It’s safe to say that there aren’t too many organizations these days that aren’t facing big changes. MSPs (Managed Service Providers) certainly aren’t an exception to the rule. At Miradore, we spend a lot of time working with MSPs, and many of them have been forced to go through huge changes within an exceptionally short period.
There are, of course, plenty of reasons for the changes. When going through research material, however, three key trends seem to pop up more often than not:
1. Declining profits from product and service revenues have caused service providers to shift their focus to managed services (which are, in this context, considered a subset of overall IT services) for gaining profitable revenue growth.
2. New ways to provide additional benefits for customers are needed by service providers, because cost-efficiency as the main driver for outsourcing decisions has more or less become a given fact.
3. The fast rise of cloud services has forced service providers to re-evaluate their offerings.
“Revenue! We need profitable revenue!”
According to The State of Managed Services 2016 report (TSIA 2016), roughly 75% of 50 of the largest tech companies across the globe are experiencing flat or declining product revenues. At the same time, their services’ revenues, in general, are flat or declining as well.
Source: The State of Managed Services 2016 (TSIA 2016)
However, managed services have not faced a similar erosion of revenues, which hasn’t gone unnoticed by the service providers. Due to this, more and more companies are diving aggressively into managed services to take a sip or two from the fountain of profitable growth (TSIA 2016).
Be proactive, or be replaced
Traditionally, cost-efficiency has been the main driver for outsourcing decisions, but as the savings are nowadays considered a given fact, service providers are looking for new ways to provide additional benefits for their customers (EY 2013; ITEuropa 2014).
One of the main trends there is proactivity, which is, in a sense, the capability to fix issues before they occur, or even better, the capability to actively find ways to add value to the customers. We’ve seen the vast majority of our MSP partners working hard in this area and, when considering the following research findings, it’s no great surprise:
- “TSIA managed services members investing in their platform, including advanced event correlation and automated resolution solutions, are experiencing a positive impact on key performance indicators.” (TSIA 2016)
- “According to survey respondents, most issues are derived from the service provider being reactive rather than proactive or from poor service levels.” (Deloitte 2014)
In addition to the drivers mentioned above, technology developments are constantly adding a variety of spices to the soup. Developments such as enterprise mobility, the Internet of Things (let’s not even get started with this topic now…), and, yes, the ubiquitous cloud, are a few examples of this.
Source: Global outsourcing and insourcing survey (Deloitte 2014)
Up in the clouds
Cloud services may have been initially perceived as a major threat to MSPs, but more and more MSPs are seeing this mega trend as an opportunity. To be honest, they’ll have to, otherwise there’s going to be a dry season ahead.
Cloud computing is seen as the most important trend in the outsourcing market (EY 2013) and, according to IDC, its growth has been 5X that of the IT industry overall (IDC 2013). Additionally, according to TSIA (2016), managed XaaS (anything as a service) will be one of the biggest focus areas for managed services providers in 2016.
Of course, there are plenty of problems to solve in this emerging service area before it hits maturity. MSPs will have to maintain hybrid cloud and on-premise offerings, customers are not open to the idea of managing a “long tail” of many providers, there will be cash flow issues to manage, and so on (IDC 2013). But hey, no one said it’s going to be easy!
Source: Successful cloud partners (IDC 2013)
As it so often is in this life, those MSPs who are willing and able to adapt will have the strongest position in the race for survival. As harsh as it may sound, “innovate or die” is the name of the game. On the bright side, there will be oodles of opportunities to grab for those who are up to the challenge!
Deloitte (2014) Global outsourcing and insourcing survey
EY (2013) Outsourcing in Europe
IDC (2013) Successful cloud partners
ITEuropa (2014) The future of managed services in EMEA – A channel perspective
The MSPmentor (2015) The Ultimate Guide to the World’s Best Managed Services Providers
TSIA (2016) The state of managed services