The rate at which routine functions are automated, such as delivering patch updates is about to accelerate considerably. While that may sound like an advance that will benefit managed service providers (MSPs), it turns out that the automation of those functions is increasingly being delivered by vendors as part of their managed service offering. As a result, it’s becoming apparent MSPs will soon need to reorient their portfolios around much higher value services.
On the plus side, many of the services being automated don’t tend to generate high margins for MSPs. On the downside, MSPs might find themselves experiencing a decline in overall revenue, at least until they figure out how to add additional higher-value services.
The good news is most customers have multiple vendors that they don’t have an equal amount of confidence in. They may not even wish to apply patches at the rate the IT vendor wants to because of all the dependencies between applications. Because of those issues, there will always be a subset of customers that prefer a third-party MSP, says Peter FitzGibbon, vice president and general manager of the VMware practice at Rackspace.
“They’re going to be looking for unbiased expertise,” says FitzGibbon.
Even so, FitzGibbon says Rackspace is preparing for the day when many more updates are delivered via VMware rather than Rackspace. That transition isn’t likely to occur overnight, but FitzGibbon says Rackspace will invest in developing additional services using roughly 150 VMware experts that today service over 3,000 customers.
The changing MSP landscape
Naturally, other MSPs will need to similarly follow suit. Most IT vendors can be expected to try and shore up their own dwindling product margins by embedding more managed services within a licensing contract. IT vendors are anxious not only for the potential revenue those services create; they view managed services as a way of reducing the number of customer support calls they need to field. Most of those calls get generated by an internal IT team that in one way or another misconfigured some aspect of their IT environment. By delivering a managed service, IT vendors are hoping to reduce the total cost of support.
IT vendors have also made it clear they are hoping that managed services will sharply reduce the percentage of customers that are more than two release cycles behind on upgrades. Organizations that lag when it comes to upgrade cycles are among the least profitable customers any IT vendor tends to have.
MSPs would be well-advised to sit down with each major vendor they engage with to map out just what types of managed services a vendor intends to provide over the next several years. In many cases, MSPs might decide it simply makes more sense to resell a managed service provided by a vendor versus continuing to deliver that service entirely on their own. Going forward, it’s likely most of the portfolio of managed services being provided by MSPs will consist of a mix of offerings from vendors packaged alongside custom services an MSP has built from the ground up. In fact, a big part of the value any MSP will provide is the ability to manage all those services via a single pane of glass in a way that no single IT vendor is ever able to match.
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