Maximizing Service Revenue with Hardware-as-a-Service

There is no denying the steady shift toward Op-Ex managed security services amongst customers. Most are seeking better business outcomes through security investments that keep solutions current without the capital investment for operational expenses associated with upgrading and managing new hardware. This is why customers of all sizes are increasingly looking to consume security as a utility. Instead of assuming all expenses up front, all of the necessary technology, smart humans, installation, and ongoing management fees are billed over a contract term.

Stephan Tallent, Senior Director MSSP & Service Enablement, Fortinet.
Author: Stephan Tallent, senior director MSSP & Service Enablement, Fortinet.

To offer this model, a managed security service provider (MSSP) essentially functions as a bank, funding and managing the technology and billing the customer on a regular (monthly) basis to recover their costs over time. While this addresses customer demand and helps protect business margins, this can be an expensive path, tying up cash reserves until the MSSP's ROI is reached at some point along the contract. This is where a hardware-as-a-service (HWaaS) model comes in.

How Hardware-as-a-Service Increases recurring revenue and accelerates ROI for Partners

Hardware-as-a-Service is similar to its more commonly known counterpart –software-as-a-service (SaaS). Security partners are given access to hardware, along with all accompanying software, maintenance, installation, and upgrades through a subscription or usage-based monthly fee, rather than paying the upfront costs while customers pay for the value provided by the service model.

By leveraging HWaaS, an MSSP is now profitable in month one. The MSSP sells a managed service to their customers, including hardware, software, maintenance, and installation – for a contracted subscription fee. And because the MSSP partner essentially has a line of credit with the security manufacturer, they have utilization rights for all lines of hardware available through that vendor. They can then add their management costs, service fees, and markup before billing the customer directly for their package.

Using this line of credit provided by the vendor, the partner actually owns the kit outright, with no buyout at the end of the contract term. To re-deploy the technology at the end of the term, the partner simply needs to renew the subscriptions and support.

Hardware-as-a-Service is available through most distributors, and enables MSSPs to go to market without the capital overhead generally associated with a traditional Op-Ex service. The only downside is that there may be a small reduction in margins over the contract term due to nominal finance charges. Because of this, some partners opt to use hardware-as-a-service in larger deals, and rely on their own financing in smaller ones to balance margin contribution

How Hardware-as-a-Service Benefits Customers

From the customer perspective, Hardware-as-a-Service can be highly valuable because it offers:

1. Low Upfront Costs

Hardware-as-a-Service allows customers to mitigate the capital investment generally required to deploy the best security technology with minimal risk and a predictable monthly fee. HWaaS lowers upfront costs by shifting expenses from CapEx to OpEx, making it easy for partners and customers to budget for this service.

2. Access to Current Technology

All hardware is a depreciating asset. One considerable benefit of the Hardware-as-a-Service model is that the MSSP is responsible for keeping the customer's security equipment current with the latest technology. Because the provider is incentivized to ensure they are providing the latest equipment that best fits the customer's needs and budget, the customer does not have to keep up with the things like the security technology arms race, or upgrading equipment. This way, customers do not run the risk of investing in a technology that becomes outdated.

3. Third-Party Management and Service Expertise

Maintenance, management, and security expertise are all bundled into the service provided by the MSSP partner. Customers get to enjoy the benefits of the technology without the responsibility of optimizing– and maintaining it. Instead, they are paying for security like a utility that includes the technology, smart humans and ongoing support ,as opposed to purchasing just the hardware and paying staff to optimize, manage and maintain it. Therefore, customers have a predictable monthly expense and as a result, they do not have to pay for updates or replacement as this is already factored into their recurring fees.

Final Thoughts

The Hardware-as-a-Service model is beneficial for MSSP partners and customers alike in that it offers an affordable way to stay up to date with the latest security technology. Partners can benefit from the fact that there is no front loaded capital expense to offering an OpEx managed service, allowing them to realize concrete ROI almost from day one. For customers, low upfront costs and the ability to migrate risk out of their IT department as a monthly fee make this as-a-service model considerably attractive. And for MSSPs and customers alike, HWaaS makes sense, helping them both avoid the capital investment required to consume security as a utility, leaving money and time to focus on more pressing business concerns.

By Stephan Tallent, CISSP, senior director MSSP & service enablement, Fortinet. Read more Fortinet blogs here.