Managed Services Set For Modest Channel Growth Amid Cloud Concerns

Managed services still form a steadily growing market, despite channel concerns about revenues, staffing and cloud computing. Such concerns are leading many channel firms to take a go-slow approach to this market and not fully commit to it.

These were the conclusions of a CompTIA study into the trends in the managed services sector. The CompTIA research surveyed over 400 IT solution providers and channel companies in October. It found half of the channel firms it surveyed provide managed services either exclusively or as part of a broader business portfolio. That is up from four in 10 companies in 2011 and points to a steady increase.

Cold feet

This is evident from the news earlier this week that CA Technologies was reorganising its business around expected demand for managed services. The survey additionally found that 17 percent of companies expect their managed services business to account for 75 percent or more of their total revenue over the next five years and that under two-thirds see managed services as an escalating share of overall revenue during that time.

“The managed services model is becoming more commonly practiced across the channel and generating demand among end users,” said Carolyn April, director for industry analysis at CompTIA. “It’s a steadily growing market that is not going away, despite some uncertainty.”

CompTIA was quick to point out that the channel has yet to fully commit itself to the managed services market. It sees the most common scenario being that of a company “slowly introducing some measure of managed services offerings into its portfolio, while continuing to foster its legacy streams of revenue”.

“The incidence of pure play MSPs is pretty low,” said April. “It’s still an added practice as part of an overall business. Many, if not most, MSPs continue to sell hardware and other infrastructure to their customers, do the implementation, and only then take over management of said devices under a managed services contract.”

Compensation headache

CompTIA concludes that financial considerations and staffing issues are two big contributing factors behind the cautious move into managed services.

“It’s difficult from a financial perspective to make a big turn like this overnight,” said April “They have to keep that part of the business that’s paying the bills running while they slowly phase-in managed services.”

The channel also struggles to come up with an effective compensation strategy for sales staff following a managed services sale. This is because of the way things usually work with sales reps traditionally receiving a percentage commission on the total sale of product. With managed services, customers typically pay a monthly fee based on a flat rate, a per-user, or per-device charge.

Matters are not helped by the absence of an industry consensus on how to compensate sales staff. Some choose to issue small commission checks every month while others offer a percentage of the total contract at the time the contract closes.

Cloud impact

Another factor injecting some caution into the channel is uncertainty about the impact of cloud computing, with the study finding that, among IT channel companies not offering managed services, four in 10 said they were waiting to see the impact that cloud computing has on the managed services market.

“There are a number of camps when it comes to making comparisons between managed services and cloud computing business models. Are these models essentially one in the same? Are they complementary but different? Or are they directly competitive?” April asked.

The majority of channel players remains convinced that managed services will take some part in operations going forward. Nearly two-thirds said they plan to begin offering some level of managed services within the year.

This development comes after the 2009 findings of CompTIA that managed services was shining a rare beam of light in an otherwise gloomy market mired at that time in a deep recession.