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 Channel Futures

Sales & Marketing


The Biggest Managed Services Question of All

  • Written by Joe Panettieri 1
  • May 5, 2009
Sometimes a seemingly complex question has a simple answer. For instance: If managed services is the future of the channel, how many so many resellers have yet to really thrive as managed service providers? That question came up (yet again) during the Ingram Micro Seismic Partner Conference in Dallas. I considered some data points, looked at the numbers then drew my own conclusion.

Let's start with some raw numbers. In North America, there are roughly:

  • 80,000 to 120,000 VARs and resellers

Sometimes a seemingly complex question has a simple answer. For instance: If managed services is the future of the channel, how many so many resellers have yet to really thrive as managed service providers? That question came up (yet again) during the Ingram Micro Seismic Partner Conference in Dallas. I considered some data points, looked at the numbers then drew my own conclusion.

Let’s start with some raw numbers. In North America, there are roughly:

  • 80,000 to 120,000 VARs and resellers
  • 8,000 to 12,000 of those VARs/resellers have transitioned to managed service providers
  • 800 to 1,200 of those VARs are doing managed services really, really well

So I’m basically using the the 10 percent rule: Based on speaking with a range of vendors regularly, I think 10 percent of the channel has moved to managed services, and 10 percent of those MSPs are performing extremely well in managed services.

Moment of Clarity

Earlier today, an IT reporter from Canada asked me why more resellers aren’t successful MSPs. In other words, if managed services is such a great business model how come more resellers don’t embrace it?

Then, a simple two-part truth occurred to me:

  • First, I believe only 15 percent to 20 percent of resellers really run their businesses extremely well.
  • Second, why would anyone expect the other 80 to 85 percent of “average” or “poor” resellers thrive as managed service providers?

In other words: Bad or marginal leadership in a reseller organization won’t suddenly become good leadership when transitioning to managed services.

Bottom line: The MSP industry continues to grow. MSPs that run into problems typically face business rather than technical challenges.

Still skeptical of this market? Ingram Micro Seismic VP Justin Crotty noted this morning that the Seismic business grew roughly 150 percent in 2008 vs. 2007. And Seismic now encompasses more than 1,000 MSPs.

For a market that isn’t living up to some skeptics’ expectations, that type of growth is rather impressive — especially in a recession. The sooner we all realize that many resellers will never become successful MSPs, the faster we’ll see the MSP industry live up to (or exceed) expectations.

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Tags: Cloud Service Providers Digital Service Providers MSPs VARs/SIs Sales & Marketing Technologies

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11 comments

  1. Avatar Frankie Says May 5, 2009 @ 8:21 pm
    Reply

    Spot on, and that’s all I’ve got to say about that.

  2. Avatar Scott Spiro May 6, 2009 @ 2:30 am
    Reply

    Joe, well said. I thought Justin’s commentary regarding the current trends within the MSP world were spot on. Understanding the technical challenges while implementing “MSP Best Practices” is not easy and takes time. Not all MSP’s will rise to the challenges. Each Seismic Partner conference (this is our third here at CSG) provides additional value to MSP’s and VAR’s to help them attain true success in the MSP Arena.

    Scott Spiro
    CEO
    CSG
    http://www.csgsupport.net

  3. Avatar Joe Panettieri May 6, 2009 @ 4:11 am
    Reply

    Scott: Thx for the note. I received a few emails from readers who think there are more successful MSPs than I’ve estimated. But I sense that my figures are in the ballpark. Curious to see what other people say.

  4. Avatar chris.martin@hounddogiseasy.com May 6, 2009 @ 5:20 am
    Reply

    Interested in what you’d think the split is here in the UK.

    My guess would be a higher percentage of IT Companies are running fixed price arrangements (You Pay us the money, The IT’s our problem now type of contracts).

    Certainly, that was how I operated the bulk of my previous companies arrangements (prior to HoundDog). We viewed break/fix (time amp; materials) as cream and consequently, priced it up. But the fixed cost stuff, kept me asleep at night and allowed us to grow our business quickly (with mitigated risk).

