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MSP industry is growing, but customer satisfaction may be falling behind

Surveys indicate that managed services and software as a service (SaaS) subscriptions are expected to grow in 2007. At the same time, customer satisfaction may be sliding.

Most managed service providers (MSPs) expect the managed services business to grow significantly during 2007; they also expect it to get more crowded, and odds are overall customer satisfaction levels will fall, according to a new survey from the Computing Technology Industry Association (CompTIA).

In the survey of MSPs and their customers, CompTIA found that one-third of the customers currently using managed services plan to increase spending on them.

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Spending will increase fastest on security services, followed by storage, backup and disaster recovery; Web or email hosting; network management; and software as a service (SaaS), according to CompTIA spokesperson Steven Ostrowski.

More than half of MSPs declined to say how much they made from managed services and how much from other IT businesses, but 80% said they believe the MSP industry will grow. Of those who expect growth, half anticipated a growth rate between 1 percent and 25 percent; more than a quarter expected growth will be in the 26 percent to 50 percent range. Only 4 percent of the total number of MSPs responding expect the industry to shrink.

The survey included 184 MSPs and 322 managed services customers. Two-thirds of those end-users reported revenues of $250 million or less, and another quarter were government or non-profit corporations. Of the MSPs surveyed, 68% reported their company's overall revenue at or below $250 million.

Forty percent of customers said they use managed services because they lack the resources to provide the service themselves. Less often-cited reasons included the relatively low cost of an MSP compared to an in-house solution, and that outsourcing those services let the customer focus on core competencies.

A separate study, published by Cutter Consortium in January, endorsed SaaS as a major growth area. Of 88 end-user organizations polled, 43 percent said they are considering using SaaS, up from one-third in 2006.

But along with that growth came a decline in customer satisfaction, from 90 percent in January 2006 to 80 percent in January 2007. The CompTIA survey, which is the first the association has conducted on managed services, found that customer satisfaction "is at a moderate level, with room for improvement" at an average of 5.1 out of 7.

The dip in satisfaction is "interesting but not surprising," according to report author Jeff Kaplan, president of ThinkStrategies and senior consultant at the Cutter Consortium.

"When you realize how fast this market is growing and how it's attracting a lot of customers who are not as well educated about what they should expect and what vendor they should select, it's not surprising some of them would disappoint themselves, essentially," Kaplan said.

Roughly half of the MSPs surveyed by CompTIA said managed services are easier to sell to more technology savvy companies. Those with 1,000 or more employees are most likely to buy managed services, according to Ostrowski, and MSPs said it is easier to sell managed services to customers who have already hired them for previous consulting or integration..

The industry's projected growth, or perhaps just the buzz around managed services, is attracting even more companies to the industry. Most MSPs in the CompTIA survey expected a significant increase in the number of companies offering managed services over the next year, although there are no clear numbers on how many MSPs are in operation now, or evena clear definition of what an MSP is.

It's not all hype, according to Ostrowski. "Everything we hear from our members, and the research we've done, and the research we hear from third parties points in that direction, [of growth]" he said.

Ostrowski said one problem in selling managed services is that it is hard to demonstrate the return on investment (ROI) a client can expect from an MSP.

CompTIA is planning on developing an ROI calculator for MSPs to use, but Ostrowski said there is no timetable for that project yet.

Let us know what you think about the story; email: Yuval Shavit, News Writer.

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