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 Channel Futures

Technologies


Say Goodbye to Managed Services “Pretenders”

  • Written by Joe Panettieri 1
  • December 3, 2008
Mark my words: Some industry "pretenders" -- including a range of software companies and resellers masquerading as MSPs -- will exit the managed services market very soon.

  • We are going to read more press reports about break-fix resellers that stumbled or failed in their transition to managed services.

Managed services pretenderMark my words: Some industry “pretenders” — including a range of software companies and resellers masquerading as MSPs — will exit the managed services market very soon.

  • We are going to read more press reports about break-fix resellers that stumbled or failed in their transition to managed services.
  • We’ll hear about a few MSP-focused software companies that imploded or exited the industry, leaving customers with dead-end management tools.

But don’t panic: Many successful managed service providers will see their businesses go from “good to great” over the next 12 to 18 months. Here’s what to expect in the months ahead.

First, some important background information: I signed a non-disclosure agreement with one Silicon Valley start-up, and also spoke on background with several MSP software companies.

Based on those interviews, I offer the following opinion: Quite a few software companies jumped on the MSP bandwagon in 2007 and 2008. A few may not continue forward with those MSP efforts in 2009.

Regardless of your software partners, check in with them now. Determine if they’re making staff changes, organization changes or go-to-market changes. Ask about the company’s funding and growth strategies. And use tools like LinkedIn to see who’s making career moves in the MSP industry. You’re ultimately seeking clues that reveal your software vendor’s stability and commitment to you.

Trouble Ahead?

Here’s why some software companies and even a few Master MSPs are rethinking the managed services market:

1. Recruiting VARs Can Be Expensive: At first glance, the managed services market seems so easy to enter. Design a remote management tool, then pitch it to VARs as a platform for remotely managing customer networks. VARs, in turn, gain recurring revenue. Everyone is happy.

Unfortunately, it’s sometimes too expensive to recruit and train partners — especially break-fix folks who are stuck in the 1990s.

N-able’s Mike Cullen has predicted that 20 percent of MSPs may ultimately dominate 80 percent of the managed services market. I’ll put it a bit more bluntly: Many break-fix resellers won’t succeed in the MSP space.

2. Software as a Service is Sexy: Quite a few MSP software companies envy their SaaS-oriented counterparts.

Watch closely: Some MSP software companies are adjusting their business models to more fully support SaaS. In most cases, that’s a good thing. But in some cases, the MSP software companies will be tempted to serve customers directly — leaving VARs and partner MSPs out of the loop.

3. Yes, The Recession Hurts: Successful MSPs are holding up well during the recession, and they’re generally more profitable than break-fix folks. But don’t assume a rising managed services tide will lift your boat. You still need deft leadership to navigate a terrible economy.

Some MSPs are taking a financial hit because some customers can’t afford to pay their bills. Plus, prospective customers are taking a longer time to sign new managed services contracts. As a result, some MSPs are slowing their purchases from software and platform providers.

In other words, the recession pain has moved from the customer to the MSP to the software provider. Everybody in the IT services food chain suffers at least a little.

Am I pressing the panic button? Absolutely not. We continue to state — clearly — that successful MSPs continue to grow. (We’ll prove that when we unveil our latest MSPmentor 100 report.)

But mark my words: A few “pretenders” — including software companies and break-fix resellers masquerading as MSPs — will exit the managed services market or completely rethink their strategies in the next two to four months.

MSPmentor is updated multiple times daily. Don’t miss a single post. Subscribe to our Enewsletter, RSS and Twitter feeds.

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

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8 comments

  1. Avatar Peter December 3, 2008 @ 3:34 pm
    Reply

    “I just noticed we have over 500 active customers in our Service Center. This is a nice milestone!”

    This is the entire text of an email I received last week from one of our partners. They launched their managed services business only two years ago.

    70% of Level Platforms sales and marketing budget is dedicated to investments that help existing partners achieve business success. We more than doubled our Ramp;D investment last year. This is being translated into major product expansion in 2009.

    We see 2009 as a breakout year for managed services. MSPs and solution providers that get serious about this opportunity will leverage their customers’ recession-induced desire for operational cost savings into big sales and profitablity for themselves.

    By our calculation only 2% of the US SMBs that should be benefitting from managed services have linked up with an MSP. Solution providers and MSPs that act boldly in 2009 will own this market for the next decade.

    2009 will be a great year as we focus on ensuring our 3000 partners around the world have the tools and business best-practices to participate in what I believe will be the biggest “land grab” in IT history.

    Peter Sandiford
    CEO Level Platforms

  2. Avatar The MSP Monstor December 4, 2008 @ 3:17 am
    Reply

    Our company which is a transitioning B/F made a mistake of revamping a customers network without a contingent management plan to go along with it. what is happening is they have a network which is humming (b/c of our best practice integration) and they do not feel the urgency to get a managed plan in place.

    How do I make the stats (low network health rating) mean something to them?

