Ouch!-Sourcing

When Metamerica finally received its cable modem last month, CFO Greg Walker was ready to wave goodbye to network problems. Unfortunately, the modem's arrival was just the beginning of a number of headaches still to come.

When Walker called Comcast to ask for help in configuring the modem with his office computers, customer support representatives said there was little they could offer for Windows NT, the program Walker's computer and staffing company uses.

Before his frustration had a chance to reach astronomical levels, however, Comcast did something Walker wasn't expecting: The service provider actually referred him to another company that was able to answer his questions.

That company — Digital Plumbers — charged Walker a fee and then sent Matt Davis, the chief network plumber, to Metamerica's offices to take a look at the problem. Davis then spent an entire Saturday ironing out the various kinks in the network.

With such a win-win scenario, it seems logical to assume that all service providers would provide referrals to IT support companies like Digital Plumber for the country's more than 6 million high-speed Internet subscribers.

Well, not exactly.

"With a lot of the larger phone companies, they send a box in the mail, then they say, 'Read the instructions and get connected yourself,'" says Bob Wilkinson, marketing manager at Chester Telephone, which offers data and voice services in rural South Carolina. "Customers have a problem with that."

Wilkinson claims that such unsatisfactory customer service has led customers to exit the big service providers and turn to his company, which offers IT support, for relief.

Support in all the right places

The merits of outsourcing IT were heralded at the recent ISPCon show in Baltimore, as nearly defeated ISPs tried to get some advice on how to live through this dreary economy.

"Consider outsourcing your tech support," said Dave McClure, CEO of U.S. Internet Industry Association, during his talk on survival. "It is the single biggest expense, and outsourcing it makes sense."

Still, Davis says the only relationship he can strike with big-name service providers like Comcast, AT&T and Ameritech is as a sales agent. In such a relationship, where he's known as a value-added reseller, he earns 5% on each customer he signs onto the service. But receiving commissions for signing up services is not the business model for Digital Plumbers, Davis says.

Collision course

Service providers don't or won't see that there is a need for public IT services like those Davis' company provides. The conflict, he says, is created as two very different worlds — PC and telecom — collide as they connect over a broadband network.

"Service providers don't know what to make of us," Davis says. "If we can allow them to increase their efficiency, to decrease customer support or free up engineers, then we can drive higher volume for them and reduce churn rates and build satisfied customers."

Despite the fact that many frustrated customers can confirm that service providers would benefit from outsourcing IT services, companies like Digital Plumbers continue to have a tough time trying to sell their expertise, analysts say.

Keeping existing customers happy with tech support may not be economically fruitful, so service providers need a bottom-line reason to be convinced that it's worth it to outsource IT services.

"Good customer service is on every service provider's initiative list," says Dana Tardelli, research analyst at Aberdeen Group. "But it's usually last on that list."

Despite the reluctance from service providers, venture capital markets suggest the outsourcing sector is about to get hot.

"We've seen a push in the VC markets toward getting involved in these application and service provider business models," says Adam Needles, director of the DVG research unit of Daedalus Venture Group. "It's at the early level of funding for applications and services aimed at helping the end-user to customize."

Needles says there's tremendous uptake in the market for companies that provide network installation at customer premises.

"Not only is it a sales channel for the major backbone provider, but the more lines a service provider can get up and running, the more revenues increase," he says. "Then when they outsource the tech support, service providers can concentrate fully on the network."

Copyright © 2004 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in The Net Economy.