MSPs: Focus on Service, Don’t Worry About Commoditization
As the adoption rate of managed IT services continues to rise, industry talk grows louder that it’s fast becoming a commodity play. Fortunately, for value-focused MSPs, there are two good reasons why commodity fears are largely a non issue.
First, rapid market adoption and commoditization—which, by definition, means the market has driven down price and wrung out value—are not necessarily tied together. In this case, simply because managed services adoption is booming does not mean it’s becoming a commodity.
While we’ve all seen certain elements of managed IT services become commodities in one form or another, as an MSP your business model is focused on selling services not simply reselling hardware and software. So, as basic IT services become commoditized, your revenue and, correspondingly, your profits, should go up as your costs come down.
Second, the real business value offered by any true MSP lies not in the hardware or software sold but in the services, expertise and value (both measurable and perceived) offered to the customer day-in and day-out. That’s where the real money is made and where the dividing line between a good and a great MSP becomes evident.
Without question, if you’re reselling a box or merely repackaging a service offering, commoditization will knock on your door to siphon the remaining profits out of your business.
To stay relevant and avoid margin erosion, MSPs must focus on building efficiencies, aggregating the right solutions and ensuring they are adding value, exceptional service and engineering muscle to every engagement.
Of course, basic brick and mortar IT services are critical and must not be overlooked. But, from a profit standpoint, equally important are the more complex and emerging managed IT services such as SaaS, cloud computing, data center, help desk, data leakage prevention and other security safeguards, including remote backup and recovery.
Bottom line–if your business model is focused on delivering high-value services and your team is ready and willing to go the extra mile for your customers, pay commoditization no mind whatsoever.
Justin Crotty is Vice President Services North America at Ingram Micro, Inc. He oversees Ingram Micro Seismic. Monthly guest blog entries such as this one are part of MSPmentor’s annual Platinum sponsorship. Find all of Crotty’s blog entries here.
Interesting angle…because the service side pretty much has become a commodity. Gimme some remote IT management! Would you prefer agents or agent-less? A wee wafer-thin dash board perhaps? You worry about your business and let us take care of your network!
Well, in the end, for those Monty Python Meaning of Life lovers, Mr. Creosote still blew up creating a rather nasty and messy scene. Sadly, I feel like this is the exact same thing happening in the MSP market. All the talk about “let us care about the network” has, quite literally, left the customer with one foot in the “bucket.” The customers have little or no understanding how their network actually supports their business objectives. Systems are up, available and providing good response time, but how are they being used? Does use put money on the bottom line or is it bleeding red?
Technology is a tool and MSPs provide services to ensure those tools perform as intended. Use of the tools (communications and productivity in a secure/compliant manner) is how an organization creates capital. So as the story correctly notes, service is indeed an opportunity to transcend a MSP commodity world. We bring converged security and network management visibility to the MSP services world, plus very unique remote network diagnostic capabilities.
In closing, I would worry about commoditization but I’d take steps to bring greater value to my customers to overcome it. That’s the value proposition behind our InspectorMSP offering.
Justin, great article.
Scott, I disagree– saying the service side has become a commodity is too broad of a generalization. What has happened in the last few years is there are a range of service offerings at a range of price points. For a small amount of money you can get completely remote, mostly automated service with little intelligence or partnership from the service provider. At the other end you can get fixed cost IT services covering a range of business needs. That isn’t commodization, that’s a healthy market with choices for consumers.
Look at other service markets and you’ll see that there are low priced options and high priced options giving a range of value. Take something like a haircut, there are placed like the Hair Cuttery that provide that service for $10. Has it put salons out of business? No, absolutely not.
What is happening though is that a lot of people who were in the business because they were good techs are getting squeezed out by the necessity to be a good business person. The days of trunk slammers and the “Computer Guy” are over. Now, to survive, you need to have a solution that addresses the business goals of your client and minimizes the need for your clients to understand the inner workings of their IT. Anyone who can’t or won’t change to that way of thinking won’t be around for much longer.
Cheers,
Bob Penland
CTO
TruMethods, LLC.
http://www.trumethods.com