Multivendor Service - Deja Vu All Over Again
During most of the 1990's and early part of this decade we saw a tremendous interest among OEMs and 3rd Party Service providers (3PSPs) in the Multivendor Services (MVS) Market. MVS is essentially the business of providing hardware services (i.e., depot repair, field service, remote support,etc.) on products from multiple OEMs. Over the years MVS played a key role in generating incremental streams of profitable service revenue to both OEM and 3rd Parties. Our research has continously showed that end-users prefer to deal with a single point of contact for the provision of a broad array of aftermarket service & support.
OEMs and 3PSPs like the concept of MVS because it allows them to build economies of scale, improve market share, and increase profits. More importantly, the provision of MVS enables a service provider to increase their customer or installed base "density" which is a key toward building economies of scale and increasing profits. Density provides the service provider with a large volume of customers with the similar needs and thus requiring the same type of services. As such, the service provider can be more effective in managing service resources on a effecient and productive basis, and acheiving optimal levels of profit.
Around the middle of the early 2000s (circa 2002), MVS started to lose favor among service providers. This was due to several factors. First, many service providers began to realize high profit margins via the provision of managed services and/or professional services such as Business Process Outsourcing (BPO). By comparison, basic services such as field service and depot repair offered lower margins. Why focus on the plumbing when managing the whole apartment complex was more lucrative? As such, OEMs began to out-task these lower margin services to low cost 3rd Parties. Second, OEMs were in the unique position of having year of year growth in new product sales. Usually, service revenue is less of a concern for OEMs with products sales are booming. As long as products were selling, OEMs just needed to fullfill service demand and outsourcing and out-taskings was percieved to be the most effecient and economic way of meeting growing demand for suppport of new products.
The current recession and long term outlook that economic growth will be very slow for the foreseeable future is forcing many OEMs and 3PSPs to rethink their Afermarket service strategies. In board rooms and meeting rooms around the world, executives and managers are rethinking the value of MVS. Without revealing any client confidences, we are certain that a number of OEMs and 3PSPs will be aggressively entering or re-entering this market space either directly or thorugh strategic partnerships and/or acquisitions. Certainly, some very large service providers will continue to offer managed services and BPO. However, it has become increasingly obvious that it is better for these providers to concentrate on very large transactions and higher end, long term, strategic consulting assignments. We are beginning to see that some of these large providers are ceeding market share of more basic services like break-fix to mid-tier service providers and/or divesting of their infrastructure service business to indepedent organizations.
The implementation of an MVS business strategy or even a strategy involving the provision of a broad array of value added services beyond basic repair forcing OEMs and 3rd Parties to operate thier Aftermarket Service Organizations as strategic profit centers or lines of business. This has very positive effects on the industry as a whole. First, it requires service providers to add new business functions to their organization such as service marketing, human resources, finance, and IT. This in turn leads to new hires which should be a boom to employment. Second, it requires service providers to re-evaluate their service delivery infrastructure. As such, many will find they need to deploy new technology to automate processes and achieve optimal level of service qaulity and profitability. More importantly, the avaibility of increamental profits allows service providers to build a stronger business case for investment in new technology which in turn is a plus for software vendors.
History truly repeats itself. Over the years we have helped a number of OEMs and 3PSPs build very profitable aftermarket service strategies based on a provision of multivendor services. We are bullish on growth opportunities within the Aftermarket Service Industry provided that OEMs and 3PSPs seize the opportunities created by today's challenges.