Do MSPs Need Software Development Teams?

Do MSPs Need Software Development Teams?

During Microsoft Worldwide Partner Conference 2012 (WPC12), I spoke with two managed services providers (MSPs) that are building software development teams. The teams focus on Dynamics CRM and database work, with an eye toward long-term cloud integration projects. Is software development a smart strategy for MSPs -- or a fatal distraction away from bread-and-butter recurring revenues?

I've got a pretty strong opinion on this one: I think the most profitable, most strategic MSPs will have some in-house software development expertise.

But that doesn't mean every MSP should have a software development arm. In some ways, a software focus is a return to the past for MSPs -- requiring strong project management and somewhat unpredictable revenue spikes and lulls. Drop the ball on a project here and there, and you'll mess up  your profits, customer satisfaction levels and perhaps even your company focus.

Big Upside?

Still, there's huge upside for MSPs that have developers on-hand. A traditional MSP only has one real asset: Customers under contract (as long as those deals deliver healthy profit margins). But software is intellectual property.
  • Write some code that bridges the gap between two cloud apps, and you're generating incremental revenue while adding IP other MSPs can't match.
  • We're hearing from MSPs building app extensions atop SharePoint and Dynamics CRM, with an eye toward Windows Azure opportunities.
I suspect fewer than 10 percent of MSPs have in-house software developers. But I bet those MSPs are best positioned for the ever-growing cloud wave.
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