98 Percent of Managed Services Is Chaotic

Using a metric based on the Capability Maturity Model, N-Able has measured the capability of its partners to deliver managed services. Its findings are shocking: 98 percent of its customers initially are either in the chaos or reactive stage of maturation. Only 2 percent has progressed to the higher three levels--proactive, service and value--and are able to deliver true managed services, the company says.

"A lot of these small guys are getting into managed services, but their ability to get it is limited," says Gavin Garbutt, N-Able's president and CEO.

According to VARBusiness' 2006 State of the Market Survey conducted last fall, 44 percent of solution providers said they were offering managed services, and the average solution provider derived 23 percent of its revenue from managed services. Another 21 percent said they were considering entering the managed services market. Overall, most saw potential in the managed services market, with 56 percent anticipating healthy growth and 38 percent moderate growth.

The reality is much different. In VARBusiness' 2006 State of the Market Midyear Report, nearly one-third said managed services fell short of their expectations. Only 11 percent said that managed services exceeded expectations.

Part of the problem is many solution providers have adopted the term "managed services," but are only delivering time-based monitoring and response solutions. The difference is often night and day in terms of initial investment, services delivered and revenue. Managed services are akin to hardware and software as a service--the service provider delivers management of IT infrastructure based on predefined service-level agreements. Time-based reactive models enable service providers to respond with quick fixes to IT problems--a misconfigured firewall, a server running near capacity or a printer out of toner.

"This whole managed services phenomenon has been hyped into a frenzy," says Dan Wensley, vice president of partner development at Level Platforms, which also provides managed services tools to solution providers. "We had more services when we had less functionality because there wasn't so much confusion."

The realization of the different levels of managed services is partly based on the required investment of getting into the business. Full managed services requires a significant investment in IT infrastructure and staffing. To provide 24/7 monitoring and management, a MSP needs an operations center that carries unused capacity for peak traffic, as well as a staff of experts who can analyze and respond to nearly any situation in moments. The initial capital and human expenses often run $1 million or more--far more than many small VARs can afford.

Wensley has taken the extraordinary step of banning the term "managed services" on his team. Rather, Level Platforms is pushing the subsets of managed services--monitoring, response, break/fix, off-site management--until confusion over the definitions and capabilities of service providers is clarified.

"All of this will evolve in five years, not in the next 12 to 24 months," Wensley says.

N-Able is taking a different tact, adjusting its training program--called Momentum--to bring more lower-end VARs into the monitoring and response end of the services market. This approach will help VARs build a foundation for managed services through time-based response services.

Both N-Able and Level Platforms believe that delineating the managed services market will help more VARs enter into services at a lower level and work their way up to the upper echelons of the services market.

"Business owners must be totally committed to the business process of managed services; if not, they'll fail," Garbutt says. "They need the right skill sets and energy, but also have the commitment to make services happen."

This week, Kaseya will announce a new channel program through which partners will be able to sell its remote monitoring and management tools to customers who don't want to hire managed services. While Kaseya says this will help fledging MSPs develop more leads and sales, some say it could also be read as further evidence of softness in the managed services market.

• DEFINE MANAGED SERVICES: Help VARBusiness define the managed services market. Read Larry Walsh blog on managed services, "At Your Service, But What Do You Want?" and then tell us how you define managed services.
• CHECK OUT THE MANAGED OFFICE: