand's program is based on this type of process and today we have a number of lenders that fund under those conditions.

I hope that helps.
Ramsey Dellinger

Ramsey- Very good overview. It's all just a math problem! Of course you have to do what is best for your company.

Ah John you are also correct but a lot of services are moving to an Appliance model for instance on-line backup we use eTegrity and thier model is an appliance and we do not sell it to end users but rather we Haas it and manage it and make more margin because of this. So the Haas market may look to shrink on the server side and that may be true but not for all applications. And what about server Virtualization? plenty of companies will still want thier hardware and data in house for a number of reasons that make sense to them at least.
Steve

Coming from a leasing background I have to agree with John Marks on all points. When required we lease and have been given recent consideration to forming our own leasing company. Our path however is in SaaS, building our own hosted applications. We are not looking to the Cloud. Clouds tend to drift on the wind, dissipate or evaporate they bring rain, snow, block out the sun.
We are considering the stratosphere a bit higher up!

This is a great – a discussion about HaaS. I love it! After reading everyone’s comments on leasing, HaaS and CharTec I felt there are a few key points that are either being completely misunderstood, or just being left to assumption that I want to make sure are clear with nauseating detail.

First of all, CharTec® is not a “rental” relationship or a lease. And in its true form, even though we eliminate the financial Burdon for our partners, cannot be defined as just HaaS. Shocking, I know. It is just “CharTec®” on its own. The solution is all encompassing for MSPs and includes: access to the custom Configurator™ (a managed service pricing tool), consistent sales training and document tools, business practices on effective marketing and collections, help desk and technical assistance, easy warranty and RMA replacement, scheduled hardware refreshes, software licensing management, oh—and then the private labeled hardware is included as well.

John Marks, I agree with you stating that providing clients with “white box junk” hardware slapped together with MSI-Giga-Sus motherboards and recycled aluminum can chassis is unethical. We too have seen and repaired many poorly manufactured systems on our break fix side. But, I think it is unfair to imply that anything not Dell or HP is “junk”. We have spent the last 17 years designing and engineering our own systems that have outlasted and even out-performed the designer-labeled boxes. Intel and other component manufacturers have certified our systems and technology in the same manner as the designer boxes. But just because we choose to label them CharTec® or private label them with our CharTec® partner names they are junk? Really? Oh and our systems are black?

This is not even mentioning the fact the designer label companies have no trouble contacting our clients behind our backs to offer better discounts and their version of managed services direct. Talk about unethical… And, some MSP’s continue to feed this mutiny with purchases and lease agreements every day.

We created CharTec® to enhance the existing managed service offering of many companies. It takes their current specialized offering and “marries” in the hardware. The majorities of MSP’s leave a lot of value and profit opportunity on the table and don’t even realize it! They are giving this portion away to the designer labels without even knowing the value. I want to help them capture that revenue and keep it for themselves.

And unlike leasing, CharTec® partners build a relationship in such a manner that hardware is just another added value to the entire managed service offering. The benefit partners receive in marketing, sales training, support, deployment, technical assistance, and staying on the forefront of new technology helps standardized their client’s hardware and creates a long term relationship. Hardware is no longer a “one night stand” type of transaction.

CharTec® is not for every MSP or every client. HaaS, leasing, financing and straight purchases are all still necessary in your MS offering. But, to have this tool readily available for clients has proven success, as Steve Eyton and many others have witnessed. Not to mention our current managed service business that brings in almost three million a year in annuity revenue. Just one major difference between CharTec® and leasing is the benefit of “Easy Adds.” Many times a client needs to only add one workstation at a time as their business grows after the lease transaction is long over. With CharTec, a simple signature acquires this new equipment. It’s that easy to flex with the need.

The entire concept of CharTec® was created to enhance current managed service offerings, make MSP’s more profitable and bring credibility and self promotion to the channel.

There are several aspects to the lease vs. HaaS model that make a difference to VARs, especially in the SMB space. There are considerations for the financial aspects, taxes, contracts, buyouts - the list goes on. A lot of VARs need to have a simple, sustainable business model that is good for their business as well as the client's business.

My business as an IT consultant has changed over the years as clients go through their budget cycles and business changes. Recently, I attended an MSPU Boot Camp and met Alex Rogers and the CharTec team. I was impressed with the business professionalism of each person, and the CharTec concept. The theory and process is so comprehensive that it makes total sense.

As a CharTec Partner I have come to realize a few key points almost immediately:
1. Simplicity - the CharTec Partner Program is easy to work with, easy to implement and easy to sell to our clients.
2. Profitable - With the CharTec model, everyone in the loop has to be profitable and at the same time have lower capital cost for each client implementation.
3. Business Support - From the unique CharTec System Configurator to the person answering the email or phone, CharTec provides professional levels of support. When you sign on with CharTec, it is in their best interest for you to succeed as a partner. They have everything from Sales Boot Camps to webinars to a new Sharepoint site that is filled with forms, best practices, whitepapers and everything else you can use to be successful. The CharTec sales method is foolproof, take it from me. Using the methods I learned in training, my sales process has been trimmed to a very proficient level, with a 100% success rate for every sales engagement since signing on as a CharTec Partner.
4. Quality Technology - You don't have to be a Dell or HP to be an OEM. The equipment is fully covered by warranty from the minute you put it into service. Next day replacement parts is the standard. The quality of components and workmanship rivals any in the industry. The equipment has to be high quality, as when there are problems, everyone along the line loses money.
5. Guarantee - With the CharTec Guarantee, the credit check process is taken care of by CharTec.

As a small player in a big market, I have been able to sell and implement several CharTec HaaS deals that provide recurring revenue and a sustainable business model in the time it would have taken to try to get a leasing company to take my phone call.

My clients are thrilled with the fact that they don't have to buy computers anymore.

My staff is thrilled every time we sign a 3 or 4 year contract.

My bottom line continues to increase, as costs are fixed and we can focus on running the business.

With CharTec, I think we are seeing the beginning of the end of systems leasing.