Using Independent Service Organizations (ISOs)

When vendors sell a piece of hardware, they’re often counting on more than the initial product margin, they’re counting on a 3-5 year revenue stream from the annual support contracts or warranty uplifts that many companies buy along with the product. The gross margins on support can be as high as 100% for the vendor, depending on the customer’s use of the support.

While vendors will often provide significant discounts on annual support after negotiation, Independent Service Organizations (ISOs) represent an alternative to vendor-direct support. An ISO is an entity that specializes in the repair and maintenance of computers or other equipment. Before leveraging an ISO as a support option however, there are several factors to consider when examining the viability and cost savings to an organization.

The first consideration impacting the ability to utilize an ISO is whether the vendor has implemented feature-sets that limit your ability to use support other than what the vendor provides. For instance, products that use a ‘call-home’ feature where the system will dial up or send out over the internet messages to the vendor’s call center may make it unfeasible to use an ISO for that hardware.

Another consideration is support and resource quality relative to the vendor. However, in many cases an ISO is actually the delivery resource of the service an organization purchased from the vendor itself. In cases where an organization is aware the vendor is providing support by using an ISO, it’s often worth examining the price differences between the ISO and vendor given that the organization will receive the same personnel and parts inventory either way.

Another potential benefit for using an ISO is that they frequently provide multi-vendor services, allowing an organization to aggregate its support dollars spent with various vendors to gain even greater volume discounts from a single ISO vendor.

A common strategy for many organizations is to use an ISO for support of non-production hardware, such as development and test systems. For production systems that require higher availability, the vendor support is instead purchased. At a minimum, the threat of moving some or all of your support business to an ISO frequently diffuses the vendor’s feeling of monopoly over support on their own products giving an organization the leverage it needs to negotiate better discounts on support.