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CompTIA report: Providers' lack of commitment hinders MSP model

If MSPs committed fully to the managed services business model, more end-user organizations might adopt the services, says a CompTIA report.

Although the business model of managed services has been around for at least a decade, according to CompTIA's Third Annual Trends in Managed Services report, the number of end-user organizations using managed services remains small, and the rate of adoption continues to grow only sluggishly.

And managed services providers (MSPs) themselves, many of which have been slow or reluctant to fully commit to the MSP model, may be partly to blame for the slow adoption rate.

"I think the biggest takeaway from this report, which was slightly surprising, is the continued slow pace of adoption of managed services of our sample," said Carolyn April, director of industry analysis at CompTIA. April said that with the length of time the business model has been around and the amount of hype surrounding it, the slow rate of adoption might suggest that managed services has plateaued. "Just three in 10 [organizations] said they were using some form of managed services today for some of their IT or all of it. Generally speaking, it's usually just for some component of their IT. Their entire IT operation is not in the hands of an MSP typically."

According to the report, which was published in March and which surveyed 400 IT and business professionals in November 2013, new users of managed services went up from 8% in 2011 to 11% in 2013, while organizations using managed services between two and five years increased by 6% -- from 52% in 2011 to 58% in 2013.

Resistance to managed services

The majority of survey respondents expressed a degree of satisfaction with the current handling of their IT in 2013: Fifty-six percent of respondents said they were "mostly satisfied," and 26% said they were "very satisfied" with their current IT management methods. That might partly explain the unexceptional growth in managed services adoption rates: If organizations don't see problems with their management methods, why should they change?

"It's going to take some of those companies quite a bit to decide to switch over to an MSP if they think that things are going OK with the current stewardship of their IT," April said.

In addition, she indicated that there's likely a resistance among end users to handing off a part of one's business operations to an outside company.

A few years ago, when we would say 'managed services,' nobody would know what we were talking about, and so we'd spend a lot of time trying to explain what managed services are.
Ryan GilesAGJ Systems & Networks

"I think part of [the slow growth of managed services adoption] is that there continues to be a segment of the end-user population that is not comfortable at all with outsourcing, if you will, their data or their systems to a third party, and security concerns about it," April said.

While the findings of the report might discourage some businesses that derive a portion or all of their revenue from managed services, April asserts that "it's not a rejection of managed services that [CompTIA is] seeing.

It's perhaps more of an awareness and education campaign that needs to happen for end users to begin adopting at greater rates," she said.

Muddled perception of managed services

In addition to those factors, "managed services" seems to be a mysterious, vague or even unappealing concept for some end users. The 2013 CompTIA report revealed that end users have different interpretations of what managed services are or could mean. For example, the report noted that some respondents consider software as a service (SaaS) over the Internet to be a managed service. Given this confusion over its meaning, the percentage of end-user organizations that have actually adopted managed services could be even less than the 29% of respondents who reported using managed services in the CompTIA survey.

However, while there's confusion among some potential end users about what managed services are, the concept is pretty well-established for many others, requiring little if any explanation on the part of the MSP.

Ryan Giles, partner with Gulfport, Mississippi-based AGJ Systems & Networks, an IT services company specializing in managed services for small and medium-sized businesses (SMBs), attested to widespread clarity around the managed services concept. AGJ currently has 19 employees and derives about 60% of its business from managed services, he said.

"A few years ago, when we would say 'managed services,' nobody would know what we were talking about, and so we'd spend a lot of time trying to explain what managed services are," Giles said. "We don't have to spend 30 minutes explaining what it is now. We can jump into it, and they're aware of the concept. So, that's a good thing."

Tom McDonald, president at NSI Total Care, an MSP based in Naugatuck, Connecticut, agreed.

"It's definitely better today," McDonald said. "[We] don't have to sell what 'managed services' is and then sell our company as much as we did at one point."

NSI has 30 employees and derives 60% of its revenue from managed services, he said.

But both Giles and McDonald said they do encounter misconceptions about managed services when speaking to clients, often involving what it includes, how it works and at what price.

"People hear the Best Buy commercials, the Dell commercials, and now they think they know what managed services are, and they think what Joe Blow Up the Street's going to do for $9 a month per computer [is] managed services," Giles said.

McDonald pointed at the different leagues of service providers that sell their services as "managed services."

"[These companies] all say they're managed services, but when you break down the plans, you're never looking at apples to apples," he said. He explained that when he speaks to clients, he tries to get them to consider who's delivering the managed services. For example, is it a very small, ill-equipped operation that can't offer much in terms of reliability? Or is it someone simply outsourcing the managed services to someone else?

But with the boost in end users' awareness of managed services and greater competition, McDonald said he sees an opportunity for experienced MSPs who are committed to the MSP model.

"It's becoming more competitive, and there's more people getting into this market, meaning there's a consolidation in our industry. Companies are getting bought. The copier companies are trying to sell managed IT. The big companies are trying to find offerings to help smaller companies sell managed IT. So Dell has IT as a service now, and they're trying to bundle that together and get their partners to sell it. … I see a significant increase in people that are out talking to clients. And I think initially it's going to be good, because I don't believe they're going to be able to deliver as well as people that have been in it and have dedicated to it. So it may give us opportunities to grab some of that business, and maybe we can all benefit from the added noise."

Managed services as a primary business model

Despite all the promise that managed services holds, it seems end user adoption rates won't jump up in the coming year unless MSPs do more to get the word out about what they do and clear up some of the confusion. But as it stands, many MSPs may be spread too thin to do so.

"I think that from a messaging, branding, marketing and promoting standpoint, a lot of the MSPs have not done a very good job of selling the message of what the benefits are of managed services," April said. "Partially, that is because a lot of the channel firms are not pure-play [MSPs], so it's not the only line of business that they have in play. They're still reselling products, they're still doing solutions and project work, and they're doing break/fix still, and when you have to divide your time between all of those elements of a business operation, each component individually is not going to get the greatest attention."

CompTIA said that in 2012, four in 10 channel firms reported offering some degree of managed services. Of that 40%, half described themselves as pure-play or dedicated MSPs, with two-thirds of this percentage deriving more than half their annual revenue from managed services contracts, CompTIA said.

April said that while it makes sense for non-pure-play MSPs to maintain their legacy streams of revenue, that practice makes it harder to clarify the concept of managed services with their customers.

"There are good reasons for [MSPs] to be dividing their businesses up, because they have existing revenue streams…. But the downside of this is that they don't commit fully, 100%, to managed services, and therefore, their marketing can get muddled."

An MSP's website can be illustrative of the muddled marketing, April said. "Go look at a few managed services [providers'] websites. … It can be quite unclear what they do for a living, what their services are," she said. "And I think that that confusion bleeds down into the end users that are looking to where they want to procure their technology, how they want to handle their IT. They don't always know what an MSP does."

Giles said MSPs are improving on this count. "IT companies are getting better at marketing and sales. … So those of us in managed services are starting to preach a little louder, and because of that, clients are hearing more about it," he said.

One of April's recommendations for MSPs is to put their focus and energy into their managed services offerings. "If MSPs really start to make the managed services part of their business the primary business model and the primary focus with their marketing and their messaging and how they identify out in the marketplace … there are plenty of end users out there that are still ripe for the picking."

Giles is one IT provider who is already making that move. He said that AGJ will focus strictly on obtaining managed services business in the future. "Going forward, we have made a decision to go managed services only," he said.

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What percentage of your company's annual revenue is derived from managed services?
MSP is our primary-almost only- service.