The Biggest Threat to Managed Service Providers

What's the single biggest threat to managed service providers:

  • Commoditization?
  • Big vendors like Dell entering the market?
  • The economy?
Actually, I think it's something else.

The one word answer I'm seeking is "arrogance." It's great to hear vendors, MSPs and industry leaders speak with pride about the managed services sector. But there's a dangerous line between pride and arrogance. And we're all guilty of crossing that line from time to time.

Plenty of people have suggested that managed services and software as a service (SaaS) are immune to an economic slowdown. Yet, some SaaS companies (Example: NetSuite) see their stocks trading near 52-week lows because growth rates haven't met Wall Street's expectations.

Yes, managed services and SaaS providers are better insulated than traditional VARs from an economic slowdown or recession. But the rising MSP and SaaS tide won't lift all boats. You still have to execute with your technology, sales, marketing and support strategies.

The Risks Ahead

Just because you have service level agreements (SLAs) in place, that doesn't guarantee you'll get paid on time -- especially if some small businesses go bust.

Consider this extremely simple example: In the past month, energy prices and other factors have pushed the price of a 50 pound bag of flour to $50, up from a mere $12 in March or so, according to this AM New York article. Some restaurants are struggling to keep pace by raising prices even as some people begin to eat out less.

Now, when the bills come due at the end of the month, who is the restaurant owner going to pay first:
  • A food supplier?
  • Utility bills like gas and electric?
  • Chefs?
  • The landlord?
  • The managed service provider or VAR?
In this particular example, the MSP will likely be last on the list for payment -- until a piece of technology melts down and threatens the restaurant.

Apply the same example to a small insurance agency, a real estate firm, and other vertical markets, and you begin to see that MSPs may be left holding the bag as entrepreneurs prioritize their supplier relationships.

Yes, MSPs are more insulated than VARs from an economic slowdown or recession. But we can't lose touch with the broader economic trends around us.
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