Managed Services: Time to Grow Up?By Carolyn April | Posted 2009-07-13 Email Print
Supposedly everybody's doing it, but when it comes to reaching the full potential of the managed services business model, the industry is still in its infancy.
Pundits love to surmise the state of technology markets: What’s up, what’s down, what’s still to come. A particular favorite is the topic of managed services. Despite its prominence in headlines for nearly five years now – and a whole predecessor market that included the failed ASP model – the state of managed services is still a fair mystery.
Depending on whom you talk to, the managed services market is either still nascent, at peak adoption or on the downslope to commoditization. But the real question to ask is not how many solution providers are doing managed services – that cuts across a rather wide swath of the population today – but how deeply involved and sophisticated they’ve become at it. Truth is, that’s just not a majority of MSPs today.
A recent study by Kaseya makes this case. The survey of 2,256 solution providers in North America reveals that when it comes to fully exploiting the potential of the managed services business model, the industry is still pretty much in the Dark Ages.
More than half of the respondents described their managed services business model as reactive, essentially centered around break/fix incident response. Only 18 percent said they were engaged in comprehensive IT outsourcing, which is where the true dollars, recurring revenue and profitability come from.
Likewise, fewer than a quarter of solution providers that offer managed services are pricing on a monthly flat rate. Worse, more than half are still charging by the hour. This defeats the whole purpose of managed services, which is to automate processes in the data center to reduce as much as possible the time technical folks are spending on any given customer – whether it’s 5 minutes or 50 hours per week of labor, with a monthly flat rate the net is the same. So you'd much rather it's 5 minutes. Getting paid for hours works for consultants, but fails to make sense in a business predicated on long-term contracts and dependable recurring revenue.
Jim Alves, executive vice president of product marketing at Kaseya, is among those who says he’s not surprised at the survey’s findings.
"Managed services is not at a peak. It’s just not," he said. "Most people out there are not in a real managed services model, but they’re trying to get to a recurring revenue model. Getting in the recurring revenue model is secret sauce. Otherwise you’re in a very, very difficult business model."
The entry point for managed services typically involves offering some kind of remote monitoring/help desk services, but that’s the very base level of what’s possible. To truly reap the rewards of a managed services practice, MSPs need to continue scaling and automating the types of services they offer to include such things as outsourced security, software as a service and storage on demand. The idea is not only to become the de facto IT department for the customer, but a business advisor that finds ways to save the customer money, achieve fast ROI and anticipate future demand.
It appears today that only a small percentage of MSPs are truly full-service; Alves estimates it’s roughly 20 percent of all solution providers that identify themselves as a managed services provider. Inhouse IT is one of that group, a pure-play MSP based in Orange County, Calif., that started out selling block time to conduct remote monitoring for customers, but unlike the vast majority of providers did not stop there.
"We support clients with anywhere from 10 desktops and a server to 100 desktops and 10 servers and typically they have no IT department," said Rob Leon, VP of operations at inhouseIT. "That’s how we pitch ourselves."
With 70 employees, inhouseIT has continued to grow since its inception in 1998 and today boasts a services portfolio across security and antivirus offerings and a full range of outsourced Microsoft services. They have automated many of their data center operations, which affords them more time to consult with their customers around how to make their business run better.
"Part of being their IT department is that we recommend the next piece that they need," Leon said. "As technology moves forward, we can present those as solutions that make sense for their business."
That’s a very different mindset than break/fix. Leon’s not reacting, he’s anticipating customers’ needs and getting in front a problem before it occurs. That's essential to keeping customers happy and willing to renew their contract when it’s up. It's the direction the managed services market needs to go to realize its full potential – and there’s a long road ahead.
Where do you sit on the managed services adoption curb? Share your thoughts.