CenterBeam to offer 'terminate anytime' outsourcing terms

This IT consultancy is looking to guarantee the satisfaction for its mid-sized enterprise customers by offering no-risk, month-by-month contracts. No penalities, no premiums. Give them 30 days notice and they’ll even provision you to another supplier of y
Written by David Berlind, Inactive

During an interview for my recent column about the revenge of the application service provider (ASP), CRM-provider RightNow Technologies CEO Greg Gianforte explained to me how he believed in letting his customers hold him and his company completely accountable for delivering satisfaction.

Standing behind those words, RightNow's contractual terms allow you to try before you buy. Gianforte says, "The vast majority of our clients commit for one, two or three years. They generally pay up front on Net 30 terms after a pilot period where we prove the solution in their environment. This is much better than the traditional model of a perpetual license where you pay for eternity."

Even after RightNow has sunk its own resources into getting the applications tuned especially for you, if you're not completely satisfied, you can walk away without spending a dime. As far as outsourcing goes, such customer-empowering terms are unusual.

But Gianforte is no longer alone in realizing that customer satisfaction is the key to creating symbiotic partnerships between outsourcers (the customers) and outsourcees (the providers). Now, citing a more utility-like business model, medium enterprise-targeted IT consultancy CenterBeam has jumped on the no-risk bandwagon with monthly--instead of the typical yearly (or longer)--contractual terms.

CenterBeam defines the mid-size enterprise as having between 100 and 2,500 employees. According to CenterBeam CEO and president Kevin Francis, "This is a radically different way of billing. For our customers, going month to month is the ultimate service-level agreement. Give us 30 days notice and we will provision you to another supplier of your choice or you can take everything over yourself."

It sounded too good to be true; there must be some strings attached. I probed deeper. As far as I can tell, there aren't. For example, I asked if there is a penalty for early termination. The answer? "No." Well, then, surely, if a customer is actually willing to commit to a five- or ten-year contract in lieu of month-to-month deal, some more favorable terms must be available. Francis' answer? "No. There's no premium involved if you go month to month."

What prompted CenterBeam to offer the month-to-month terms? According to Francis, the company's core offerings in the areas of desktop, PDA, networking, server and e-mail management involve a significant amount of home-grown technology and automation. "Through our service," he said, "we completely and transparently roll out all necessary patches and fixes." When IT departments aren't outsourcing this sort of infrastructure management, they're either doing it on their own with tools such as Altiris' distributed systems management solutions, or leaving it up to end users to make sure that more primitive tools like Windows Update are regularly engaged to keep systems up-to-date.

As a reflection of CenterBeam's focus on Microsoft-oriented infrastructures, CenterBeam uses the automation capabilities behind Microsoft's Active Directory to provide its services. Microsoft is also an investor in CenterBeam. If there is a risk to going with CenterBeam, even on month-to-month terms, it may have to do with establishing a reliance on CenterBeam's flavor of Active Directory-based automation. Even though Francis says that, upon dissatisfaction, CenterBeam will "provision you to another provider of your choice," that could be easier said than done since CenterBeam isn't about to give up its trade secrets to someone else.

"That's right," acknowledged company spokesperson Brian Johnson. " We do have intellectual property. But, if a customer disengages with us, we offer them the option of licensing that IP on extremely reasonable terms. If the customer chooses another provider instead of taking on the functionality internally, we still license the IP to the customer and not to the new provider."

Through years of improvement (CenterBeam is four years old) and the streamlining of its automated infrastructure management technologies, Francis says, CenterBeam has been able to achieve 97 percent satisfaction on inbound support inquiries. CenterBeam's customers have access to technical support on a 24/7 basis and that 97 percent satisfaction rating only counts for users that are calling in with problems. The company's overall internal customer satisfaction rating would be even higher if the number of customers that didn't call in for support at all were factored into the calculations. With little room left for improving satisfaction, Francis felt that it would be relatively easy for CenterBeam to bear the risk of the type of contract where the customer can cancel at any time. Actually, the way Francis sees it, there isn't much risk.

If CenterBeam delivers on this promise, it could be a win-win-win situation.

It's a win for CenterBeam's customers because they have more leverage over CenterBeam as an IT contractor.

It could also be a win for customers that are capable of realizing savings through outsourcing. In situations where the outsourcee has scalable technologies --- as CenterBeam does --- the resulting economies of scale make it possible to offer those services for less than other approaches, either outsourced or self-provided, that require dedicated resources -- the cost of which are not spread out across hundreds or thousands of customers. It's not unlike the way the scalability of the multi-tenant models used by ASPs RightNow and Salesforce.com allow those companies to offer their services at a fraction of the cost of dedicated, licensed solutions.

Loudcloud spinout Opsware (a Marc Andreesen outfit) also provides infrastructure and system management through a scalable automated architecture it calls Intelligent Software Modules (ISMs), and the company makes the same claim regarding how such technology enables it to keep costs down for its customers. Unlike CenterBeam, however, Opsware addresses non-Microsoft technologies (especially at the high-end) as well as Microsoft infrastructure, and targets customers that are prepared to spend a minimum of $250,000.

The third win goes to CenterBeam, and its investors such as Intel, Microsoft, EDS, and Dell. Noted Francis: "Traditionally, each time someone considers IT outsourcing, they have to agree to a five-, seven-, and in some cases, a ten-year contract. This has been a barrier to consideration." After successfully testing the month-to-month idea in July, CenterBeam, which over the last 12 months has doubled the number of desktops under its management, could experience a huge uptick in its business should the new terms unlock the door to an untapped market segment.

Is CenterBeam for you? That depends. As an outsourcee, CenterBeam is narrowly focused. Not only does it go after a specific size of business (the size where maintaining internal IT staff is less economical), it also focuses on Microsoft products and is able to save its customers money through the economies of scale that come as a result of automating management tasks.

If your needs can be addressed through one of CenterBeam's highly automated offerings, you might also be a beneficiary of CenterBeam's economies of scale. If you require something more customized while still staying Microsoft-specific, other consultancies such as the Accenture/Microsoft joint venture Avanade might make more sense.

But if CenterBeam is a fit and you're having desktop management problems right now (were you hit by Blaster?) and you want to eliminate a lot of grunt work, you have little to lose now that the company has moved to a month-to-month contractual structure.

Did David miss a "gotcha" in CenterBeam's strategy? Share your thoughts and ideas with your fellow readers using ZDNet's TalkBack. Or write to me at david.berlind@cnet.com. If you're looking for my commentaries on other IT topics, check the archives.

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