What's The Big Deal With Managed Services?
With low entry costs, explosive market growth, and recurring revenue opportunities, experts say VARs should be adding managed services to their portfolios.
The market for managed services is strong — especially in the world of SMBs. According to IDC, the SaaS (software as a service) market is projected to reach $10.9 billion in revenue by 2009. Douglas Cottle, CEO/president of Secure Resolutions, a company that provides MSPs (managed services providers) with a suite of security and business products, says, "Customers have learned that being in a chaotic state is not productive for their businesses and are proactively moving to a 'managed' state so that they can focus on their core businesses rather than reacting to disasters."
In a recent survey conducted by Autotask, a company that provides IT services-management software, half of the 300 VAR respondents said they currently offer some form of managed services, while the other half are strongly considering the move to managed services. "While an increasing number of VARs are making the transition into managed services, few have made the complete transformation [where most of their revenue is coming from ongoing recurring services]," says Bob Godgart, CEO of Autotask. "However, there is also a small but fast-growing contingent of brand new companies that are starting out as 'pure play' MSPs — building their businesses from the ground up specifically to deliver managed services. Those MSPs are seeing huge opportunities in taking over responsibilities for day-to-day management and support of their clients' networks and systems. The largest segment of businesses in the United States today are SMBs, with over 6 million prospective accounts."
Arnie Bellini, CEO of ConnectWise, a company that provides a managed services platform for VARs, says the strongest opportunities for MSPs are in storage, security, and privacy management. "Storage and hosting services will continue to provide respectable managed services growth potential in the near term, particularly as SMBs consider their business continuity plans." In addition, remote data storage presents a compelling and reliable solution to businesses in areas prone to hurricanes or other environmental disasters. Break/fix and networking services are growing more slowly than others, but are still relatively sizeable managed services opportunities.
Security Is A Hotbed For MSPs
One of the fastest-growing segments of managed services is network security. Secure Resolution's Cottle says the worldwide market for security infrastructure is $13 billion today. Goldman Sachs estimates that market to double in the next five years. According to Cottle, "Managed security services providers can acquire and keep pace with the latest network security technology. SMBs often do not have those capabilities in-house, while enterprises can reduce the cycle of continually investing in new security technologies and training. VARs get to keep the ownership of their customers through deal registration and deal linkages, controlling the entire order management fulfillment process."
Not only is network security critical, but it is also complex and becoming highly specialized. SMBs realize they can't afford to operate at suboptimal levels in this regard, so managed services presents an excellent solution in this instance. Just what does it take for VARs to get into security managed services? In most cases, the requirements are minimal — especially when VARs are reselling a vendor's services. There is no hardware or software to inventory, and the monthly recurring revenue can begin almost immediately. "The investment required to get into managed services depends entirely on what kind of services the VAR is going to offer," says Autotask's Godgart. "There are starter programs for entry-level business automation software and entry-level remote monitoring for just a few hundred dollars per month combined."
Think Outside The Walls With Managed Services
In addition to network security, managed services opportunities exist in other areas such as data networks. For instance, New Edge Networks builds private networks for businesses and communications providers. Most businesses, particularly small and midsize enterprises with multiple locations, are migrating to IP (Internet Protocol)-based VPN/MPLS (virtual private network/multiprotocol label switching) networks from legacy networks that use frame relay, private lines, or ATM (asynchronous transfer mode) technologies. Efficiency and value are driving that demand. A new IP-based network generally provides three times the bandwidth (speed) for about half the cost of a traditional legacy network.
"VARs and systems integrators can capitalize on this trend by affiliating with a provider that pays them commissions or residuals for referring or selling networks on which their other services [e.g. remote data backup] must ride," says Greg Griffiths, VP of marketing for New Edge Networks.
Use The Right Tools To Manage Your Services Business
Part of maintaining profitability as an MSP has nothing to do with the services you offer. For example, how will you keep track of the services provided for invoicing purposes? How will you provide an audit trail when customers want proof that services were performed? "Managed services companies are implementing internal systems to help them handle the growth," explains Douglas Angelone, president of Khameleon, a company that provides project, contractual, and billing software for MSPs. "Integrated operational and financial systems are being sought out to provide managed services companies with the capability to handle the delivery of the services. Now that MSPs have more than a handful of customers, they need software tools that will help ensure services are being performed profitably and in accordance with the SLAs [service level agreements] that are in place with their customers." An SLA is a contract that defines the specifics of services to be provided to a customer.
The beauty of managed services is that there is no rulebook. When developing your version of managed services, ask yourself, "Is this a service that my customers are willing to pay for?" To get started, try something simple such as monitoring their networks for uptime or selling them a monthly service where you will check the status of their antivirus software or the health of their POS (point of sale) equipment. Before you know it, you'll probably be taking on more managed tasks for them. Just remember to charge your customers accordingly. Your time is valuable and should produce the highest margins of anything you sell.