Value Proposition #9: Managed Services

This is the ninth and final (hooray!) in my series of posts on the nine value propositions offered by B2B platforms/multi-sided markets.

Value Proposition #9:  Managed Services

By my definition, managed service providers are companies who may have built a technology platform or network of suppliers, but provide that platform only, or primarily to, their own employees as representatives of the buyer, rather than providing the platform directly to the buyer.  In other words, use of the technology platform is mediated by the platform provider themselves.  I am not including in this definition technology providers who offer light configuration or heavier integration and implementation services, as most SaaS providers do.

Managed services providers take this approach for a variety of reasons:

• because the end user/buyer has to be very knowledgeable, or have specialized expertise to engage in proper transactions on the platform
• because the buyer wants to outsource the need entirely, and does not wish to use the technology themselves to achieve their goals
• or because the software sucks?! (In this case, the managed services provider is doomed!)

Examples:

• Print procurement providers such as Innerworkings, Newline Noosh, OneMarket, etc.
• Logistics providers such as EchoGlobal or Coyote Logistics or even 3PLs
• Facilities maintenance providers such as Total Facility, Ascential/Facility Source, First Service Networks/FM Maintenance
• Travel agencies such as American Express
• AP outsourcers or specialized payment providers like CASS are another example

Strategic Issues Facing Managed Service Providers

1. Mediating use of the platform with people adds costs.  The value added by this labor must be commensurate with its costs, otherwise pure platform providers will displace managed service providers.  This is what has happened to many ticket brokers, travel agents, real estate brokers, ad agencies in media buying, etc.
2. Service providers and software providers typically do not mix well, especially if they are both profit centers.  Ask IBM, Accenture, Ariba, and any SaaS providers.  The cultures and incentives clash.  One or the other part of the business usually becomes neglected and eventually a “step-child” in the organization.  If it is the services part, the business will not add enough value, if the technology suffers, total costs may become un-competitive.
3. Finally, because of #1 above, mediation often brings a loss of transparency for the buyer.  Managed services providers and outsourcers are pushed constantly to prove that their economic incentives are transparent and aligned with the buyer’s. Handing over responsibility for an entire business process to a third-party requires trust and verification.

When I hear technology-enabled services providers tell me how great their technology is, I always ask “Why don’t you unbundle the technology from your services and sell it directly to customers who may not want services ?”  When the answer is not a good one, I figure the provider is struggling with #2 above and is really an outsourcer or broker with a little technology, but not a real platform provider.  A good test for any of these providers is to ask themselves, “Would my technology stand-alone?”  If not, someone else may develop technology that will stand-alone and will force unbundling of the services and technology.

Summary

And so my nine part series on value propositions offered by B2B platforms comes to an end.  I hope those of you building platforms found it useful for considering what types of value to provide to your industry as you grow.  B2B platforms that have perfected one, or more, of the nine value propositions have been able to build sustainable, valuable businesses with attractive moats.  Those that have not committed to finding and driving the right value proposition are no more.