Trends in Managed Services: Opportunities Abound Despite Volatility

CompTIA’s latest research identifies newer, emerging types of managed services and a shift toward specialization in areas such as security.
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Help desk services. Network services. IT support. Sound familiar? They should. These three categories continue to top the list of offerings that today’s managed services providers predominantly sell. While not sexy stuff, these bedrock services nonetheless constitute what the MSP market was built on. And their continued ubiquity in the MSP toolkit, along with managed device services, basic security, and storage, remain a main reason that customers, especially SMB-sized companies, choose to work with a third-party provider.

And yet, change is happening. Today’s MSPs are increasingly expanding beyond the fundamentals. CompTIA’s latest Trends in Managed Services research identifies an array of newer, emerging types of services that are creeping into portfolios, along with a shift toward deep specialization in areas such as security. Consider the following: two thirds of MSPs in the study say they expect the mix of services they have in their portfolio to increase over the next year. The majority will maintain the basic offerings but move up the stack to offer everything from managed internet of things to cloud-based applications portfolios.

Significant Growth Around Managed IoT

Managed IoT is increasingly taking up space among the newer offerings that today’s MSPs are placing bets on. And for good reason; the opportunity is significant and growing. In the U.S. market, managed IoT spending was $1.6 billion in 2017 to what IDC expects to be $3.7 billion by 2022. More than half of MSPs offering Managed IoT report seeing significant revenue opportunities today, which means they are both experiencing solid sales now and feel able to forecast out how much business this could bring in over the next few years.

Generally speaking, IoT is not just one technology, but an amalgam of different, yet connected technologies that providers can tap into. There’s the hardware component, those sensors and devices that are deployed as part of an IoT engagement at a manufacturing plant or an agricultural setting. Then there is then a management component, where services are provided remotely to monitor, track, troubleshoot, and update the hardware. And finally, there is the software element, specifically data collection and analytics. An MSP, depending on its skill set, can be involved in one or all three of these IoT components. So a smaller company may deal strictly in the devices and their management in a consumer setting, such as a smart home, while a large MSP may create a practice heavy on the analytics piece and implementations with many end points.

Increased Focus on Specialization, Security

Another direction to take to elevate your MSP game is specialization. One example is security. A segment of MSPs today have chosen to specialize in security services almost exclusively, donning the moniker of an MSSP, or managed security services provider. In fact, just more than half of respondents (52%) said the No. 1 factor that will help keep performance strength up in the overall MSP market over the next two years will be the development or enhancement of cybersecurity skills.

What’s the difference between MSPs and MSSPs, you might ask? Largely, the depth and sophistication of the latter’s security practice. While traditional MSPs typically offer basic antivirus, patch management and malware prevention services, an MSSP elevates the discipline to a much higher level, in theory. MSSPs apply security-specific expertise holistically across all customer systems, infrastructure, applications, and data. Their portfolio spans a much more plentiful number of security services than the average MSP, including things like penetration testing, SIEM, ransomware protection, compliance audits and governance consulting. And most run a secure operations center (SOC), either their own or via a third party, for added rigor and authenticity.

That said, there is some nuance and overlap between traditional MSPs and MSSPs. Three models have emerged: pure play MSSPs (38%), meaning that’s largely all the work that they do; MSPs that maintain a separate MSSP subsidiary or side business (35%); and MSPs that offer a few higher-level security services on top of the routine parts of their portfolio (27%). It’s important to note that respondents self-selected which model fit them and, as a result, interpretations may vary based on the individual company.

Challenges: Commoditization, Consolidation

These are just a couple of the trends seen in the MSP space today. As an established category, managed services cuts across the broad spectrum of the IT channel, from thousands of SMB-sized providers to larger MSPs that in some cases manage business functions such as accounting or human resources for enterprise clients. Yet despite exciting and potential lucrative forays into new areas, the MSP market is not without its share of change and volatility, especially of late. U.S.-based MSPs have undergone a slew of consolidation activity, while ongoing commoditization and pricing pressure have, for some providers, eroded margins.

The increasing complexity and breadth of technology solutions also puts pressure on MSPs to hire or retrain staff with the requisite skills to meet those new demands. Many MSPs worry about a downturn or other adverse shift in the general economy. And now we have COVID-19 virus to worry about.

That said, opportunities abound for today’s MSPs. Specialization, emerging technologies, and yes, basic IT services, remain areas to explore, exploit and finetune for customers.

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