Perfect Storm
januari 2016

In 2016 Managed Services continues to be a high growth market with many providers acquiring new customers, managing new devices and building recurring revenue. The reason is simple: more and more small and medium sized businesses (SMBs) rely on their IT infrastructure without the IT budgets to justify staffing their own technicians.

But there is more then sun. The next 2 years will bring more change in this market than the last 15 years did. Mike Cullen, VP Sales at N-able Technologies, coined today's developments in the Managed Services business after the 1991 nor'easter that absorbed a category 5 hurricane, the perfect storm.


The 2000 American disaster drama film visualizes the Perfect Storm. The movie is based on the true story of the Andrea Gail, a commercial fishing vessel lost at sea in that 1991 storm.

New entrants

For sure, the Manages Service Providers (MSP) industry is facing rapid changes. Traditionally Managed Services are high-margin business characterized by "sticky" customer relationships. There seems little need to change and some MSPs have not evolved their service delivery model to keep up with the speed of business.

There is turmoil coming up. It makes perfect sense for telco's, manufacturers of copiers, printers, servers, and software giants to jump on the managed services bandwagon and develop Managed Service initiatives as a logic extension of their core business:

  • They have an installed customer base,
  • They have digital product lines, and
  • They invest in IT-expertise to manage their digital products.

Some call this conversion others talk about new entrants. In both cases it is about existing players with deep pockets entering the Managed Services market.

Commodification and price dropping

All these new entrants commit to Managed Services as a way to diversify their revenue and add new value to established customers.

More competitors bring two inevitabilities: commodification of services and price cuts. The new entrants have infrastructure and thus efficiencies to leverage. They use these to create compelling service bundles while driving prices down.

To a certain extend there is an interesting reference to car services.


Not so long ago, general-purpose garages delivered most of the car services including gas. Dealer networks brought the car industry new ways to extend the relation with their customers and open a new source of revenue. They leveraged operational efficiencies and productized their automotive services. That led to fixed price, commoditized services for standard repairs. The corner garage crushed because it couldn't compete with the operational efficiencies offered by the dealers.


Thrive against these new competitors needs a new level of operational efficiency.

By reducing the cost of delivering managed services a MSP immediately improves its profitability. Automation of as many standard manual tasks is key. It dramatically improves the number of devices managed per technician while delivering services to end customers more quickly, efficiently, and to a consistent service standard. The more you can automate, the less time you spend reinventing the wheel. The more efficient you become, the fewer scripts you will need to write, and the more consistent your service delivery will be.

A modern MSP should be leveraging the latest technologies themselves, and once thoroughly tested, providing cutting edge technology solutions to their clients. If the MSPs entire business model does not fit with this philosophy, then they will not be capable of providing their clients with strategic technology guidance.


Payam Pourhomami explains that in today's on-demand world, the modern MSP focuses on proactive providing their customers with support and guidance. This means on-demand support when needed, whether it is remote or on-site. The modern MSP is able to address customer issues through the use of remote access technologies, and cut down on their overhead expenses, instead of sending an engineer on-site for a basic issue. Thus MSPs can take on higher volumes of support issues with less staff, making them more profitable, and in theory pass those cost savings on to their customers, making them more competitive.

reactive-managed-service(Source: 2016 Pricing Guide Solarwinds N-Able)

The level of sophistication reflects the value added and the type of partnership of the MSP with its customers.

Create value

The Andres Gail did not survive its endeavors in the Perfect Storm with its in 40-foot waves. The boat capsized, crew-members fell overboard or were trapped inside. The film ends with the reading of the eulogy at a memorial service.

It does not have to be that dramatic for the MSP if he understands that Managed Services is not about technology. It is about a business model for generating recurring revenue from a profitable mix of IT services.

The key for the MSP is to keep showing how its Managed Services can address top business priorities of its customers. MSP is about how high-value IT services will result in better employee productivity, less network downtime and an optimized infrastructure. Communicate the value of the IT on a customer's core business, become a "trusted advisor" and a strategic partner, providing consultation and guidance on future technologies, thereby empowering your organization to work towards furthering its mission.

Author: Pieter van Hoogstraten

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