While most people generally agree that incorporating managed services into a solution provider's business model is a good thing in terms of boosting the bottom line, solution providers might want to take a minute to consider the long-term implication of managed services.
Like it or not, one of the major implications of managed services is that many of the custom technical services that solution providers used to provide their customer are now being broken up into a modular set of packaged services that come with some kind of fixed price. In effect, this turns services into a series of products complete with SKU numbers that make it not only easier to buy but also to put out for bid.
For example, it wouldn't take too much time for any IT organization worth its salt to ascertain that any given solution provider was delivering services via a platform such as Silverback, N-Able or Level Platforms. Once it figured that out, it would quickly conclude that the switching costs between moving from one solution provider to another that supported the same managed services platform would be essentially zero.
And armed with that knowledge, it would quickly start issuing RFPs designed to drive pricing for specific sets of services down by having solution providers that support the same managed service infrastructure compete with each other regardless of where any of the given solution providers were based.
The only way that solution providers are going to forestall that inevitable vicious cycle of events is by leveraging the insights that managed services provide them about the business of the customer they serve to become full-fledged business partners.
Ironically, this is the very same issue that most IT departments get beat up over every day within their own companies, and more often than not is the very issue that led the customer to consider managed services in the first place because it could not ascribe any material value to the service being provided by the internal IT staff.
MSPs (managed services providers) are likely to find themselves in the same boat once the customer gets used to the idea that everything mostly works as it should. In a matter of months, MSPs will hear complaints about how they don't understand enough about their customers' business to be truly strategic and, as such, the customers have decided to open up managed services contracts for yearly bidding.
What this means to solution providers is that they have only a short window of time to not only prove their technical worth, but to also entwine their services into the customer business processes, first through aggressive business consulting and secondly by making sure that managed services are key to not only helping the customer but the customer's customers.
In other words, if the customer can't live without you because their services are dependent on your service, then you've got a business partner. Anything short of that is just another supplier transaction as far as the end customer is concerned.
So the most important thing any solution provider can do with the higher margins initially derived from this period of managed services glory is to try to get as many customers that have like business processes and vertical interests as possible, and then invest in business consulting expertise that makes you indispensable. And if you need reassurance about whether this is the way to go, just take a look at the business model underneath IBM Global Services and the kind of profits they put up every quarter, and it should be pretty apparent what the real managed services end game really is.
Michael Vizard is editorial director of Ziff Davis Media's Enterprise Technology group. He can be reached at michael_vizard@ziffdavis.com.
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