Study: Economy Fueling MSP Interest Among Vendors

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While customers put off capital expenditures, they are still willing to pay for services, which vendors see as an opportunity.

As business spending on equipment and software slows, some of the biggest IT vendors are setting their sights on subscription-based revenue sources to help buoy them through the economic slump.

A new study by Amazon Consulting and Channel Insider reveals that managed services, for which clients pay MSPs (managed services providers) utility-like fixed fees, are getting a lot of attention from vendors. Nearly half of the vendors participating in the study say they expect sales through MSPs to account for at least 25 percent of their business.

Considering that big-name IT vendors have taken some criticism in recent years for not moving fast enough to develop MSP-focused channel programs, the study’s results indicate that at least some of those vendors are working to change that.

And that shift appears to be a reaction to the ongoing economic slump that since last fall has taken hold around the globe. Forty-one percent of study participants said they are seeing increased demand from channel partners for their managed services programs as a result of the global economic crisis, while 20 percent said they have seen no change as a result of the crisis, and 28 percent said they don’t know yet. A small group, 8 percent, said the economy has driven down demand.

“Times like this are a great opportunity to change and reinvent an organisation,” says Oli Thordarson, CEO of MSP Alvaka Networks. “Recessions, while they’re painful, are also healthy in the long run.”

Keith Bradley, president of the Americas for distributor Ingram Micro, says the recession is acting as an accelerator for managed services. Though inclined to put off buying new equipment, businesses still need the services delivered through the managed services model to continue operating.

Because managed services and other fixed-fee models, such software as a service (SAAS) allow businesses the flexibility to pay for only the technology they consume on a fixed fee basis, he says, these delivery service models are becoming more attractive.

Bob Winter, senior consultant at Amazon Consulting, says the study shows vendors are serious about managed services in light of strong demand from partners, and they are putting in place aggressive targets to grow the business.

Thirteen percent of participating vendors are shooting for 75 percent to 100 percent of their sales through managed services models this year, 21 percent of vendors are aiming for at least half of their overall sales through MSP programs, 13 percent are shooting for at least a quarter, and 25 percent for at least 10 percent.

Sixty-seven percent of vendors participating in the Amazon Consulting/Channel Insider study said demand from partners for managed services programs is at least strong and steady, a further indication that channel companies are seeing a growing opportunity in the managed services space.

Thirty percent of participants in the Amazon Consulting/Channel Insider study said demand from partners for managed services offerings is very strong and growing, while another 30 percent qualified demand as strong and steady. Twenty-six percent of respondents said they are experiencing little or no managed services demand.

The study supports anecdotal evidence from numerous MSPs and managed services vendors who say their businesses continue to grow even through the hard times

“Right now we’re busier than ever,” says Ken Sponsler, vice president of engineering services at MSP Connecting Point of Greeley, Colo., adding the company was in the process of hiring two help desk technicians.

Sponsler says there is a compelling case to be made to businesses that trying to control their IT costs that managed services delivers reliable IT service at a predictable cost.

Vendors also reported they are adding MSP partners at a steady pace, either by converting existing partners whose models are still focused on break/fix work and product sales or by recruiting new partners. Twenty percent of the vendors said they are adding MSP partners through conversions, while 28 percent said they are adding new partners, and 39 percent said they are doing both.

Of course, adding MSP partners poses its share of challenges. Even though the MSP model has been around for at least five years, some channel companies still haven’t gotten their arms around the business model. According to the study, that remains a recruitment challenge for 43 percent of vendors.

Just as big a challenge, according to the study, is qualifying potential partners, followed by longer ROI for services vs. product sales, training their channel sales staffs, resistance from their sales representatives, and product-centric compensation plans.

Partner suspicions also play a role. Twenty percent of vendors said they have trouble recruiting partners for managed services offerings because solution providers suspect a “Trojan Horse.” That means potential partners fear vendors will make contact with end customers through managed services programs only to steal them later and take the business direct.

This, of course, is not a new fear. A Channel Insider survey last summer found that competitive threats MSPs fear most include Microsoft, IBM, Dell and Google.

Data on who took the survey is proprietary, but Amazon Consulting reveals that 20 percent of participants were companies with at least £3.49 billion in revenue, 3 percent were vendors with at least £0.7 billion in revenue, and the rest had revenue of less than  £0.7 billion.