What You Need to Know about the State of Managed Services

The managed services market is maturing. Almost half of MSPs – 43 percent – have been in the business for at least five years, while a minority of 12 percent has been around for two years or less. Overall, 88 percent have been in the market for two years or more.

And while managed services isn’t yet the No. 1 business model employed by channel companies, it has become the second most popular. As a whole, the channel still prefers to sell solutions.

These are some of the findings contained in CompTIA’s Fifth Annual Trends in Managed Services Report, released in June. The report notes the managed services market is growing at a respectable 12.5 percent annual clip, and has been projected by research firm MarketsandMarkets to reach $193 billion in 2019, up from $107 billion in 2014.

As impressive as that growth rate is, managed services still hasn’t managed to upstage the more traditional model of selling solutions. The reason for that is simple: Providers still make more money selling IT solutions than delivering managed services.

“Three in 10 respondents ranked managed services as the leading generator of revenue in the last 12 months, second to the 44 percent that cited IT solutions as the No. 1 revenue choice,” the CompTIA report explains. Other models, such as VAR/reselling, IT support and help desk, and consulting services, are less lucrative than managed services.

Signs of Trouble

Despite the projected growth in managed services, CompTIA cautions market players about some potentially troubling signs. Chief among them is commoditization. CompTIA quotes 2112 Group as revealing that “managed services profitability fell 21 percent to 30 percent” from as high as 60 percent “just a few years ago.” The culprit, according to 2112 Group, is oversupply, which is driving MSPs to compete on price to “win and retain business.”

Most MSPs remain small, generating less than $1 million in revenue yearly. “They typically serve small-to-medium-sized customers and/or individual departments within larger organizations,” the report says, while also noting that most MSPs offer services beyond the managed service variety.

The biggest issue these small MSPs face is recruiting. Retention is also a big problem. “Remotely monitoring and managing hundreds of customers’ on-premises equipment, along with those workloads they have in the cloud, is more than a 9-to-5 proposition.” Technical staff attrition is common, with 80 percent of MSPs saying they’ve lost one or more technicians to internal IT departments.

CompTIA suggests part of the problem is most MSPs are not pure-play companies, making it difficult to define technician roles. Presumably, the resulting confusion contributes to their decisions to leave.

The Good and the Bad

It’s clear from the CompTIA report that MSPs currently are subject to positive trends, such as high growth, but also some potential negative developments. To get their share of growth, providers will have to stay alert about market trends and work hard to define their roles in order to avoid commoditization.

This business is never easy, but if you’ve made it this far, you already have a good sense of what it takes to succeed. Going forward, your survival instincts may have to be sharper than ever.