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MSP ITWhile no one knows for certain what percentage of the trillions of dollars spent on IT might be accounted for by managed service providers (MSPs), recent research suggests MSP IT spending is growing at a significant rate.

A survey of 250 MSP executives finds that 80 percent of respondents have increased their IT budgets overall. Two-thirds (67 percent) have doubled (50 percent) their IT budget size. Also, more than a quarter (27 percent) said they have increased their IT budget by as much as 60-70 percent.

Conducted by ETB Technologies, a provider of refurbished IT equipment, the survey also found that 80 percent of respondents have seen an increase in demand for more enterprise IT equipment. This is thanks mainly to the rise of hybrid cloud computing. Much of those efforts can be traced back to regulations that require organizations to retain more control over their data.

As more organizations move responsibility for data management back in-house, the survey finds nearly two-thirds of MSPs (62 percent) are either considering repatriating workloads to an on-premises IT environment or are in the process.

It’s unclear how many MSPs, in addition to managing those IT environments, are also reselling IT infrastructure to be deployed in a local data center. However, those that do have an advantage. An MSP that resells infrastructure will know about the need for services to manage it much sooner than anyone else.

On top of that, the MSP typically gets a share of the profit margins generated by the IT infrastructure provider. That may not be a huge sum of money per deal, but over the course of a year, the margins provided by reselling IT infrastructure can, at the very least, offset some of the cost of acquiring the IT infrastructure the MSP needs to deliver services.

Refurbished equipment has its tradeoffs

The ETB survey notes almost a third (30 percent) of respondents said they currently buy refurbished equipment. This is to reduce their total cost of IT. The tradeoff is that while refurbished equipment is generally less expensive, it may not support the latest and greatest capabilities available.

As every MSP knows, as application environments become more complex, the total cost of the IT infrastructure steadily increases. One reason so many MSPs are now reselling a service provided by a vendor partner is to reduce those IT infrastructure costs. The vendor, in effect, is assuming responsibility for those costs on behalf of multiple MSP partners. The downside is that such services reduce the barrier to entry to providing a service. Therefore, as more MSPs offer a service, the more pressure there is on pricing. MSPs must carefully evaluate the margin generated by reselling a service.

Each MSP will need to decide for themselves how best to construct their product portfolio. As IT environments continue to evolve, one thing that is certain is applications are becoming more distributed. MSPs should expect hardware to play a bigger role in managed services than it has so far for most of the cloud computing era.

Photo: Kmpzzz / Shutterstock

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Mike Vizard

Posted by Mike Vizard

Mike Vizard has covered IT for more than 25 years, and has edited or contributed to a number of tech publications including InfoWorld, eWeek, CRN, Baseline, ComputerWorld, TMCNet, and Digital Review. He currently blogs for IT Business Edge and contributes to CIOinsight, The Channel Insider, Programmableweb and Slashdot. Mike blogs about emerging cloud technology for Smarter MSP.

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