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ORLANDO, FLA. -- On the second and final day of MSPWorld 2015 Spring Conference on Friday, MSPAlliance CEO Charles Weaver reported on the organization’s latest state-of-the-market findings, with additional market research input from Gartner, that together pointed to sustainable market growth for the IT industry overall in 2015 and a $154 billion market for managed services in North America, in particular.
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At the same time, the MSPAlliance research highlighted some managed services trends that firms may find useful to improve their businesses this year and beyond.
While Gartner reported IT spending on projects reaching $3.8 trillion in 2015, a 2.4% increase over last year’s figure of about $3.7 trillion, MSPAlliance research estimated, conservatively,that one-quarter of the global IT spend, or $154 billion, is on managed services, including cloud, in North America.
“Managed services are growing at a good clip and I would say that at some point in the next five years we’re going to reach 50% of the annual IT spend,” Weaver said.
For MSPs, that means a very good opportunity for growth because there’s money on the table indicating customer trust in MSPs. What firms have to do is figure out how to get their fair share, he added.
Additional data culled from the results of the MSPAlliance survey -- which was answered by a few hundred MSPAlliance members, according to Weaver – pointed to managed services trends and gave session attendees ideas on how to expand their business growth opportunities.
For example, the research showed that finance and banking, healthcare, and small and medium-sized businesses (SMBs) were the top three markets that MSPs focus on. Fewer MSPs target the enterprise, engineering/science, insurance, education and government sectors, which may mean that these underrepresented markets are ripe for the picking.
The research also pointed out that, according to the MSPs who responded to the survey, the No. 1 reason customers work with MSPs is to focus on their core competencies (cited by 50% of respondents) . This finding, Weaver said, is consistent with previous MSPAlliance research, yet in contrast with MSP messaging that commonly promotes using managed services to cut costs. In the latest research, only 12% of MSPs said customers work with them to reduce costs.
“This means that MSPs can revolutionize their sales and marketing to generate revenue. Our messaging to customers can become vastly different from what it is today and far more lucrative and responsive to the market than it is today,” Weaver said.
How customers find providers is also vastly different today than in the past. Today, customers find, vet and decide who to work with by doing their homework online. What this means for MSPs is that they should pay attention to customer acquisition as well as customer retention, given the number of MSPs a customer can choose from in the market.
On that note, Weaver addressed some challenges for MSPs.
One such challenge is around marketing, a common struggle for industry partners. MSPs should not let marketing slip through the cracks and, if necessary, they should hire someone to focus on the company’s marketing message and efforts. The goal here is to not only communicate better with existing customers, but to generate new business.
In the MSPAlliance research, a whopping 89% of respondents said that successful lead generation came from referrals. Advertising online (39%) and trade shows (34%) trailed behind referrals. After that, the percentage of respondents citing lead generation methods such as list rentals, print advertising and trade organizations fell off dramatically.
The message for partners: spend more time leveraging lead generation referral systems and less time on less lucrative methods, while simultaneously beefing up marketing messages.
Another challenge for MSPs and one that they need to address this year is pricing. Most MSPs still set customer pricing based on a per-user/per-device model.
“It’s horrific, it’s outdated and it needs to be thrown away,” Weaver said.
Current pricing models invite customers to price shop, putting MSPs in a vulnerable position and squeezing them financially, Weaver said. New models, such as service-level agreement (SLA) or risk-based pricing, are a better alternative, provide good margins to MSPs and offer flexibility.
Cloud is another area that hasn’t quite crystalized for MSPs. While reselling cloud services provides MSPs an easy on-ramp to the cloud, Weaver warned attendees about getting sucked into reselling public cloud services. He reminded the audience that “managed” -- the M in MSP -- is their special sauce and that MSPs need to add value, such as managing a customer’s cloud services and/or offering other layers of value.
Finally, Weaver cautioned MSPs that industry regulation is here and that government regulation of private-sector cloud services, for example, isn’t far off. Europe has plans to regulate the cloud, as do Brazil, Australia and New Zealand. The MSPAlliance for several years has been calling for the industry to regulate itself. The alternative is government regulation, which Weaver does not view as a good thing.
Here are some other takeaways from the keynote session that Weaver suggested MSPs put into practice:
- Don’t go back to being a reseller.
- Develop a managed services and cloud services strategy that has security and data privacy at its core.
- Develop effective referral programs to work with other MSPs.
- Get certified and verified through the MSPAlliance.