The best and worst of times for managed service providers

Posted by Mike Vizard on Sep 17, 2015 1:57:41 PM

Ying YangA major shift in the way technical support is being sold by both vendors and solution providers is driving increased adoption of managed network services that are being bundled with the sale of a product or solution more often.

Rather than offering simple break-fix support contracts, vendors such as Cisco are more aggressively attaching outsourced managed service contracts to product sales, a practice highlighted in a new report from Technology Business Research (TBR). 

The report also notes that global systems integrators are pursuing a similar strategy by attaching multi-year managed services contracts to solutions that are typically based on technologies from multiple vendors.

Reselling products vs. reselling solutions

In both cases, it’s clear there is now a concerted effort to pick up higher margin managed services revenue at the point of sale of the product or solution. For IT services firms that don’t actually sell products, the implications of those moves are profound.

For years there has been a debate among IT service providers concerning the value of reselling products. Many argued that the overhead of selling those products ate up any of the profits they gained from reselling them, and they worried that end customers would no longer view them as a neutral advisor they could implicitly trust. The challenge with that approach, however, is that IT service firms that resell products often have the inside track when it comes to delivering managed IT services.

Now that vendors are combatting margin erosion on product sales, a number of them are looking to deliver their own managed services at the time the product is resold. In many cases, they either sell those services directly or provide incentives to their channel partners to resell those services on their behalf.

Naturally, IT service firms that resell products from multiple vendors are responding by bundling managed services that span multiple products and technologies. Rather than having to manage multiple outsourced managed IT contracts, an MSP can deliver a set of unified managed services under a single contract.

Shift to the cloud provides opportunities for MSPs

In general, the TBR report notes that interest in managed services is on the rise because IT organizations want to focus more on applications that add value to the business rather than managing the underlying infrastructure those applications run on. The shift to the cloud, says the report, is essentially conditioning IT organizations to think of all things relating to infrastructure as a service.

For MSPs that don’t resell products, this shift in attitude is bittersweet. Many of them have been making the economic case for managed services for years. But despite their best efforts, the vast majority of IT infrastructure is still managed by internal IT organizations. As those attitudes begin to shift, however, many of those MSPs now face more aggressive competition on just about every front.

How this battle will ultimately play out remains to be seen. As more infrastructure moves into the cloud, there are fewer instances to sell managed services around IT infrastructure running on premise. In that case, the MSP that doesn’t resell infrastructure may still hold the upper hand.

Looking ahead to the future of managed services

At the same time, IT organizations have invested billions of dollars in IT infrastructure running on premise that will continue to be upgraded for years to come. In many instances, they simply won’t have the resources needed to manage that equipment. Vendors, though, want a bigger slice of the managed service revenue that opportunity creates. The end result is a scenario that is shaping up to be both the best and worst of times for many IT service firms that provide their own managed services.

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Photo Credit: Kyle Pearce on Flickr. Used under CC 2.0 license. 

Topics: Growing Your MSP Business

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