Managed services market gets more competitive; pressure grows on MSPs to ramp up services

Customers are more willing to out-task some of their IT, but increasing competition in the market means MSPs have to be cost-effective, sophisticated and business-savvy.

Managed services companies will become increasingly specialized as an influx of newcomers to the market forces existing players to solidify their niches, according to a prediction from Brian McCarthy, chief operating officer of the channel trade group CompTIA.

Speaking at CompTIA's Managed Services Summit in Coronado, Calif., yesterday, McCarthy predicted existing managed service providers (MSPs) would have to work harder to convince clients their services are worthwhile.

One of the most difficult aspects of selling managed services is demonstrating its return on investment (ROI) for the end user, according to CompTIA's research on managed services, which McCarthy presented at the conference yesterday.

End users consider response time, data security and privacy, and a 24/7 uptime the most crucial factors in considering whether to use an MSP, he said.

But when choosing which specific MSP to hire, the plurality of clients surveyed -- 27% -- said they picked a provider based on a specific service it offered. The next-largest group -- 23% -- went with a company with which they had a prior relationship, while 16% hired an MSP based on its reputation.

Companies that do hire MSPs cited as primary reasons the need to implement a service they don't know how to handle, one they lack the in-house resources to do well, or, the hope that an MSP can provide the service more cost-effectively than the client could manage in-house, McCarthy said.

McCarthy urged yesterday's audience to focus on each customer specifically rather than trying to churn out quick and easy -- but generic -- contracts.

"Develop and grow businesses around specific services," he said, paying attention to which services your target audience needs most. "Develop SLAs [service level agreements] to specifically targeted customers. One size does not fit all."

Why hire an MSP

What customers say is important:

  • Response time;
  • security;
  • uptime.

What really is important:

  • 27% picked provider based on a specific service;
  • 23% picked provider with which they had a prior relationship;
  • 16% hired an MSP based on reputation.

Although the buzz around managed services and similar models –such as application service providers (ASPs) – has come and gone before, changes in the corporate world have made the MSP idea finally viable, said Jeff Kaplan, managing director at THINKstrategies Inc., who followed up McCarthy's speech.

Specifically, broadband Internet connections have made the provision of sophisticated applications or services across the Internet technologically possible, he said. Increased globalization, and the worker mobility that comes with it, have also increased demand for managed services, which can often be delivered remotely.

Consumer-level technologies have increasingly crept into corporate culture, Kaplan said. Instant messaging, for instance, which used to be the stuff of teenagers; now it is a major mode of communication within offices, and along with that change come networking and security concerns.

At the same time, the maturation of IT means that companies are starting to look at their IT departments less as differentiators against competition, and more as just another utility.

"Most of all, [technology]'s about efficiency, it's about focusing on your own core competencies," Kaplan said.

To that end, MSPs should ramp up the portfolio of services they can offer customers, with the ultimate goal of essentially taking over a client's IT operation altogether. But that change should be handled carefully and in increments, Kaplan said, or MSPs risk turning their own growing pains into catastrophic mistakes that ruin their reputation among clients.

Owners of MSPs should also focus on the non-technical aspects of their business, Kaplan said.

CompTIA's research indicated that MSPs' biggest internal challenge is finding employees with a good technical background who can also sell services to clients, and Kaplan warned that remote services should not completely replace all human contact with customers.

"They don't mind that [the MSP model] means they're going to see you less – but they still want to see you," he said.

In fact, several MSPs at the summit seemed to be putting their eggs in the non-technical aspect of their businesses.

As the software MSPs use to monitor and fix clients' systems matures, it will eventually become simple and commoditized enough that vendors will start selling it direct, as happened in the desktop computer market, said Arun Patel, owner of Micro Symplex Inc. , an MSP based in Phoenix.

"Customers will trust you, and they will give you business – until they find another guy," he said. "Don't forget, those guys are driven by profit."

To survive, MSPs should get to know their customers intimately and take a role as the technological advisor – not just provider – to clients. For instance, Patel has taken to examining each client's specific habits, down to the applications they use, and recommending ways to cut out unnecessary applications or otherwise increase workers' efficiency.

That level of personalized value is something clients will pay for, he said, and it cannot be commoditized.

That approach is similar to the one taken by Keith Nelson, vice president of technology at Irvine, Calif.-based Vistem Solutions Inc. His strategy is to in effect become his clients' chief information officer, so that they can focus on their business and leave the IT department to him.

"I don't think most of my customers, at least, are technical enough to understand the bits and pieces," he said. "We sell the value the system [as a whole] brings, not the services."

Let us know what you think about this story; email Yuval Shavit, News Writer

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