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Solution Providers Approach Managed Services With Caution

The managed services business could be on the cusp of impressive growth, but a spate of new vendor competitors and resistance to the concept by some SMB customers could slow solution provider commitment to the market.

SMB

According to Everything Channel's Institute for Partner Education Development [IPED] 2008 State of the Managed Services Market report, managed services currently account for 11.5 percent of the North American channel's total revenue, representing a $42.9 billion market. That's up from 9.3 percent of total revenue or $31.31 billion just two years ago. And IPED predicts managed services will grow to 14 percent of total channel revenue or $57.16 billion in two years.

But despite those impressive numbers, solution providers say they remain guarded with their managed services investments. "The issue in managed services is looking at the Dells and HPs [Hewlett-Packard] and wondering if they are going to be able to come in and offer the same services we do now at a fraction of the cost," said Dan Evans, president of Nexus Information Services, a solution provider in Minnetonka, Minn. "I don't want to invest hundreds of thousands of dollars and have these guys come in in six months and say, 'Here you go.' How would we recoup our expenses?"

Many solution providers apparently share Evans' reluctance to jump headlong into managed services. While 93 percent of the solution providers surveyed by IPED say they currently provide or plan to provide some form of managed services, up from just 12 percent in 2006, close to 50 percent said they expect to invest 10 percent or less of their annual revenue in their managed services practices.

"We want [managed services] to become a big deal for us from the recurring revenue standpoint," said Manuel Villa, president of VIA Technology, a solution provider in San Antonio, Tex. "But we're still in the transition phase of trying to get customers to switch over to this type of service."

Villa said that small business customers, those with less than 100 users, feel they will lose the hands-on service they've received in the past. "These customers are used to seeing us come to their place on a regular basis and do a checkup on servers and PCs and say, 'Good morning,'" he said. "What we are starting to tell them is that we are in the process of adjusting our pricing due to the high costs of gas. In the past we never charged trip fees, but we may have to start."

Overcoming this reluctance by SMB customers will be crucial in accelerating solution provider managed services revenues and investments. According to the IPED study, small businesses, those with 99 or fewer employees, comprised 54 percent of the managed services market.

Evans, meanwhile, said that partnering with vendors for basic services and offering specialized managed services on top of that might well be the best model. "We are a Dell reseller and we are an HP reseller," he said. "Is there an option for an agent fee to resell those services and from there tag on a piece that the vendors don't offer?" he said. "There are a lot of different options and I hate to jump so quickly ahead into things that we waste time and money."

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