MSP Myopia

It's not too uncommon these days to hear a tale of woe from a solution provider that recently moved into the managed services space concerning profitability.

What usually happens is that they have taken their first baby steps into providing managed services by offering remote monitoring services only to discover that customers typically aren't willing to pay a premium for that particular type of service.

Furthermore, they quickly discover that there are already a number of competitors in their area offering similar services, which in turn drives down the price they can command for the service.

Given that initial experience, it's easy to see why some solution providers become fairly skeptical about the entire managed service business model given the capital costs required to set up the service and the massive changes to their organizations that need to be made in order to be successful.

The problem with this line of thinking is that it assumes that all managed services are created equal when in fact some managed services are little more than a means to an end while others are critical services that will continue to command a premium.

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For example, while remote monitoring as a managed service has the most visibility in the channel thanks to the marketing efforts of N-Able, Silverback and Level Platforms, remote monitoring is the simplest of managed services to offer and arguably one that is of greater value to the solution provider to provider than it is for the customer to receive.

This is because most customers don't perceive that getting a call from their solution provider about when something is broken a few minutes before some end user calls them to tell them there is problem as a high value service.

In contrast, providing that service can be invaluable to a solution provider because it gives them unparallel visibility into the customer's IT operations.

That visibility in turn can be leveraged to get the inside track on when a customer will need any number of future upgrades and services.

Furthermore, it established a base service that a solution provider can build on to deliver higher margin managed services.

In this model, it's in the interest of the solution provider to probably provide the remote monitoring service free of charge to their customer just to establish the relationship.

But once it's in place, a solution provider would then expand its offering to, for example, offer more IT management services from its existing MSP partner or expand to offer a managed security service from Senforce that prevents users from downloading files to a USB device with specific authorization.

Or if they wanted to be more ambitious, they could build a custom database administration service that would provide high margins because they number of people with those IT skills are relatively limited.

Moving even further up the stack, solution providers could partner with companies such as Jamcracker or Opsource to deliver a range of application services from a variety of ISVs that are using those companies to break into the ASP (application service provider) space.

Ultimately, helping solution providers orchestrate a broad range of services such as these could prove to be a great opportunity for distributors, particularly ones that are in the course of evolving from being warehouses that offer services into companies that provide business services coupled with warehouse space when occasionally required.

But while we wait for distributors to mature in the MSP space, the best thing a solution provider can do is start creating a tiered set of services ranging from low margin offering designed to establish the relationship with the customer that can be quickly augmented by higher margin services that ultimately drive the profitability inherent in the managed services business model.