MSPs: Really A River of Gold?

MSPs: Really A River of Gold?

It seems like the Managed Services Hype Cycle quieted down a bit in late 2009. But now that MSP Hype Cycle seems to be starting again, as a growing number of software companies and hardware companies are trying to target managed services providers. Ironically, Nimsoft CEO Gary Read -- who certainly profits from the MSP industry -- is providing a timely reality check to the managed services community. His timing couldn't be better. Here's why.

Toward the end of Read's Aug. 23, 2010 blog entry he notes:

"...I continue to see many vendors making announcements in the Managed Service Provider (MSP) space. Seems as though everyone has started to think that MSPs represent a river of gold. Will be interesting to see how many are still as excited in a year or so. One thing that we’ve learned with MSPs is that they are hyper sensitive to the quality of product and support. Most vendors I am convinced will simply not make the grade. MSPs will not tolerate mediocrity..."
That's for sure. Sit in an HTG Peer Group meeting, and you'll hear real-world experiences from MSPs that are (A) struggling with specific vendor relationships or (B) trying to navigate day-to-day business challenges that we all face. The folks in those meetings represent some of North America's most successful MSPs.

A growing number of vendors want to get in front of those successful MSPs. On the one hand, I'm happy whenever a technology company dials MSPmentor to say they're launching a new product or service for managed services providers. It's an anecdotal suggestion that the MSP market is still growing. But on the other hand we all need to keep this market in proper perspective.

Numbers Worth Repeating

About a year ago, I told readers that true MSPs represented only about 10 to 20 percent of the overall North American IT channel. So let's assume there are 80,000 to 120,000 VARs in North America. That means there were likely around 8,000 to 24,000 MSPs in the market.

Looking back, I think the 24,000 figure is a bit high. As Lane Smith at Do IT Smarter often points out to me, resellers and VARs that dabble in managed services aren't quite the same as full-time MSPs and/or service providers that generate at least half of their sales from recurring revenues.

Generally speaking, I believe the managed services industry remains healthy and growing. And we're hearing MSP momentum stories from Europe, Australia and South Africa as well.

That's great. But heed Read's warning. Managed services isn't a river of gold. Not for the vendors. Not for the MSPs. It's hard work. That's why so many legacy resellers failed as MSPs. And that's why some software and hardware companies have failed to gain critical mass with MSPs.

There are many successes in this market. But don't overlook the failures. They teach us quite a lot...

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TAGS: Financing
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