While lots of VARs are transitioning to managed services, others are taking a wait and see approach. And CompTIA says that’s not a good move.
By Martin Sinderman
August 23, 2013
While the market for managed services is steadily growing, difficulty in transitioning from transaction-based sales and service to a recurring revenue model is keeping many channel pros from making the move completely into the MSP arena, attractive though they find the prospect.
According to Trends in Managed Services Operations, a December 2012 study released by CompTIA, half of 400 channel firms surveyed the previous October by the Downers Grove, Ill.-based IT association said they provided managed services either exclusively or as part of a broader business portfolio, up from 40 percent of service providers surveyed in 2011.
Additionally, 17 percent expected managed services to account for 75 percent or more of their total revenue during the next five years; meanwhile, just less than two-thirds of surveyed firms saw managed services as an escalating share of overall revenue during that time.
A STEP AT A TIME
Most of the companies surveyed that provide managed services operate in a “hybrid mode”—that is, slowly introducing managed services offerings into their current sales and service portfolio. And that situation is going to last a while, according to Carolyn April, director, industry analysis, for CompTIA.
“A lot of these companies are transitioning to managed services, but are unable to simply change their business models overnight for a number of reasons,” says April. Most of all, “they need to keep that legacy chain of revenue [from sales and service of equipment] coming in as they move their business over to the MSP model.”
Other speed bumps channel firms face in transitioning to managed services, according to April, include retraining salespeople, changing compensation structures, revamping marketing, and achieving operational efficiencies necessary to make money in recurring fees as opposed to sales transactions and per-project billing.
Also, many potential MSPs are waiting to see if the cloud, with its similar applications-and-infrastructure-via-subscription model, proves to be a complement or competitor.
“These considerations are going to keep a lot of companies in both worlds for quite some time,” says April. “But it is almost an imperative that they move toward the MSP model, with customers on long-term contracts with recurring revenue, because the days of making all their money off hardware sales are evaporating.”
April’s tips for those ready to make a move into managed services include taking stock of how well their organizations are doing what they do currently, “because taking on a new business model when you have a shaky one to begin with is never a winning proposition.” At the same time, she advises: “Think hard about all areas of your business, from sales and marketing to internal operations and finance, and the changes you’ll need to make in moving to a business model that is no longer transactional.”