Managed Services Face Uncertainty Over Cloud: Report

01 Jul Managed Services Face Uncertainty Over Cloud: Report

As more companies turn to the cloud to run their daily operations, managed services providers are worried about competing for customers with Microsoft Corp., Amazon.com Inc. and other big cloud firms, a new report said.

Managed services providers, or MSPs, typically charge firms recurring fees – set out in contracts and service-level agreements – to handle desktop, applications and network management, remote help desks, backup and disaster recovery, and other remote IT services. They typically serve small to midsize firms, or individual departments within larger companies.

But many MSPs are worried that companies increasingly will choose to access these and other tools directly from cloud providers, or via cloud-based tools, as they become more comfortable shifting business infrastructure and applications to the cloud, according to a study by IT industry trade association CompTIA.

MarketsandMarkets, a research firm, forecasts the global managed‐services market to grow by 12.5% annually to $193 billion by 2019, from $107 billion in 2014. Yet at the same time, profitability at managed services firms appears to be falling, with gross profit margins declining to 30% from 60% within the past few years, according to data cited in the report from consultancy 2112 Group.

In a survey of 400 U.S.-based managed services providers, 62% identified the rise of cloud computing as the top issue keeping them up at night, CompTIA said.

That beat out concerns over customer demand, margin erosion and customer acquisition costs. Roughly 90% of the firms surveyed have been in the industry for at least two years, the report said.

“The fear is that there are now many ready-made, self-service or self-procured services” becoming available in the cloud, Carolyn April, CompTIA’s senior director of industry analysis, told CIO Journal.

Adding to that uncertainty, as more businesses move their infrastructure and applications into the cloud, managed services firms say they’re being forced to change the way they do business, Ms. April said.

For instance, many managed services firms often sell the hardware they manage, which tends to operate on-site at a company’s place of business. In the cloud era, that hardware model is declining.

In order to compete, managed services firms are pushing prices down and “undervaluing their services,” the report said. More than half of the firms surveyed cited margin erosion as a problem.

And like many companies across all industries, managed services firms themselves are approaching the cloud cautiously. Only 54% of firms surveyed by CompTIA said that supporting cloud-based services was a strategic part of their business. Another 44% said they only support cloud services when asked to by an enterprise customer.

Ms. April said managed services providers won’t survive the cloud era by simply reselling existing cloud services. Because most firms now have multiple services running in the cloud, the “sweet spot for MSPs is to be an ‘orchestrator’ of all these cloud applications for end customers,” as well as offering a “selection and vetting process” for a growing number of enterprise cloud tools, she said.

Still, many “rank-and-file managed service providers” are trying to sort all of this out, she added, as they seek new pricing models amid a fast-changing market.

 

Source: The Wall Street Journal

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