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IT managed service providers may find it pays to diversify

New surveys from Kaseya and Clutch indicate continuing demand for managed services and suggest companies offering a wider range of services may see the highest growth.

IT managed service providers are experiencing strong demand, especially those that have diversified into areas such as cloud computing and security.

That's a key takeaway culled from two newly published surveys on the managed service provider (MSP) market. Kaseya, which provides IT management products for MSPs, today released its fifth annual MSP Global Pricing Survey, which found that more than half of the nearly 400 owners and operators of MSPs polled cited double-digit top-line growth. Twenty-three percent of the respondents reported three-year average annual monthly recurring revenue growth of more than 20%, while 30% cited an average growth rate of 11% to 20%. A recent Autotask report also pointed to a solid growth rate: Most respondents to the company's IT service provider survey projected growth rates in the 5% to 15% range.

Miguel LopezMiguel Lopez

The Kaseya survey also noted that high-growth IT managed service providers are much more likely than lower-growth service providers to offer emerging services. The faster-growing MSPs, the company said, were more than twice as likely to offer cloud monitoring services, for instance. Security, meanwhile, also rates as an important service line for MSPs. The Kaseya survey ranked "heightened security risks" as the top IT problem MSPs expect their clients to address in 2016.

"It is important to understand that the growth rate is helped by the evolution of additional services [MSPs] are pushing toward -- whether it's the cloud or security or other services," said Miguel Lopez, Kaseya's newly appointed senior vice president and general manager for MSP Solutions.

Small business trends

Additional data points come from Clutch, a business-to-business (B2B) research firm that identifies top service providers. The company today released the results of a survey of 402 small business owners and their attitudes regarding IT service providers. The survey discovered that 69% of the respondents hire at least one type of IT service provider and found that 39% of small businesses working with service providers plan to increase their spending in 2016. About half the businesses hiring service providers planned to keep spending at about last year's level and 10% said they would reduce spending.

The Clutch survey's small business respondents rated cloud the most popular IT service, with 36% hiring a services provider to assist with that technology. How small businesses are buying cloud and other services is also worth noting. The survey determined that 59% of the businesses buying IT services have transitioned from the break/fix model to a managed service contract.

Channel partners have been moving toward managed services for years, but the Clutch survey suggests that shift has finally reached critical mass.

Natalie BeachNatalie Beach

"The survey results suggest that we have reached a tipping point, both in the industry at large and in narrower service lines," said Natalie Beach, marketing manager at Clutch and the survey's author. "Across all the categories in our survey, at least half of businesses have transitioned to managed services, with areas like cloud, desk phones and mobile devices leading the way."

"I strongly believe that managed services contracting within the SMB [small and medium-sized business] space will continue to expand beyond 59%," said Adam Barney, COO at Framework Communications, a managed IT services and telecommunication company based in Chicago. "It's tremendously difficult for companies to develop an internal IT team capable of cost-effectively eliminating the reliance on outside IT service providers."

Expansion could lift IT managed service providers

The two surveys pointed to wider service lines as an important success factor for service providers.

The Kaseya survey highlighted security as a particularly promising area. But Lopez said MSPs would do well to offer a range of security services as opposed to a single offering such as managed firewalls.

"It's not a one-product approach," he said of security.

He said service providers should consider additional services such as identity and access management (IAM), multi-factor authentication and single sign-on, areas he said are "exploding."

It's tremendously difficult for companies to develop an internal IT team capable of cost-effectively eliminating the reliance on outside IT service providers.
Adam Barneychief operating officer, Framework Communications

The survey indicates some correlation between IT managed service providers offering services such as IAM and higher growth. Respondents providing IAM, according to Kaseya, are 25% more likely than companies not offering that service to have an average annual MMR growth rate topping 10% for the last three years.

In addition, MSP entering the IAM space will find lower competition than in other security segments. The Kaseya survey said that 34% of respondents offer IAM compared with the nearly 90% that offer patching and updates.

The Clutch survey, which measured small business customer satisfaction with IT service providers, may also point to the need for channel partners to take a wide-angle view of their customers' needs. The study used Net Promoter Score (NPS), an index of how likely a customer would recommend a product or service to a colleague, to gauge customer satisfaction. The IT services firms in Clutch's study had an average NPS of 13, while B2B companies typically have an average NPS of 20 to 25, according to the company. NPS operates on a scale of -100 to 100.

Adam BarneyAdam Barney

Clutch suggested the relatively low NPS could be attributed to an overly narrow business focus.

"One factor is that smaller, specialized IT services firms may lack the ability to deliver strategic, top-level recommendations for their clients," Clutch noted.

Susie Cummings, vice president of managed services and infrastructure solutions  at SWC Technology Partners, an IT solutions provider based in Oak Brook, Ill., commenting on the survey, said smaller providers may lack the expertise or scale to drive conversations involving cloud, mobile device management, security and other areas, noting that her company's customers are looking for IT advisors. SWC offers a virtual CIO service, she noted.

"We are driving conversations around business strategy with our customers and creating technical roadmaps that enable them to achieve their business goal and support their continued growth," she explained.

Barney added that IT managed service providers must take on a broader swath of services.

"I believe that with the rapid adoption of cloud technologies and the increased emphasis on security, that MSPs, more than ever, need to evolve and expand their services to address these key trends," he said.

They also need to carefully assess how they pursue that expansion. Barney said MSPs should "evaluate their resources and capabilities to determine what services they can expand internally and, likewise, what services they can offer to the client via upstream partnerships."

Next Steps

Read how IT managed service providers can achieve the ideal revenue mix.

Find out what pitfalls to avoid in MSP and cloud business model transitions.

Get insight into the key trends likely to impact MSPs in 2016.

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