Now that we’ve unveiled our second-annual MSPmentor 100 report, I keep hearing the same question from multiple market watchers: How many VARs will become successful managed service providers? Here’s an educated guess — at least for North America. I will offer some thoughts on additional regions later this week.
First, I’d like to address a myth: Not all VARs need to become MSPs. Some of Cisco’s most successful solutions providers, for instance, continue to generate hefty profits simply through consulting engagements and project work.
Full disclosure: I do have a bias on this topic, especially since we also operate a sister site called TheVARguy.com.
MSPs By the Numbers
Still, plenty of VARs see ample opportunity in the managed market. For North America, I estimate:
- There are between 80,000 and 120,000 VARs/solutions providers
- Roughly 10 percent of those companies — 8,000 to 12,000 — have moved into the managed services market
- Roughly 10 percent of those aspiring and estabished MSPs — or roughly 800 to 1,200 companies — are wildly successful managed service providers.
In other words, I believe only about 1 percent of all North American VARs are truly thriving and generating explosive growth as MSPs. Anybody care to debate me on that figure?
The bigger concern for MSP software companies: Most VARs may never make a successful transition to managed services. That’s one of the reasons why N-able introduced a low-end remote management tool for the channel masses.
Here Come More MSPs
Now let’s jump back to MSP market size. Assuming the North America market has between 8,000 to 12,000 reasonably successful MSPs right now. Next, assume the managed services market grows 8 percent annually — as predicted by Insight Research.
With those variables in mind, it’s somewhat safe to expect at least 640 North American VARs (8,000 X .08) to become reasonably successful MSPS in 2009. But I suspect a few thousands VARs will try — and fail — to make the transition.
Why? The reasons for MSP success (or failure) certainly vary from company to company. But business outcomes typically have very little to do with choosing the right MSP software tool. For most MSPs, the secret to success involves business leadership.
MSPmentor is updated multiple times daily. Don’t miss a single post. Subscribe to our Enewsletter, RSS and Twitter feeds and Resource Center.
Read More About This Topic
Share This Post
Posted In: Finance | Marketing | North America | Sales
Tags: Managed Services | managed services market size | MSP market size
Interact: Add a Comment | Trackback Link | Permalink
Subscribe: RSS Feed
Take a look at our 
Joe, I agree with your comment regarding business leadership and wanted to expand on it. The company’s leader(s) need to know what the appropriate steps are and many do not. They have come to believe that by purchasing an MSP software system and charging a monthly flat fee they are an MSP and on the path to success.
Almost every company we meet in the early stages of becoming an MSP (just launching through being up for a year with a handful of clients) has not sufficiently developed these two necessary items:
1) Service Description: Without a clearly thought out and documented service description the MSP will not effectively be able to communicate internally and externally what they are offering, who they are offering it to and its value proposition. It is from the list of entitlements in the service description that the MSP should create the needs list for selecting MSP software, not the other way around. It is also from the service description that the workflow can be developed. You have to know what you are delivering to determine how to deliver it.
2) Scalability: We see many MSPs create workflows that get the job done for the initial clients on the service, but do not have sufficiently documented escalation procedures, integration between groups (e.g. sales, operations (NOC), accounting) or use of automation to withstand the greater demands that will come with additional clients. As a result, quality of service diminishes, SLAs are missed and the MSP is will have a higher cost of delivery.
David Schafran
President
Transformation Strategies, Inc.
David: Good to hear from you.
You’ve got a point regarding SLAs. During face-to-face conferences, I frequently hear from MSPs that offer vague SLAs because they don’t want to be held accountable for service disruptions. But the smarter MSPs seem to be using SLAs and service descriptions as a competitive advantage. For instance, an MSP in Australia told me he actually hand-delivers refund checks (small ones…) to customer CEOs following a service disruption (which rarely occur…). Customers are shocked by the accountability. It’s a nominal investment that earns long-term customer loyalty.
Readers: David is a former MSP, and his company consults with a range of VARs and MSPs.
Joe – From what we’ve seen in Europe, the challenge is no different to N. America in terms of business leadership. The successful VARs quickly realise this, and take a risk by dedicating valuable time and resources in defining the new business model and seeing the challenge through. Conversely, those that try and drip feed the changes in their spare time without taking the necessary risks are likely to struggle in successfully making the transition. As you’ve noted before, this is why VAR’s should maximise the support and expertise from vendors.
Jon: Thanks for the European perspective.
Readers: You can find more about Jon’s European efforts at Intel and track our broader European coverage by checking out MSPmentor Europe content center.
I think in today’s environment, Managed Services needs a bit of a sales/marketing differentiation from a customer facing perspective. As the business model becomes more ubiquitous, it will be more and more important for Solution Providers to have their own brand in front of their offering. I’m also under the impression that most solution providers today are really going to market with more of a hybrid model – getting all the dollars off the table for all the solutions they’re able to bring to their customers.