Finding and keeping. Readers will note this common thread among our state of the industry reports. In February, it was all about finding and retaining valuable employees. For March, we talked about hosted events—vehicles for educating customers and prospects, grooming them to view you as a trusted source. This month, we pivot to loyalty programs in a sense with everything-as-a-service (XaaS), the art of creating stickiness and becoming that proverbial “one throat to choke.”
The question is, what better way to maintain a long-term client than to offer XaaS and be the full bow-to-stern provider for everything from managed print (MPS), managed IT, software and every possible ancillary product and service? To take it another step further, dealers can tie it all together with a single flat-rate billing concept that appeals to consumer convenience and cost certainty.
Not all programs or dealers are willing to go all the way with the concept, particularly with fixed pricing. There are many variables to factor in, including the willingness of financing partners, manufacturers and software providers to participate in such an endeavor. A thorough knowledge of customer printing volumes is imperative; dealers who have flawed blended-rate equations can end up hurting themselves by pricing too low, and risk alienating/losing the customer with an over-inflated rate. Meter readings aren’t going away anytime soon, and elective change in the industry can often be a plodding journey.
Kim Louden, vice president of sales, Office Equipment Group for GreatAmerica Financial Services, has taken to the road in an effort to share considerations office technology dealers should keep in mind when adding flat-rate billing options for their clients. She recently gave a presentation during the BTA Spring Break event on the subject and provided us with a CliffsNotes overview.
Louden says it’s important for dealers to understand how end users want their invoices to look in regards to the information presented on them; if it’s confusing or doesn’t meet the clients’ needs, frustration invariably results. GreatAmerica offers a range of invoicing solutions for dealers to provide their clients, one of which is flat-rate billing. If variable billing or overage billing heightens that level of frustration and acts as an impediment to timely payments, then the flat-rate billing method may be the avenue to take.
Dealers have to think about what is going to be their strategy in using this approach. Different dealers have different levels of risk tolerance with when and how to use this.
– Kim Louden, GreatAmerica Financial Services
In an age of buffet-style, all-you-can eat options abounding in our personal lives—from entertainment content to unlimited monthly car washes—the flat-rate billing concept also adds differentiating appeal to the business consumer who values the ease of doing business with your company. Louden offers these aspects to consider in creating a flat-rate billing program:
- Understand your end-user’s environment. It’s important to create a solution that protects your margins in scenarios for which you cannot fully project volume usage. Many dealers feel more comfortable devising a solution for current clients, as they already have trailing data on past usage. However, other dealers are willing to roll the dice with net-new accounts in competitive situations for which a flat-rate billing formula may win the account.
“Maybe (dealers) will take a loss in order to get that first contract,” she said. “Dealers have to think about what is going to be their strategy in using this approach. Different dealers have different levels of risk tolerance with when and how to use this.”
- Protections and rules setting for mono and color printing consumption. Dealers don’t want to be stuck when end-users opt for more color printing in an all-you-can-eat environment.
- Language and rules are also necessary to protect the customer in the case an office environment sees a significant reduction in printing. An agreement that becomes overpriced after the fact leaves an open door for competitors to point out the client is being charged too much. Quarterly or other periodic business reviews, along with contract language, can provide that protection.
“We suggest dealers maintain visibility into the customer’s environment, so they still get the meter reads, see what the environment is printing and where it’s being printed, and include print rules to protect the all-you-can-eat option,” she said.
Most importantly, it’s been her experience—in addition to market feedback—that flat-rate billing usually sees a spike in usage for a month or two before returning to historic (normal) print volume levels.
- Dealers can also anticipate spikes with clients in verticals that have volatile usage periods. School districts and municipalities are two prime examples, and Louden believes it might be more prudent to focus on verticals in which the print volume is more predictable and flat.
But that’s not to say that it couldn’t, or shouldn’t, be offered in those environments that are highly variable. Consider energy consumption and how utilities put customers on budget billing; would a school district client be willing to flatten out its costs through higher-than-usual payments during the largely inactive summer months?
The everything-as-a-service movement curiously has witnessed substantial adoption in Africa, Europe and other parts of the globe, bucking the trend of U.S. companies setting the tone for the rest of the world, notes West McDonald, founder, West McDonald Co. He recently met with a South African dealer that has worked with a leasing company to encompass everything (including hardware) into an as-a-service offering.
