MSPs Positioned to Cope with Economic Uncertainty, CompTIA Says

Stormy financial weather for IT pros? Not if they're managed services providers, who are better able to generate cash flow and avoid wild quarter-to-quarter income fluctuations.

By Liam Lahey

Companies delivering technology solutions through a managed services model have weathered the current economic recession better than companies focused on more traditional product and support sales, new research from CompTIA reveals.

Though profits from both groups have been negatively affected by the economy in the past year, managed services providers have been better able to generate cash flow, avoid wild quarter-to-quarter fluctuations in income and generally out-performed traditional technology resellers. The top managed services providers surveyed tended to hold their profits longer even as the economy headed down; and began their recovery sooner, the survey revealed.

"Managed services represent the best opportunity in some years for technology solution providers to create significant shareholder value," said Todd Thibodeaux, president and CEO, CompTIA. "Since early adopter technology solution providers started delivering managed services to small and mid-sized business market in the 1998-2000 timeframe, SMB managed services have grown rapidly on the merits of its win/win business benefits for both the solution provider and the customer. The managed services model offers customers a predictable budget and a level of service, along with recurring strategic and tactical IT advice."

That represents a major shift in business models from the traditional solution provider model of time and materials "best effort" support and product/project sales, often experienced as more unpredictable and difficult to scale both operationally and financially, Thibodeaux said.

"Managed services are not a silver bullet for technology solution providers. You still have to work hard and smart and run your business the right way, but if you do it right, your chance of succeeding at a high (and profitable) level is pretty good," he added.

Results of the inaugural CompTIA MSP Best in Class Benchmark Report were based on a survey of 158 technology providers in North America, conducted during February and early March 2009; and examined financial performance for a 15-month period, from Q1 2008 through Q1 2009.

One factor examined in the survey was earnings before interest, taxes, depreciation, and amortization (EBITDA), an adjusted net income figure that is a reasonable proxy for a company's ability to generate cash flow. The survey found that the median managed services company had higher EBITDA in Q1 2009 (5.3 percent), even after four quarters of economic pressure, than did the median traditional technology solution provider in Q1 2008 (5.1 percent).

Also noteworthy, a separate survey of 200 MSPs in North America conducted by CompTIA in late 2008 found that the majority of them saw competition growing substantially during the next 12 months.

"Only about 20 percent of respondents described the level of managed-service competition they faced in 2008 as 'significant' or 'intense'," he said. "Double that portion of respondents -- about 40 percent -- saw competition becoming 'significant' or 'intense' in the coming year. So we can expect more companies to shift more of their focus to managed services delivery."

Meanwhile, the CompTIA Managed IT Services Executive Forum is currently engaged in three initiatives:

*Addressing the key educational needs that will lead to differentiation (and potentially accreditation) for managed services providers.

*Addressing business issues, education and best practices specific to the area of managed printing services.

*Creating a vendor-neutral, business-level accreditation process to identify solution providers that follow industry accepted best practices for managed IT services.

For more information, visit www.comptia.org.

This story was originally published in eChannelLine (www.eChannelLine.com).