A recent Gartner analyst predicted IT outsourcing prices would fall between 5-20% in the next 2 years. While I certainly respect the opinion of others I would like to clarify those opinions which might potentially impact the managed services market. We in the managed services profession went through a similar situation many years ago when the generic "outsourcing" industry came under fire by US politicians for sending jobs to overseas firms. The problem was this generic debate around "outsourcing" caused quite a bit of confusion by dragging the managed services profession into the conversation.
The managed services profession successfully avoided being associated with the "outsourcing" debate years ago and I would hope that today is no different. The problem with proclaiming that IT outsourcing prices are likely to fall in the next two years is that some people may assume that managed IT services prices will also fall. It is important to understand that there is nothing to support such a conclusion or inference!
Managed services pricing has remained stable, if not increased slightly, for the last 5 years. The reason for this is the increasing popularity of the profession as it continues to recruit new members around the world. Now, you may be asking why would a major research firm issue such a prediction. That is a very good question and I have an answer. The reason is the same reason why these same research firms misunderstood the "outsourcing" debate 8 years ago. Outsourcing is not the same as managed services. Any attempt to equate the two as similar would be to cheapen managed services by simplifying what is a very complex and quick moving industry. The reason so many IT firms have been moving rapidly towards managed services is precisely because it has maintained its margins better than any other IT services offering in the last 2 decades.
Some of you may be wondering if managed services prices will begin to fall as a result of the large number of new MSP's. Simple economics can answer this question. The sheer demand for managed IT services, combined with a very low end-user adoption rate (as of today it is roughly 10%), and the low number of firms doing managed services correctly should indicate that prices and margins will remain strong for the next 5-10 years. What is falling rapidly are product margins and commodtized services that are increasingly being delivered through Software as a Service (aka, cloud computing, aka Application Service Providers).
Since the birth of managed services there have always been services that become common and naturally decrease in price. This happens with every profession. What makes professions last is the fact that they always replace those commodtized services with high value and high margin services. This is the cycle of IT services that will always exist.
