The conventional practice of enterprises investing in and managing all of their IT requirements in-house is increasingly on its way out. Today, most companies prefer to outsource their IT needs to specialized partners that assume end-to-end responsibility for some of their infrastructure and applications. Right from on-premise equipment and servers to applications on the cloud, the Managed Services space is rapidly evolving to encompass a wide range of offerings, as enterprises demand increased ROI. Managed Services Providers (MSP), in turn, are looking to differentiate themselves aggressively as margins decrease with mounting competition.
It is no surprise then that customers are starting to look at Managed Services as a revenue generator , rather than considering it a mere outsourcing deal. On the other hand, with a large number of vendors entering the fray, customers are becoming savvier in negotiating deals. In this context, there is an urgent need for MSPs to redefine themselves as partners that understand their customers’ business intimately, if they want to differentiate themselves in a commoditized market. As the IT market consolidates and new technologies come in, customers will need to work in tandem with MSPs to figure out how they can maximize benefits from the deployment of Managed Services.
Increasing commoditization of services
The Managed Services business model came into mainstream focus in the early 2000s as businesses woke up to the benefits of regular maintenance vis-a-visa break-and-fix model. Since then, the service model has evolved significantly with the onset of many vendors. In recent times, the market has witnessed the entry of many ultracompetitive vendors eyeing larger market shares with aggressive pricing.
This increasing commoditization, though, is fraught with the risk of affecting the quality of service delivered by MSPs. MSPs, therefore, must instead focus on provisioning niche, differentiated services, instead of resorting to a pricing war.
Arrival of niche and vertical - specific operators
Realizing these inherent risks of undervaluing their pitch, a few MSPs are now repositioning themselves as niche service providers or vertical-specific operators. As IT permeates into an ever-increasing array of the enterprise landscape, spanning multiple functions across the front and back end, the use cases for managed services are growing rapidly. Sensing this potential of delivering function- and domain-specific capabilities for increased market share, many MSPs are aiming for specialization. This spans building in-depth expertise in technologies such as Big Data, or methodologies including DevOps, to delivering services such as application monitoring, or even specific applications and tools.
Another trend gaining traction is the vertical specialization strategy. Being a domain-focused MSP not only gives such vendors the edge to brand themselves better but, also gets them closer to their customers’ pain points. Such a strategy could represent a win-win scenario for both the customers and MSPs, as the latter are able to better service enterprises. Driving this trend is the growing demand from customers for partnerships that can help them acquire more customers, rather than just engaging in a transactional relationship built around point meal services.
Managed Services is thus no more about just keeping the lights on but rather is being seen as a way to help customers gain a competitive advantage. This point is further reiterated by the increasing adoption of PaaS and SaaS service models, together accounting for 82.3% of the market . In such models, customers expect partner MSPs to offer vertical specific platforms and services to address their specific business needs, instead of just offering a generic service. Keeping this in mind, many MSPs are focusing on two or three specific verticals, especially ones with high compliance requirements such as Finance or Healthcare, to set themselves apart from the rapidly commoditizing market. The industry is also seeing an interesting emergence of micro-verticals with some MSPs offering particular services for veterinary hospitals, hedge funds and resorts.
Moving to the Cloud
While vertical specific solutions are one thing, customers are also looking at MSPs to play the active role of advisors who can help them derive maximum benefits from new technology options. A case in point is the growth of Cloud services. As Cloud technologies gain more acceptance, and enterprises realize the benefits of moving more applications and services off premise, they expect their partners to follow suit. With enterprises predicted to drastically decrease the number of IT services they build versus the turnkey external ones they will readily consume , Managed Services will have to adapt themselves accordingly. In addition, the complexities of cloud services are also likely to increase notably as customers become aware of the challenges in relying on just one or two cloud services. With Hybrid and Multi clouds increasingly becoming common, customers are looking to their MSPs to manage these setups for them as well.
Migrating to the cloud makes significant business sense for many enterprises, especially if it doesn’t require them to build the requisite competence for maintaining the setup. This is where MSPs are expected to make a difference, by bringing in their advanced capabilities and helping integrate cloud services into the fabric of the existing enterprise IT infrastructure.
With customers looking for tangible value from their managed services partners, particularly with respect to specialized offerings, MSPs will have to deliver demonstrable business outcomesfor every penny they charge. And if such a future moves to the cloud, it is but imminent for MSPs to learn to fly as well.