The title may sound tongue-in-cheek, but there is a set of strong, fact-based data points that support the assertion that those that don’t offer managed services are risking the long-term health of their P&L.
In my second MS Pulse webinar of 2014, I revealed the market influence on managed services, focusing on several core MS Key Performance Indicators (KPIs) that all Managed Services Providers (MSPs) need to track, as well as some of the details on how companies are organizing their MS businesses.
Here is a snapshot of some of the data revealed.
Who's Affected by Changes in the Tech Industry
From a tech industry point of view, there have been some substantial changes industry-wide. Customers are no longer consuming technology through traditional CapEx models. According to the TSIA Service 50 Index, fifty of the top technology companies across the globe have lost almost $50B in product revenues (hardware and software) since 2011. Over 65 percent continually report either flat or declining product revenues. Conversely, over 60 percent report growth in services yet the Service 50 services revenue growth over the past three years has only been roughly $12B. Sadly, the gains in services don’t even come close to be loss in product revenues. The good news is that managed services is fueling an overwhelming majority of the revenue growth in services and the tech industry at large due to the staggering 44 percent top line revenue growth rates we see for managed service providers.
To really understand what makes the MS market “tick” we’re benchmarking managed service providers of all shapes and sizes from every type of tech company you can imagine:
- Service Provider
- System Integrator
- Hardware Manufacturer
- Software Developer
- IT Outsourcer
- Value Added Reseller
Each falls into one or more of the following “type” of managed service provider:
You can see from the gross margins listed that each type of provider has a materially different financial performance with “Off Site Managed Service Provider” showing the strongest gross margins.
When you compare and contrast the performance of the managed services market to both the traditional tech industry (TSIA Service 50) and the often hyped “Cloud” market (TSIA Cloud 20), you can see that these new managed models are aggressively growing and contributing strong profitability to the company’s bottom line.
Fortunately, There's Good News
Though the traditional tech market is suffering major loss of product revenue, there is hope on the horizon for those that adopt managed services. Be forewarned that a managed services business, at the core of its DNA, is a substantially different business model than that of a product company. The sales skills and processes are different, the financials are different, the offer structures are different, for example, but embracing managed services will require major changes and investment in many areas of your business.
I captured these points and more in my webinar titled, “Top KPIs Every Managed Services Business Needs To Monitor”. If you’re a registered TSIA.com user you can catch the on-demand broadcast of the webinar. If you’re not a TSIA member and would like to know more about the MS KPIs and MS market performance, feel free to drop me a note at firstname.lastname@example.org.
About the Author
George Humphrey is senior director of managed services research for TSIA. He is a networking and communications industry veteran of over 20 years with extensive experience in managed infrastructure and application services. Keep the conversation with George going. He may be reached at email@example.com.