Managed service providers are ready to expand. A full 59 percent of the 400 U.S.-based MSPs surveyed by CompTIA plan to increase the number of managed services they provide. Managed print services (32 percent), help desks (31 percent), virtual desktops, and database management topped the list as providing the most opportunity to deliver more services to both new and existing customers alike.
Not too long ago, managed service providers (MSPs) came in two forms. There was a small cadre of MSPs that focused exclusively in enterprise accounts. At the other end of the spectrum was an aspiring group of MSPs trying to service small-to-medium (SMB) accounts. The CompTIA survey would suggest that the latter group is finally coming of age.
While the majority of those MSPs still generate less than $1 million in annual revenue, the CompTIA survey finds that a third of them now report that managed service has been their single largest revenue stream in the past 12 months. That compares to 44 percent that cite more traditional project-based IT solution engagements as being their largest source of revenue.
More telling still is the amount of time most MSPs have been in business. The CompTIA study finds that 43 percent of MSPs have been in business for longer than five years. Another 43 percent have been in business two to five years. That suggests that while most MSPs continue to serve the lower end of the market most of them have achieved a level of financial stability that should allow them to at the very least endure.
MSPs in their prime
Of course, the number of pure play MSPs in the world is quite small. Most IT service providers today employ a mix of business models that span everything from reselling products to acting as an agent on behalf of a cloud service provider. What’s changed is that two-thirds of the MSPs surveyed by CompTIA consider themselves skilled providers, compared to just 39 percent that thought the same the last time CompTIA administered the Trends in Managed Services survey in 2012.
Another 33 percent of the MSPs said they were competent and getting better. At the same time, 60 percent of the respondents said they are operationally efficient, and another 40 percent saying they were close to achieving that. As such, there’s probably not much room for MSPs to drive additional costs out their business unless they find new ways to automate IT services delivery.
Future growth potential
The real question, of course, is to what degree managed services will drive future growth and, as a consequence, should MSPs consider selling their business or expanding it by either adding additional services or acquiring other complementary MSPs. Some managed services are already a commodity, so for many IT services firms a managed service is now more of a means of staying relevant to their customers than a profit engine.
In fact, the CompTIA survey finds that 53 percent of MSPs are trying to control all aspects of IT service delivery to their customers. The ultimate goal is obviously to add higher-margin services to the portfolio as the business continues to grow. The CompTIA survey finds that half the respondents expect managed services to account for three quarters of their revenue in the next two years. Another 45 percent said managed services revenues will make up half their business in that time.
But the degree to which those numbers reflect an increase in managed services revenue versus a decline in on-premise IT deployments will naturally vary. As more IT deployments move into the cloud, there is still demand for manage services. However, how much demand there will be for services to manage on-premise IT deployments is unknown. Whatever the case it’s almost sure to be less than it is today.
In the meantime, it’s little wonder that the CompTIA survey finds that the number one issue keeping 62 percent of MSPs up at night is cloud computing. The real challenge facing MSPs to is figure out how to expand higher-margin cloud-based services as quickly as they can to make up for lost on-premise IT opportunities.