Say Goodbye to Managed Services "Pretenders"

Mark my words: Some industry “pretenders” — including a range of software companies and resellers masquerading as MSPs — will exit the managed services market very soon.

But don’t panic: Many successful managed service providers will see their businesses go from “good to great” over the next 12 to 18 months. Here’s what to expect in the months ahead.

First, some important background information: I signed a non-disclosure agreement with one Silicon Valley start-up, and also spoke on background with several MSP software companies.

Based on those interviews, I offer the following opinion: Quite a few software companies jumped on the MSP bandwagon in 2007 and 2008. A few may not continue forward with those MSP efforts in 2009.

Regardless of your software partners, check in with them now. Determine if they’re making staff changes, organization changes or go-to-market changes. Ask about the company’s funding and growth strategies. And use tools like LinkedIn to see who’s making career moves in the MSP industry. You’re ultimately seeking clues that reveal your software vendor’s stability and commitment to you.

Trouble Ahead?

Here’s why some software companies and even a few Master MSPs are rethinking the managed services market:

1. Recruiting VARs Can Be Expensive: At first glance, the managed services market seems so easy to enter. Design a remote management tool, then pitch it to VARs as a platform for remotely managing customer networks. VARs, in turn, gain recurring revenue. Everyone is happy.

Unfortunately, it’s sometimes too expensive to recruit and train partners — especially break-fix folks who are stuck in the 1990s.

N-able’s Mike Cullen has predicted that 20 percent of MSPs may ultimately dominate 80 percent of the managed services market. I’ll put it a bit more bluntly: Many break-fix resellers won’t succeed in the MSP space.

2. Software as a Service is Sexy: Quite a few MSP software companies envy their SaaS-oriented counterparts.

Watch closely: Some MSP software companies are adjusting their business models to more fully support SaaS. In most cases, that’s a good thing. But in some cases, the MSP software companies will be tempted to serve customers directly — leaving VARs and partner MSPs out of the loop.

3. Yes, The Recession Hurts: Successful MSPs are holding up well during the recession, and they’re generally more profitable than break-fix folks. But don’t assume a rising managed services tide will lift your boat. You still need deft leadership to navigate a terrible economy.

Some MSPs are taking a financial hit because some customers can’t afford to pay their bills. Plus, prospective customers are taking a longer time to sign new managed services contracts. As a result, some MSPs are slowing their purchases from software and platform providers.

In other words, the recession pain has moved from the customer to the MSP to the software provider. Everybody in the IT services food chain suffers at least a little.

Am I pressing the panic button? Absolutely not. We continue to state — clearly — that successful MSPs continue to grow. (We’ll prove that when we unveil our latest MSPmentor 100 report.)

But mark my words: A few “pretenders” — including software companies and break-fix resellers masquerading as MSPs — will exit the managed services market or completely rethink their strategies in the next two to four months.

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