    What i would also say is, even for break/fix, in the end, we almost refused to take on a new customer without, as a minimum, monitoring their server and critical equipment, as not to do so – exposed us to risk (embarasment and having to do lots of remedial work – free or cheap).

    Chris Martin
    HoundDog Technology
    Easy, Affordable Tools for IT Support.

  5. Avatar Maayan Porat May 6, 2009 @ 10:42 am
    Reply

    I have to agree. The quality of services provided by MSPs and other IT service providers is rising constantly, especially with the adoption of MSP and PSA tools. However, using these tools is only the first step. Implementing them well and adjusting business processes to the new model are key factors for real success.

    Maayan Porat
    CEO
    CommitCRM
    PSA, Service and Billing for ITs
    http://www.CommitCRM.com

  6. Avatar Joe Panettieri May 6, 2009 @ 12:06 pm
    Reply

    Chris: I think you are correct regarding the percentage of service providers with fixed prices being higher in Europe. Two MSP software providers pointed that out to me about three months ago. But I don’t have an educated guess in terms of the actual hard numbers.

    What are you seeing in terms of MSP business growth rates, momentum, challenges in Europe.

  7. Avatar Robin Seavey May 6, 2009 @ 12:30 pm
    Reply

    The “two part truth” is a great observation! You can put lipstick on a pig, but it’s still a pig.

    I think the fact that Ingram is treating managed services as “products” to be resold by VARs may lead a VAR into thinking he can just resell a product to become a MSP; that’s not possible. My philosophy is that managed services can be branded and sold like a product, but the underlying support infrastructure and business operations need to be adapted to facilitate the delivery.

    Robin Seavey
    TCG Network Services

  8. Avatar Ty V May 6, 2009 @ 2:00 pm
    Reply

    I think the biggest issue as to why companies do not grow like others is persistance and the ability to listen to what works. I get that business owners are business owners because they want their own thing, but if you go after customers with a pie in the sky all or nothing offering, you will not get the traction you want. Even some successful MSP’s only have about 30% of their customers on some monthly contract. Problem is Solution Providers were sold on the idea, back in the day, of one price for the entire network(3000-10000 dollars a month, WOW) and when 5 our of 50 said yes, they jumped on it. Then what happened is the same thing we see day in and day out, they sat on the 5 or 6 customers and left it at that. Some of those same companies to date are considered top MSP’s, which leaves me scratching my head, because I wonder what type of cash are you leaving on the table?

    I don’t believe Ingram sees it as a product sale, but more of a start simple, cover the cost, and put some margin in your pocket. After that the products will help you make more money(Proactive calls, alerts, project work, and saved travel time and unbillable hours, plus reporting) and you up sell as you go(Scripting, Patch Management, Desktop pricing and Server Pricing, HAAS, and if needed onsite maintenance to show you still existed). So, if I’m right about the Ingram comment, than simple is better to start.

    Thanks,

    Ty

  9. Avatar Rob Leon May 7, 2009 @ 12:46 pm
    Reply

    Joe,

    Couldn’t agree with you more. I think there’s two main challenges to for VAR becoming MSP’s. The first is creating a service offering that actually fits your business model (not just doing what everyone else is) and the second the ability to position and sell your offering well. Sales and Operations must work together to get achieve success.

  10. Avatar ChangeForge | Ken Stewart May 10, 2009 @ 8:26 pm
    Reply

    Joe, hilarious. You mean I can’t buy a bunch of software and sign up for a bunch of MPS resale programs and turn my company around? I mean, the gall of actually having to run my company any other way but into the ground! How dare you.

    🙂

    Ken

  11. Avatar Joe Panettieri May 11, 2009 @ 9:47 am
    Reply

    Ken, I appreciate the healthy dose of sarcasm and wit. Especially as I energize for the week ahead.

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