Managed Services Market: 20 Percent Growth In 2011?

Did the SMB managed services market grow 20 percent -- or more -- in 2011? That's my early hunch, based on data from HTG Peer Groups and some anecdotal information I've gathered in recent weeks. I'm not suggesting that all MSPs are thriving. But concerns about the MSP market slowing down are overstated based on my observations at this week's ConnectWise IT Nation conference in Orlando, Fla.

For starters, MSPs and VARs within HTG Peer Groups generated $808 million in combined annual revenues over the past four quarters, up 19 percent from $674 million for the corresponding four quarters a year ago, according to HTG founder Arlin Sorensen. A large number of HTG members consider themselves MSPs. (Side notes: Admittedly, those revenues include a hefty amount of IT product sales and consulting services. Also, HTG Peer Groups has grown by about 10 companies in the past 12 months.)

Meanwhile, early data from the fifth-annual MSPmentor 100 survey suggests top MSPs have seen their monthly recurring revenues grow 25 percent or more in 2011 vs. 2010. The survey runs through December 23, with final results in February 2012.

The Struggling Middle Class

Much like the broader U.S. economy, I sense that the MSP market has a struggling middle class -- and perhaps even a shrinking middle class. Generally speaking, I think the rich MSPs are getting richer, pulling away from middle-class MSPs that have yet to fully optimize their sales and business processes.

During a chat with one MSP CEO today, he said scaling his business has actually gotten easier once he pushed beyond $6 million in annual recurring revenues. MSPs with $1 million or less in annual recurring revenues, in particular, seem to be struggling because vendors are getting tired of training small MSPs that may not deliver enough revenue potential, he added.

I half-agree: Since every MSP starts with $0 in annual recurring revenue, it's logical to hear that many MSPs struggle to reach the $1 million mark, and even fewer march to $2 million and beyond. Heck, it's survival of the fittest.

And the fittest certainly are surviving. Ironically, I think the tough U.S. economy has allowed some MSPs to book even more recurring revenue. Nick Bock, CEO of Five Nines Technology Group, told me several of his recent wins involve small business customers that are cutting internal IT staff and signing up for Five Nines' IT services.

Is the managed services market easy? Certainly not. Are revenues growing in the MSP market? Absolutely yes. I just hope the middle class MSPs -- neither leaders nor laggards -- manage to grab their fair share of the pie.
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