“That’s been the biggest hurdle, trying to figure it out for finance companies,” McDonald explains. “It’s almost as if you’re taking away their baby if you do everything in an as-a-service monthly rate in which nobody owns anything, because there are laws and legal requirements for what that leased asset actually is. But there’s absolutely nothing in the world that can’t be done as-a-service.”
You don’t have to ditch your business model to move over to the new one; you just have to start.
– West McDonald, West McDonald Co.
The impediment to widespread use continues to be modifying the way business is done within our industry. The agents of change in other industries—Google, Netflix, Uber, Amazon—didn’t have business legacies to follow or protect. McDonald, like many others, notes the office dealership space is slow to implement elective change.
As more financing companies climb on board with the philosophy, and dealers become pressured by individual competitors like Marco (or dealer direct threats from Konica Minolta companies, for example, that are using the One Rate platform), the transformation will garner speed. McDonald recommends dealers run parallel programs in addition to the traditional CPP billing, much like a new software installation running alongside a legacy title. As a dealer becomes more comfortable in the XaaS/flat-rate environment, be it seat-based-billing or device-as-a-service, it can gradually move all of its customers under the one umbrella.
“You don’t have to ditch your business model to move over to the new one; you just have to start,” McDonald said. “As you get a new sale, a new opportunity to implement it, you can slowly build up your book of business.”
So how are dealers viewing the movement toward flat-rate, subscription-based bundling? We queried a handful of the industry’s heavy hitters to get their impressions.
Gordon Flesch Company (GFC) of Madison, Wisconsin, is a strong believer in the value of selling everything-as-a-service (which it internally terms technology-as-a-service). The dealer wraps all of the elements of a full technology solution into one payment. However, Kelly Moran, vice president of sales and marketing for Flesch, believes the challenge for most dealers is having a financial tool that truly allows it to wrap a lot of disparate pieces of technology into a simple and clean monthly payment.
That’s not an issue for GFC. The dealer has its own in-house arm, GFC Financing, that doesn’t restrict its ability to bundle software, consumables and technology (including laptops and printers) into a single payment. There aren’t subdivisions for managed print and managed IT; whatever the client needs can be funneled into a subscription package rate.
Some third-party finance companies may not want a lot of consumables or professional services hours built into a lease like that or a monthly payment. So (the dealers) are talking about it more than they’re actually able to execute on it.
– Kelly Moran, Gordon Flesch Company
“It’s been a big driver on the managed services side,” notes Jeff Dotzler, vice president of professional services for GFC. “Especially in the market we target, the small side of SMB, clients with 25-100 employees. Capital expenditures are always a challenging thing, especially when they’re not expected and planned for. We have had a lot of success and customers appreciate the as-a-service approach to hardware or projects associated with that hardware. We operationalized almost everything we do, so customers have the opportunity to consume it more as a subscription. It’s been a powerful thing on managed IT side.”
Moran adds that while many competitors talk about XaaS or generally bundling technology together, it tends to be extremely limited as to what they will or will not include in a bundled payment. “I think sometimes that limitation is a function of their ability,” he said. “Some third-party finance companies may not want a lot of consumables or professional services hours built into a lease like that or a monthly payment. So (the dealers) are talking about it more than they’re actually able to execute on it.”
We operationalized almost everything we do, so customers have the opportunity to consume it more as a subscription.
– Jeff Dotzler, Gordon Flesch Company
This example shows how a legacy system actually allows for a more forward-thinking approach, as GFC has enjoyed having the in-house financing arm for 40 years. Bundling has been a way of business life, and as technologies have emerged or evolved—software, managed IT—they were immediately folded into the bundles.
When GFC embarked on its managed IT practice roughly seven years ago, it rolled out a hardware-as-a-service concept with PCs, servers and network equipment—everything the client needed to be consumed as a monthly payment on an extended term. While it may not represent the least-expensive approach, the end-users value its comfort and manageability.
“When you wrap the services around it, to make sure that the equipment has all of the support and access to support that the client would need, it seems to make more sense for them,” Dotzler added.
Chip Miceli is of two minds when it comes to offering everything-as-a-service. The president and CEO of Pulse Technology loves the bundling concept and promotes the practice and execution whenever possible. But it has its limitations, particularly with the practice of implementing SBB or DaaS into the mix, and he says the fear of not charging enough and leaving dealers vulnerable from a volume standpoint are keeping many of them on the outside watching.
