The three things that can disrupt managed services businesses

Ryan Morris, principal consultant at Morris Management Partners

Ryan Morris, principal consultant at Morris Management Partners

NATIONAL HARBOR, MD — Managed services have been perhaps the biggest shift in channel business models since “value-added” got tacked in front of the word “reseller” years ago. It has driven a sea change in partner profitability, changed how solution providers think about recurring revenues, and enabled a business conversation that was previously uncomfortable or impossible for channel partners.

The concept is not exactly in its revolutionary phase, even if ten-plus years since the concept caught on, many solution providers are still building their managed services revenue and refining the processes through which they deliver services to customer.

But as with all things — and particularly with all things in the technology industry — the next disruptions are already on the horizon. One might point to cloud as the biggest disruptor to managed services, but Ryan Morris, principal consultant at Morris Management Partners, argues there are bigger disruptors that managed service providers will have to face off against and compete with in the near future. Speaking at LogicNow’s Max 2015 conference at the Gaylord National here, Morris predicted three things that will challenge managed service providers and their business models more than anything else.

Number 1 — New Buyers

The move of IT spend towards line of business, with some analyst firms estimating that in short order, business unit execs will control more than half of IT budgets, presents a clear and present threat to solution providers who are stuck in selling to the IT department.

The solution to this one is simple — MSPs simply have to get out of their comfort zone talking to IT professionals, and must learn to speak the language of business value with the line of business executives

“They don’t want to talk about RAM allocation or server utilization. You’d better learn to have business conversations with decision makers, or you are going to be left behind,” Morris counseled attendees.

Number 2 — New Competitors

MSPs are not just facing off against MSPs in the market today, Morris noted. Remember the convergence of voice and data a decade ago that saw a large number of VARs and later MSPs get into the voice game? Today, the convergence is coming the other way, as voice resellers add IT to their stacks. This is disruptive to the traditional MSP in two ways, Morris argues.

First, they don’t have “a vested interest in maintaining the IT status quo,” so are willing to suggest a more radical or completely new solution and push the envelope farther than established MSPs with established standards and practices.

Second, they come from an industry where sales and marketing resources are considered a necessity, as opposed to the engineering background of many MSPs which considers sales and marketing a luxury.

“When you have you, doing part-time, word-of-mouth business development, and they have 14 sales people calling every day, do you get invited to the table?” Morris asked.

To combat this, MSPs would be wise to invest more in sales and marketing.

Number 3 — Rise of the machine

Maturity in a managed service business is almost always about operational efficiency, and it’s that efficiency that drives greater profitability. But the advent of big data analytics and machine learning in the technology management space has the potential to be a game-changer for those who embrace it. Morris estimated that in the foreseeable future, an MSP that is as proactive as possible in the automated analytics place will be able to do with two technical operations people what the current MSP is able to do with 10.

“How much margin do you think your’e going to make when I say I will totally manage your business infrastructure with the same level of execution as your current provider, for 20 per cent of the cost of your current provider? That’s the order of magnitude we’re talking about,” Morris said.

The challenge speaks to the need for MSPs to continually drive greater efficiency in their operations, including understanding how advances in predictive analytics can reshape how they deliver the services they offer.