  3. Avatar Justin Crotty December 4, 2008 @ 3:04 pm
    Reply

    Try this – instead of using speeds and feeds (low network health) to try to sell the value of the managed plan, sell the value of your organization and what you are doing everyday to keep it running. Customers don’t care about IT guts and bolts. They just want to know it runs. So help them understand that it is your daily activities and oversight, as well as proactive problem resolution, that is making the IT infrastructure work so well. Then, present a managed plan as a way to effectively continue that coverage into the future.

    For example: You charge a hourly rate for on-site work, I assume. Figure how much you are charging, on average, each month to that customer. Then, simply charge them a monthly flat rate, at or around the monthly average, to maintain the network at IT gear going forward. Then you leverage tools, pre-schedule the hours that your techs will be on-site as it benefits YOUR company – while reducing the amount of hours you are actually on-site – and give the customer a predictable monthly billing rate going forward which they will value.

    Justin

  4. Avatar Paul December 5, 2008 @ 2:28 am
    Reply

    Peter, you mentioned that by your calculation only 2% of the US SMBs that should be benefiting from managed services have linked up with an MSP. What percentage of SMBs do you think will ultimately benefit by the end of 2009? And beyond?

  5. Avatar Lester Keizer December 5, 2008 @ 7:33 pm
    Reply

    Hey Joe..Remember the British Rock Band Pretenders? Well that band was fractured by drug related deaths and numerous subsequent personnel changes…

    Couple of comments from sin-city Las Vegas where 50% of all our homes on the market for sale are foreclosed homes.

    First, If we (Ron Cook’s Connecting Point of Las Vegas )did not make the transition to Managed Service in a focused way a few years ago and had not worked closely with both Mike Cullen at NAble and Peter Sandiford at LPI, I would not be answering this blog, our 25 year old company would have shut its doors and I would be betting my last dollar on the crap tables!

    Second, Justin Crotty is correct, but let me elaborate further. We sell our managed services as “Business Continuity Insurance.” The owners of our SMB’s understand insurance. They understand “no-downtime”. It is a sales discussion of “businessmen ship” and not technology. To not get this makes a VAR a “pretender”.

    Yes the Recession hurts, but not to take the Managed Service plunge even in these tough troubled waters, may result in some VARS ending up like the rock band Pretenders!

    Lester Keizer
    CEO -Ron Cook’s Connecting Point
    V.P. Sales amp; Marketing- XiloCore

  6. Avatar Joe Panettieri December 5, 2008 @ 7:38 pm
    Reply

    Lester: No doubt, Justin, Mike and Peter are evangelists who can lead people to managed services success. I think my concern involves all the “me too” companies that claim to be MSPs but won’t be around to see the economic recovery.

    Yes, managed services is the way to go. And your smart branding on business continuity rather than tech jargon is right on the mark.

    But I don’t want everyone to think that the rising MSP tide will lift all boats. It won’t.

  7. Avatar Jeff Kaplan December 5, 2008 @ 8:24 pm
    Reply

    You are absolutely right that the deepening economic crisis will separate the men from the boys when it comes to managed services. As vendors and VARs have found alike, despite growing customer interest and adoption of managed services, making the the transition to a managed services model is fraught with landmines and pitfalls. Crossing this chasm takes strong leadership and perseverance, in addition to carefully targeted services.

  8. Avatar Peter Sandiford December 7, 2008 @ 9:38 pm
    Reply

    Today there are thousands of solution providers and MSPs providing some form of managed services. Most are climbing the adoption curve at a pace that matches their aspirations, capabilities and customer focus. Some will fail. But rather than being “pretenders”, I believe this will be the result of simple failure to execute a low risk, high return evolutionary path to success based on the proven best practices established by the pioneers like Lester Keizer’s Connecting Point in Las Vegas.

    As the exchange between MSP Monster and Justin Crotty illustrates and Jeff Kaplan summarizes, there are lots of “landmines and pitfalls” that solution providers will encounter as they proceed along the adoption curve. Fortunately the larger platform vendors like Level Platforms and a growing managed services support infrastructure (Master MSPs, Seismic, MSP Mentor, MSP University, MSP Partners, MSP Alliance, etc.) are now available to reduce the investment and risk in moving to managed services.

    Is it worth the risk? There is lots of evidence that there are order of magnitude benefits from the implementation of a remote management model for SMBs. Assuming that market forces push a significant share of these benefits to the end user, adoption will climb dramatically. To Paul’s question I expect it will grow from 2% adoption to at least 40% in the next 5 years as large corporations drive the model through to their end customers either supporting or competing with their existing channel. Based on this assumption, the end user market will grow from 100,000 to 2,000,000 businesses in the US alone over the next 5 years.

    Solution providers that follow emerging best practices to transition their customer relationships successfully will get through the recession and be strongly positioned to see their boats rise in the strongest rising tide of the decade.

    Peter Sandiford

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