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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Hey Joe,
Great article! I completely agree with your last two paragraphs. It’s important to emphasize that, while selling managed services certainly isn’t an easy task, putting in the hard work of categorizing and specializing your services can give you a great advantage in the market. We see it all the time with our partners. Additionally, doing the recommended market research/intelligence prior to selling services definitely gives you a head start.
Natan Ovadia
Partner MGMT Specialist | PacketTrap Networks – Division of Quest Software
Joe,
I really don’t see this as a new story. In fact, having been part of the channel for a few years (Note to Joe: No age comments please), the Solution Providers who transformed into MSP’s still face the same growth challenges of partnering well while navigating the business waters. Nothing new there.
Personally, I still believe the MSP space is fairly immature and we will see further development in the coming 12-24 months. In addition, in my humble opinion, we will witness some consolidation in this space as well — both on the vendor side as well as the MSP (including the Master MSP as well). I had the chance to talk with Lane and some of my peers at Breakaway, and I truly believe we have an interesting and rewarding path ahead of us…
River of Gold or the logical next step in the metamorphosis that is the channel? Not sure which, but the collective “we” will need to embrace and determine what path to follow (translation = business planning and execution). I still follow my old rule of “Morph or Die”, and we are in that phase yet again.
Good luck to all,
Gerard Kane
President/CEO, MSP Services Network
Natan: I have a confession — I don’t often believe in market research before launching a product or service. I know it can be valuable. But sometimes experience beats research. During a dinner last year with the CEO of a major VoIP company, the executive told me and Amy Katz (my business partner) that sometimes it just makes sense to throw something out in the market and see how it reacts. His main concern: Missing a market opportunity while you’re bogged down in research. Still, I understand and respect your point on the importance of gathering intelligence before making a move.
Gerard: A news story? Perhaps not. But generally speaking, every press release seems to be tied to cloud, SaaS and managed services these days. 20% of the announcements have meat. The rest are filler. But we certainly agree that old rule — morph or die — remains intact.
-jp
Nimsoft has been embracing the MSP market for about 7 years now. Over that time the knowledge that we have collected is invaluable in how we shape our business to ensure that we meet the needs of our MSP customers and partners for today and tomorrow.
And…not a day goes by without us learning something new.
What interests me is that many vendors that up until recently have ignored the MSP space, suddenly see it as a “River of Gold”. They’ve got their marketing departments doing research, paying for consultancy so that they can “message” to MSPs.
But, what these vendors fail to realize is that selling to/partnering with an MSP is a whole lot different than selling to the end user. MSPs survive on their quality of service and as a supplier to them, you are an extension of that. You have to be prepared to change many parts of your business model…not least of which is support and engineering (rapid development and innovation is needed to allow the MSP to catch market trends).
I wonder how many have truly understood these nuances?
Gary: Yup, plenty of market research going on. And that’s not necessarily bad… as long as the vendors balance the “guidance” with real-world experience/learnings.
An example: At many MSP-centric events, there are a few vendors in the audience who take notes, listen to panels and ask all the right questions. You can tell they’re committed to understanding and helping MSPs.
Then, there are those who stay locked in their booths and base their entire event experience on the number of business cards collected. Alas, there’s a big difference between business cards and business relationships…
-jp
Excellent article and commentary. As Lane said, there are many IT service providers that call themselves MSPs, just because they sell a server monitoring service. We ourselves do it. We have a healthy traditional service business and a healthy hosting business, and we are slowly adding new MSP business or converting clients to a Managed Services delivery model.
We know that vendors are paying attention because we have companies like INTEL “creating” products like the Hybrid Cloud Server. But at the same time, I think we have to remember endusers don’t care what we call ourselves or what kind of company they do business with, as long as their needs are addressed.
I believe one of our biggest risks are the vendors that are trying to get into our service business, such as DELL. The easier they make it for a client to sign up for a service contract for monitoring, help desk, onsite support, hosting, and everything else we do, the easier it’ll be for a customer to want to try them out as a single vendor solution.
That’s why, as Gary said, quality really matters, because we can sell the value of quality against the illusion of “good enough” service. And I’m sure Gary has heard a lot about DELL’s intentions from Todd, who was just at Silverback/DELL, before joining Nimsoft.
I better stop throwing people’s names around …
I guess there’s a few different factors at play when it comes to MSP’s migrating over to the managed service model and tapping into that river of gold. Over the last 6 years I’ve had the opportunity to work with IT service providers/MSP’s from all over the globe in the post sales business development environment.
With that in mind, I really have agree with Gary’s point when he stated that we, the RMM vendors sell a ‘product’ to the IT Service provider/MSP who then have to sell a ‘solution’ to their clients. That alone is one of the biggest challenges facing MSP’s today. However, that’s an entire blog post/debate
for another day.
As there being a river of gold out there for MSP’s to tap into, I truly do think it’s there. My first role here in the space was in channel sales where I spent 1-week a month in market working with MSP’s helping them sell their manged services to their clients. From that point to now I’ve seen the SMB space become a lot more dependent on technology as a means of delivering their core/critical business services. Not only are they becoming more reliant on technology, their networks and existing infrastructure is becoming more sophisticated as well.
Having said that, what we’ve done here at Quest is we’ve designed an MSP business specific consulting process that takes the guess work out of making the transition over to managed services for our partner.
We invest the time with each of our partners who wants to participate in the MSP Acceleration program and help them with everything from building to then pricing their managed service solutions.
I think we all have a stake in helping MSP’s set sail on that river of gold!
Mike Byrne
Director of MSP Quest Software (PacketTrap Networks)