Written by Ray Wright
The market for managed services represents the fastest growing component of the overall IT services marketplace. On a global scale, Markets and Markets research agency has it growing at about 12.5% CAGR to reach $256 Billion by 2018. With a rough assumption that the United States represents at least 60% of the market today, that’s around $100B this year. The total number of companies now offering managed services in the US is thought to be around 50,000. Dividing the market size by the number of firms gives us an idea of the average MSP revenue – approximately $2m. This fits well with the statistics provided by various publications, who categorize their lists of MSPs by annual revenue. Still, a large majority of MSPs end up falling into the lower revenue categories. So where should these MSPs being focusing on opportunities for further growth and profitability? How can they differentiate their services?
Providing managed services to small businesses is quite an attractive opportunity for the large numbers of small MSPs looking to grow their revenues, however, the resulting competition for these deals can be quite intense, especially in bigger cities and municipalities. At the other end of the spectrum, competition for larger opportunities can be just as competitive because larger deals often attract bigger competitors. However, with mid-size companies that have significant needs and healthy budgets, there’s much more scope for an MSP to differentiate itself through higher value services and to win more profitable deals as a result. Plus there’s a significant opportunity. It’s estimated that less than 30% of mid-size enterprises use managed services today.
The challenge for MSPs targeting mid-sized businesses is that IT is getting ever more complicated:
- MSPs are monitoring and managing clients’ infrastructures in a challenging world of distributed applications and ubiquitous networking that’s heavily reliant on the internet.
- If this wasn’t challenging enough, cloud, in all of its manifestations creates additional challenges such as monitoring and managing public cloud services (IaaS, PaaS, SaaS).
- Mobility, which has been a major challenge to support for some time, has evolved to include BYOD and even BYON, where the business apps still need to be secured and managed, but you need to do it without invading individual privacy, disrupting personal use or impacting personal data such as photos or contacts.
- Big data requirements are beginning to have an impact – with real-time, high performance IT services becoming ever more critical to the customers.
The bottom line: there’s a fast growing market opportunity that is complex and changing every week.
Many MSPs are not yet addressing these new trends in any significant way. The vast majority – roughly 85 to 90% offer all the basic monitoring services, however, only 30% offer separately priced mobile data management. Fewer still offer BYOD services, and less than 30% offer more advanced monitoring services covering IT service level monitoring and cloud monitoring.
The challenge for MSPs offering more advanced services with service level guarantees is that it means assuming more of the risk. Whether offering uptime guarantees or data loss/security guarantees, the more advanced services require that MSPs have the right policies, processes and technologies in place to mitigate their own additional risk. On the positive side, however, there are a number of benefits to offering such services:
- As fewer MSPs offer them, advanced services represent an opportunity to “stand out in the cloud” by differentiating from the competition.
- Mid-sized businesses are adopting new technology approaches rapidly and many need help.
- Advanced services represent an additional revenue opportunity and can be significantly more profitable.
- Many mid-sized companies have limited IT resources to both maintain their existing IT services and support their line-of-business colleagues with the creation of new digital business solutions. They have strong interest in outsourcing management of IT services but only if easily measurable performance metrics are provided and attractive service level guarantees given. Without a clear view of their infrastructure and a way to see that issues are being dealt with in a timely fashion, they are unlikely to trust critical business apps and services to a third parties.
For those who get it right, the difference between average MSP performance and top performance can be dramatic. According to Service Leadership, who have been monitoring the MSP marketplace for over 10 years and looking at what drives profitability, the lift between the top performers and average performers is about 300%. Overall, top performing MSPs who focus primarily on managed services generate profitability of over 20%. Of course, they also tend to be larger and more mature businesses than average performers but the odds are they got there by innovating and offering the advanced services that their customers need.
About the Author – Ray Wright is a high tech industry and marketing expert with over 20 years’ experience marketing to and through MSPs and resellers. His background includes senior marketing roles at Motorola, Cabletron and CA where he focused on the needs of CIOs and other IT department customers at enterprises and SMBs in a wide variety of industry segments. His product responsibilities have included both network and system management solutions, security solutions, tethered, wireless and mobile solutions, and software, hardware and services.