Will 20 Percent of Managed Service Providers Dominate Market?

Will 20 Percent of Managed Service Providers Dominate Market?

N-able VP Mike CullenCigars, Scotch and world dominance. Managed service providers from North America, Europe and Australia relaxed a bit Thursday evening at the N-able Partner Summit in Dallas. I listened in as N-able VP of Sales Mike Cullen and a few industry peers discussed where the managed services market is heading next.

Two key topics of discussion:

  • Is there a middle class in the managed services market?
  • How many managed service providers will truly rise to the top of the market and dominate their regions?
From my perspective, today's most successful managed service providers are becoming even more successful. It seems as if seasoned MSPs -- those that have been successful for three or more years -- are "breaking away" from the rest of the pack.

Cullen seems to agree. He mentioned the a so-called "twenty-eighty" rule for the managed services industry. Specifically, Cullen thinks 20 percent of US managed service providers will grow to dominate 80 percent of the US market. I agree.

Fact is, I've seen too many "pretender" VARs who claim to be managed service providers. As those pretenders struggle or die, the US IT channel will likely consolidate around 20,000 MSP companies. (The 20,000 estimate is mine, not Cullen's.)

The Road Ahead

Cullen compared VAR consolidation to the US auto repair industry. Decades ago there were independent mechanics and car repair shops on every corner. But as auto dealers embraced standardized service centers, the independent repair shows were squeezed out of the market. A similar scenario could unfold as some VARs become top MSPs.

The situation is particularly tricky for VARs that are just getting started with managed services. Most of the top MSPs have been in the market for three years or more -- and they have the battle scars to prove it.

But MSPs that are new to the market must navigate the weak, turbulent economy. So, does that mean the 2009 MSP economy will include top-tier providers, no middle class, and a lower middle class?

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