Managed Services Will Grow More Critical to Channel

By Herman Mehling

December 15, 2008

Demand for managed services will rise for at least the next two years as businesses seek to control costs, but channel partners will need to sharpen their execution and sales skills to capitalize on the managed-services trend, according to a new research report on the managed services market from Forrester Research (Nasdaq:FORR).

Faster technology change, an impending long-term growth cycle for IT investment (despite the current economic downturn) and the increasing cost of capital will drive many businesses to managed services "to limit capital investments while increasing the flexibility of IT infrastructure," said Henry Dewing, the Forrester analyst who wrote the report entitled “Market Overview: The Broad Opportunities in Managed Services.”

Dewing identified four major managed-service categories in the report – IT infrastructure, network and telecom, applications and security – and noted that such services can be offered either on-site or as part of a network. Telecommunications has emerged as a top managed-service area as businesses increasingly seek to minimize IT management and costs and instead focus more on their core business processes.

“Firms will pay for managed services because they can’t do it themselves; don’t want to dedicate resources and attention to IT management; or feel that they get better results from a managed service,” said Dewing.

Dewing also found that managed services aren't primarily an SMB play, although many small companies do use managed security and back-up services. Enterprises are increasingly investing in unified communications and collaborative managed services, he found.

Service providers such as AT&T, system integrators like Accenture and IBM and consultants like Tata Consultancy have all carved out pieces of the global  managed-service pie by emphasizing quality delivery, excellent customer service, geographic and technical depth, and superior sales skills, Dewing noted. However, with the current vendor community fragmented and struggling to define successful marketing and delivery strategies, an large opportunity is emerging for channel partners.

VARs, system integrators, network service providers and distributors are all poised to grab a significant piece of the managed-service business, Dewing said. "VARs have strong relationships on-site with their customers and have often provided professional services…in addition to installation, configuration, integration and ongoing maintenance, leading them to extend the level of managed services they offer as they seek to grow their businesses," he said.

VARs and other trusted channel partners help insulate businesses from potential market risk. “IT decision-makers at small and large firms are looking to insulate their businesses from financial and technical risk,” he said. “Many VARs have moved purposefully to better meet this need and service the entire set of buyer requirements of their customers.”

Dewing added that VAR margins are proportional to the amount and quality of services they provide. These run the gamut from installation, interrogation and configuration to custom development, on-site maintenance or hosting with full monitoring, management, and maintenance capabilities.

Describing the managed services vendor landscape as “confusing and convoluted,” Dewing expects managed services to be delivered ultimately by an ecosystem of vendors that will cooperate on specific opportunities, and compete on others.

Another likely development during the next two to five years will be the arrival of hybrid solutions, he said. These solutions will feature a hybrid architecture enabling a customer to manage on-site services and a vendor or VAR to manage network- or cloud-based ones.