Top 4 Trends in Managed Services for 2010

MSP Partners has just published its 2010 IPED managed services research and education courses and the emerging industry trends are truly compelling! The findings I will be discussing in this article are based on research conducted in December 2009 and January 2010. This extensive survey included thousands of solution providers and resulted in findings to a 97% confidence level. The top four trends identified are:

1.    The managed services market mirrored the overall IT market in performance, but with a lower decline in revenue than other technology sectors.
2.    Competition has increased in the managed services marketplace, but not as an “exclusive” business model.
3.    MSPs have very optimistic growth projections for 2010, more than offsetting the losses suffered in 2010.
4.    The portfolio of managed services offerings continued to expand in 2009, from a market and individual MSP perspective, but no majority offerings have yet emerged– though some may pass that mark in 2010.

Let’s take a closer look at each of these emerging trends.

Until this year, the news about managed services related to its phenomenal growth and adoption rate, which continued to grow even as other sectors remained flat or in decline. Contrast this previous trend with the 2009 data, which shows that managed services performance mirrored the overall IT market including across-the-board decreases in revenue. This finding further underscores that managed services is no longer a niche or “exploratory” offering, but is now a core part of the marketplace and subject to the trends in overall spending. The compelling part is that the drop in revenue for managed services was less than all other areas in the technology industry and continues to be a strong offering that resonates with solution providers and SMBs alike.

The second trend (and perhaps even more compelling) is that solution providers who offer a diverse offering of services and products are more profitable than “pure play” MSPs.  Somewhat paradoxically, managed services adoption continues to rise with almost all solution providers claiming to provide at least one of these offerings. Another point I noticed, when looking a little closer at significant MSPs (those that receive 25% or more of their revenue from managed services), is that three out of four providers (75%) now fall into this category. When that threshold is expanded to 50% and 100% of revenue derived from managed services, the number of solution providers in this category falls dramatically to 25% and <5% respectively. The significant market penetration of mixed portfolios points to increased competition for managed services dollars. Those that are more profitable typically have a larger managed services practice up to a certain point. Yet they maintain a healthy distribution of service delivery methods and products in order to maximize profits and remain responsive to individual customer’s needs.

Overall, MSPs are extremely optimistic about their business growth in 2010. The average solution provider is still earning more from traditional services than managed services at 50% and 45% respectively, but the 2010 growth forecast for managed services business is higher than that of traditional services. Two out of three solution providers forecast 10-50% growth in their managed services business this year, numbers that are substantially higher than projected growth rates for other service delivery models and product sales. This underscores the previous determination that managed services are now a core component of the industry, continuing to lead the way in business growth.

The last trend is that MSPs’ managed services portfolios continue to expand. With the continually increasing multitude of offerings, there is still no one service that is offered by a majority of providers.  The mantra “if you can monitor it, you can manage it” continues to hold true and entrepreneurial MSPs are finding new and innovative ways to add products to their portfolio. While no specific managed service is offered by more than 50% of solution providers, there are some that are more “outsourcable,” therefore having a greater affinity from the end user community. Our identified best practice for a service portfolio is to ensure a healthy mix of services in areas where you have strong capabilities. Both ends of the spectrum – from MSPs that offer 1-2 services to those that try to be a one stop shop with a plethora of managed services - have trouble with profitability and, in the latter case, managing their service delivery complexity. The average provider currently offers six to seven services and plans to expand with an additional three or four more in 2010. The typical MSP also plans on discontinuing two or three unprofitable services this year.

In summary, successful MSPs carefully select and continually evaluate the services they add to their portfolio, maintaining modest growth with these additional offerings. This careful and planned expansion is an effective means to reach new customers and increase profitability with existing customers.

So now you know about the four important managed services trends to watch in 2010. Be sure to check out our new 2010 education and research on the MSP Partners website, which now features full and seamless access for CompTIA members! Be sure to use this great new education resource by signing up as a member today.