Services Index Soars Even With Work Order Price Decline

That's the big takeaway from the OnForce Services Marketplace Index for the first quarter.

The Lexington, Mass.-based online services marketplace for CE and IT professionals said it transacted more than 70,000 services events in the first quarter, a 10 percent increase from the year-ago period. What's more, OnForce said its revenue for services events was up 15 percent compared with the year-ago quarter.

But there was pressure on services pricing in the quarter, with an average total work order value drop of $30 per transaction to $120 compared with the preceding quarter, according to OnForce. Without that drop in pricing, OnForce's services revenue would have been up some 25 percent, said OnForce CEO Peter Cannone. One sign of the work over value decline was a 26 percent drop in average total work order value for VoIP/telephony in the first quarter compared with the preceding quarter. What's more, hourly rates for POS service dropped for the first time in a year.

"Customers are testing the threshold for pricing," Cannone said. "It is very competitive out there." The pricing pressure on services comes with the "hardware business falling off the cliff," Cannone said. "What you are seeing is an accelerated market adoption of the variable services model," he said. "We are in a services economy right now."

Cannone said companies of all stripes are opting to fix the IT equipment they have rather than invest in new equipment. There was an increase in break/fix services to 63 percent compared with 59 percent in the preceding quarter, according to the OnForce Services Index. Cannone urged solution providers to step up to the services plate to offset the downturn in IT product sales.

Peter Cowie, the CEO of Managed Technology Partners (MTP), a Boston-based managed services vendor that uses OnForce for national delivery of services, said his company's services business was up 20 percent in the first quarter compared with the year-ago quarter.

"We saw a significant uptick in services related to extending the life of systems and in general services calls on existing technologies," Cowie said. "Large and small companies are initiating efforts to protect the investments they've made and that translates into lots of on-demand services. It was a tough product quarter, but the services related to extending the life of systems are strong."

Some customers are consolidating data facilities, which has translated into services work, Cowie said. "The whole managed services business is benefiting from head-count reduction," he said. "That is where a big part of the growth is coming from. Companies have downsized from an IT perspective but they still have to keep the lights on. That plays right into the managed services business."