“We’re being put in a situation because companies like Konica Minolta are going down this route (with One Rate) and are trying to take business away from the independent dealer,” he said. “An independent dealer really cannot afford to go down this road if they’re not of any size. A POA or Marco is able to eat mistakes, whereas a lot of companies can’t do that.”
The bundling is not an issue, per se, for Pulse Technology, made easier as more and more technologies and software, such as Microsoft Office 365 and the Adobe platform, move from a license scenario to a monthly subscription. Everything is bundled under managed IT; printing is the only bundled holdout, though there are circumstances and clients in which Miceli has made an exception. He loves the fixed recurring revenue, but “when it comes to copiers, not so much.”
It’s scary to go down a road where you don’t have an out. And a lot of these contracts I’m reading don’t have an out.
– Chip Miceli, Pulse Technology
For Miceli, the open-bar/all-you-can-eat printing concept is fraught with land mines. “It’s scary to go down a road where you don’t have an out,” he said. “And a lot of these contracts I’m reading don’t have an out. But a Marco has an out or a Konica Minolta has an out. They’re bigger companies and when they tell a company ‘this is our out, it’s in our contract,’ they can get away with it. But once I tell you it’s all you can eat, it’s all you can eat.”
Pacific Office Automation (POA) of Beaverton, Oregon, understands that printing and color printing is still very much alive. However, as technology comes at a fast pace, the dealer has to keep abreast with those changes so that it can inform business partners and provide competitive advantages for those who adopt more modern and automated workflow solutions. According to POA President Doug Pitassi, there are many variations and mixes of future workplace solutions that allow for a variety of ways an office can function, and the dealer looks optimistically at the different offerings available.
Despite these technology changes to product and service offerings, Pitassi notes bundling monthly payments is a way of life at POA. As new software manufacturers enter the industry, from IT to document management, phones and the wide-ranging gamut of software/cloud solutions, he feels the industry needs to challenge these providers to be true to the bundled monthly payment model the industry has embraced.
“The opportunity to capture these additional products and services has never been greater, but if dealers do not hold the technology providers accountable to the monthly payment model, it will be a disservice to all,” he added.
Part of the challenge occurs when manufacturers sell the licensing up front, which dealers then lease to the client. The typical maintenance agreement for on-premise software calls for the dealer to pay for all five years of subcontracted maintenance at the onset. However, the end-user pays POA for the maintenance monthly, initially putting the dealer in the red. Pitassi would rather see his dealers be charged on a monthly basis for the subcontracted maintenance, similar to the model used for cost per copy or MPS where the dealer bundles service and supplies based on usage or usage commitment
Some of the OEMs have received the message. “One of our manufacturers now has a menu package that it’s offering to us on a monthly basis, and that is a big-time plus,” Pitassi noted. “I can go to a client and turn on or turn off software, and it’s a home run. I love that model; it matches up monthly and matches with the traditional copier business.”
With respect to seat/device-based billing versus usage or variable billing, there is an argument that getting completely away from meter readings would benefit the end-user and dealer in the long run. Software employed by dealers (FMAudit, Print Audit) automates the collection process, taking the hassle off of the end-user’s plate. However, at times there is frustration with that software, as computer upgrades and firewalls on the customer’s end kick off the monitoring software, creating an issue with capturing (and therefore billing) meters. At any given time, POA has to deal with hundreds of restarts to properly capture the meter readings, which is a pain point for both the dealer and end-users.
The opportunity to capture these additional products and services has never been greater, but if dealers do not hold the technology providers accountable to the monthly payment model, it will be a disservice to all.
– Doug Pitassi, POA
While POA is still focused on the meter usage model, Pitassi sees the company evolving to a flat-rate formula over time. POA, like many dealers, is highly attuned to specific model volumes, and in those cases where the dealer has devised a flat rate for clients, it has worked out well. Pitassi expects POA to increase its flat-rate model offerings based on seat or device in the future.
“POA has not aggressively accepted (flat-rate billing), we’re more reactionary to the market,” Pitassi said. “We’ll do it when it makes sense, and the benefit is I don’t have to get meter readings. But we still use meter readings for most of the deals we do.”
