Managed services providers often receive contradictory advice about what IT services belong in their portfolios....
One side urges MSPs to focus on excelling at a handful of services, while the other side insists MSPs should broaden their portfolios to provide customers with "IT as a service."
Over the past several years, MSPs have witnessed the entrance of a long list of companies encroaching upon their market. Office equipment dealers, IT vendor giants, such as Dell, telecom carriers, managed print companies, hosting providers and value-added resellers have all thrown their hats into the ring as managed services companies. MSPs faced with this "converging market," as Raymond Vrabel, senior director of strategic partners at Boston-based Continuum Managed Services, calls it, must now think more strategically about their service offerings and identify the gaps in their portfolios that competitors could potentially exploit. By not offering managed print services, for example, an MSP could be leaving a window open for competitors to poach its customers. The strategy then, at least to some MSPs and industry watchers, is to fill the portfolio gaps. The more comprehensive the portfolio is, the more protected an MSP will be against competing MSPs and nontraditional managed services companies that enter the marketplace.
AGJ Systems & Networks, an MSP based in Gulfport, Miss., understands the pressure to offer a wide portfolio of IT services. Last year, however, after self-assessment identified 27 in-house services, the company decided it needed to scale back. "Most small and medium-sized businesses can't do 27 things great, so I said, 'We need to find a handful of [services] that we can be excellent at, and then find good strategic partners that won't compete with us and do the others well,'" said Ryan Giles, partner at AGJ.
Among the offerings that AGJ decided to jettison were its Web services, an offering it had provided for more than a decade, which includes full website design and hosting, content management, and social media creation and website integration. "After running the numbers ... we found that on the best month, we would break even [on Web services], and the amount of headache and hassle that went into it was not worth the effort," Giles said, adding that AGJ had also recognized few customers who signed up for Web services transitioned to full managed services, its primary business focus. Instead, AGJ found a local partner to outsource its customers' Web service needs, making a little money selling its standing customer agreements to the partner.
AGJ decided to also dispense with its managed print services, the least-profitable part of its business besides Web services. "Our geographic area is saturated with copier/printer companies. ... These guys are sitting on top of each other," Giles said. "The only reason we got into [managed print] initially was because the biggest copier/printer company was trying to get into managed services." As it had with Web services, AGJ found a managed print services provider to partner with and plug the gap in its portfolio.
Giles said outsourcing parts of its portfolio to other partners has positively impacted the company by allowing it to focus on the managed services it could do exceptionally well and make further investments. Additionally, it freed AGJ to expand into other profitable IT service areas. "We've really doubled down on cloud and security, and we actually started a compliance department about three months ago," he said.
What services should managed services companies offer?
In the December 2015 webinar, "What Every MSP Should be Offering Next Year," Vrabel highlighted the service areas that MSPs should add in 2016 on top of the core offerings of backup and disaster recovery, help desk, cloud, and remote monitoring and management. These services included:
- Collaboration tools
- Compliance as a service
- Mobile device management
- Managed print
- Managed voice over IP.
According to Vrabel, MSPs should aim to create a portfolio that has all, or at least some, of these services and "to be more of IT as a service." Without these offerings, companies such as telcos and office equipment dealers have the upper hand, and pose real business threats, he said. "This isn't a cold call for them. They have access to the CEO and CFO," he said of the outside competition, whose offers to MSP customers can be attractive on many fronts, including price.
Raymond Vrabelsenior director of strategic partners at Continuum Managed Services
"To be 'all things IT' for a client is absolutely essential," he said.
He admitted, though, that assembling a comprehensive portfolio of services, whether offered in-house or through strategic partnerships, isn't an easy project. "I think what MSPs will struggle with is trying to find the right talent ... to find the right partnerships, because if I'm an MSP and I stare at this list, I'm like, 'I've never touched that before. Where do I find that expertise? Who do I create a strategic relationship with in this city?'"
Locknet Managed IT Services, an MSP and division of EO Johnson Business Technologies, based in Onalaska, Wis., has most of Vrabel's list covered -- particularly security and managed print services.
With an already well-established managed security practice, Locknet plans to extend its capabilities further as the security market heats up, said Peter Kujawa, president of Locknet. "Right now, we think anything security-related is something that a lot of organizations are going to be looking to outsource because of the complexity of it," he said. Locknet provides managed security services to primarily financial institutions, healthcare and businesses "who have awoken to the IT security risks that can affect their businesses" in general.
The MSP was acquired by EO Johnson, a print company, in 2012. "A lot of the office equipment [and] print companies are trying to get more into [IT] services, so EO Johnson decided rather than trying to build it, that they would [acquire an MSP]," Kujawa said. "We work closely with ... the managed print people, so we can go in and help customers both with their IT ... and with managed print."
Locknet also has a referral relationship with a compliance company in its region for compliance services, having decided to shutter its in-house compliance service capabilities because of conflict-of-interest issues. "The company that's doing [a customer's] compliance work shouldn't be the same company that's doing their IT services and vice versa," he said.
In addition to these services, Locknet has an in-house support center offering desktop and server support and server management; an in-house network engineering team; and hybrid cloud backup that it hosts in its own infrastructure.
Kujawa noted one of the competitive challenges for the managed services industry is that MSPs typically have less than 10 employees. "I think it's very difficult for a company that size to keep up with the industry change and staff their organization effectively to deliver the services and then be able to grow. Growth is expensive. ... I think a lot of the companies I talk to are struggling to grow their businesses, and to do it in a way that still allows them to be cash-flow positive and to keep the lights on," he said.
Additionally, the barrier of entry into managed services is so low that the market is saturated with MSPs, many of which are under five employees. "There's a massive amount of competition," he said.
Kujawa's advice to MSPs is to specialize and focus on their best offerings. "You need to be very disciplined as a company, because it's important for you to know what you can be the best at and what doesn't fit you. You can spend a lot of time chasing your tail, trying to offer everything to everybody. If you do that, you never develop a high level of expertise to scale it. And there's always going to be somebody out there who's going to be better at it than you are if you're not specialized."
A final consideration: Customer relationships
When evaluating and designing a portfolio of services, MSPs should keep in mind its customer relationships -- a vital competitive advantage that MSPs have over other companies in the managed services space.
"The issue I see with some of those companies selling managed services is that they treat it like a SKU. ... They don't have relationships. They don't have the country club relationships. They don't have the handshakes. They don't have the feet on the street to do the on-site labor. They may contract it through another MSP, but that MSP is going to steal that client," Vrabel said.
He cited Dell as an example of a large vendor that has struggled in the managed services market. Despite offering managed services at "one-fifth of the cost," Dell lacks the relationships that its MSP competitors have.
It's because of these important customer relationships that MSPs should be wary of offering much more than they can realistically deliver, he said. "Don't take on what you can't deliver on, because you don't want to sell [customers] something and ruin a relationship," he said.
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