Managed Services Market: The Three Key Trends Impacting MSPs

The market for managed services is expected to see continued moderate growth over the next few years, and the most successful MSPs will be those who take advantage of the key drivers of that growth.

Bill Martorelli, principal analyst at Forrester Research, elaborated on those comments he made at this week's NexGen 2018 Conference and Expo in Anaheim, Calif., with a look at top customer challenges and the three major factors that will influence the future of the managed services market.

The tech outsourcing and hardware services market, which is a big part of what MSPs do, is expected to total about $483 billion in 2018, rising to $512 billion in 2019, Martorelli said.

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Both large enterprises and SMBs say their top requirement from MSPs is the right price, followed by industry knowledge and experience, Martorelli said, citing Forrester research. However, while large enterprises cite industry-specific business processes, knowledge and software platform expertise as their third requirement, it was expertise in new technologies and the ability to handle end-to-end projects that came in third for SMBs, he said.

Martorelli said MSPs should be aware of three major factors that will influence the services market going forward.

The first is the cloud, which Martorelli said was once seen as a threat to the services business. However, he said, the cloud is now used to build new platforms both for customer engagements and as instruments of those engagements, particularly for digital transformation.

Forrester found that three-quarters of clients now believe they are working in hybrid environments, but may not be able to define what that term means, Martorelli said.

Customers are increasingly in multi-cloud environments, typically with heavy reliance on one cloud and sporadic use of one or more other clouds, he said. That opens opportunities for MSPs with DevOps experience and who can offer consumption-based pricing models, he said.

"Hybrid cloud management tools have been a disappointment. … But there's no doubt, a significant opportunity has risen for what we once feared," he said.

Because of the shift to the cloud, MSPs can expect customers to be looking for shorter contract times, Martorelli said. They will also likely see an increasingly narrow focus in terms of their traditional services, increased competition from born-in-the-cloud service providers, and increased need to partner with large hyper-scaler cloud providers.

"Partnerships with Amazon, Oracle, Google and Microsoft have become key market enablers," he said. "But not without its costs."

The second factor affecting the services business going forward is the increasing amount of automation in IT environments, Martorelli said.

Customers are now dealing with the unexpected scenario where businesses are shifting to outsourcing models that have never been automated in the past but where factors like automation and machine learning are having an impact, he said.

"We're starting to see this automation replace a substantial amount of work," he said.

Because of this, MSPs should expect workloads to shrink from contract to contract as core ticket activities become increasingly automated, he said. MSPs can also expect the ability to integrate disparate automation solutions to be a key competitive requirement. They will also find lower-cost labor increasingly left out as automation increases, he said.

"Within the next couple years, you'll see this open new automation opportunities to MSPs," he said.

The third factor is an increasing reliance on outsourcing, which Martorelli said will result in MSPs reducing their reliance on traditional SLAs, or service-level agreements, and more on what he termed "XLAs," which are focused less on uptime and more on customer and employee satisfaction.

A push toward increased outsourcing will see service providers looking at delivery models that have such consumer metaphors as "service cafes," "technology lockers" and "vending machines," he said.

Alexandria Huber, director of alliances at Cloudtrek, an Irvine, Calif.-based provider of private cloud, hybrid cloud and co-location services, told CRN that Martorelli's presentation was good news for her company's cloud business.

Huber said she also agreed that MSPs will have to adapt to market shifts toward the cloud and automation, but argued that those shifts should make MSPs more interested in working with cloud providers like Cloudtrek.

"A lot of MSPs are afraid they will lose business to the cloud," she said. "But we cloud providers need MSPs. We just can't offer the services MSPs can."