Managed Services Market Moves from Novelty to Mainstream for VARs

A few years ago, managed services were still something of a novelty for many companies. The market was in its infancy, brand-name services were few and far between, and VARs sometimes had to pay vendors thousands of dollars upfront just to play in the game. That has all changed. (First in a series.)

A few years ago, managed services were still something of a novelty for many companies. The market was in its infancy, brand-name services were few and far between, and VARs sometimes had to pay vendors thousands of dollars upfront just to play in the game.

That has all changed.

The market has matured and grown. Brand-name services have emerged, thanks to major vendors such as Cisco, IBM, McAfee, and Microsoft providing hosted applications. National distributors Avnet, Ingram and Tech Data now offer managed solutions to VARs, who no longer have to pay vendors dearly to play. In addition, the Master Managed Service Provider (MMSP) model gives VARs the choice of working with a fellow VAR experienced in the ups and downs of the managed services business.

The customer side has also changed enormously. Companies of every stripe, particularly SMBs, have begun to see the true values of managed services: dependable services, a low total cost of ownership (TCO), and a boost to the bottom-line.

The main benefits of hosted applications are scalability, Total Cost of Ownership (TCO), and remote accessibility, said Jeff Jernigan, In-Stat analyst. He noted that the need for IT support for business applications is greatly minimized if not eliminated due to the centralized, vendor-supported management of applications.

While a majority of business functions are still performed in-house, In-Stat research shows that convergence and complexity will aid in steady, yearly, managed services revenue growth.

The growth of hosted services, specifically hosted applications or SaaS (software as a service) are driving managed services revenue growth in the United States, according to a recent report from In-Stat. The report forecasts that hosted application revenues will grow from $8 billion in 2008 to $16 billion by 2012.

Another recent market study, released by Ovum Research and commissioned by Cisco, projects that the global market for four managed services (metro Ethernet, IP VPNs, IP voice, and security) is growing at a compound annual growth rate of 18 percent. Ovum forecasts that the market will be worth $66 billion by 2012.

A lot of growth in the U.S. market is coming from the SMB space, said Joe Quaglia, senior vice president, U.S. Marketing, Tech Data.

“SMBs really understand that managed services deliver great TCO,” said Quaglia. “Managed services are a good fit for SMBs as they get vital services they cannot afford to provide in-house.”

Quaglia added that the most popular managed services for SMBs are backup and recovery, VoIP, network management and monitory, and hosted Exchange.

A clear trend is the increasing importance of the VAR to the market, said Justin Crotty, vice-president of Ingram Micro's services division.

“This market is about service, not about tools, although they are essential,” said Crotty. “Solution providers add value to the technology with their expertise and knowledge of customers’ environments and business needs.”

Quaglia said about 60 percent of Tech Data’s VARs will probably be offering managed services by 2010.

(This article is the first in a three-part series about managed services.)

TAGS: Microsoft,IBM,managed services,distributors,VARs



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