Managed Services: The time is NOW!

Wow, what a month it has been for managed business services! There has been a lot of buzz about this rapidly changing market over the past 12 months with the last 6 weeks having been especially busy. We’ve had the news of ATT announcing a managed intercompany Telepresence service, the news of HP buying EDS to shore up its global IT services delivery capabilities, and we’ve heard the updated managed services growth forecasts by Ovum that has the market growing (in a tough economy) at close to 20% CAGR over the next 4 years to top $66B by 2012. This is over twice the growth rate of IT spending.

So what’s behind this spurt in activity and robust growth projections? Well, although many of us have been talking about managed services for the past decade, it has been slow to develop. It’s only during the last four years that market growth has increased to a rate that’s interesting. During this time, we’ve seen the storm clouds forming on the horizon… the storm clouds that would form the “perfect storm” for managed services. A culmination of forces that brought together would unleash a dramatic increase in adoption of managed services.

Four forces are coming together to make NOW the time for managed services. The forces are: 1) Demand-side forces, 2) Supply-side forces, 3) Technology enablers, and 4) Economic conditions.

On the Demand-side, you have businesses of all sizes embracing managed services in record numbers. The “new” is off, the risk is lower, the business imperative to focus on “core” vs. “context” has sunk in – thanks Geoffrey Moore. Businesses simply don’t have the staff or resources to devote to adopting new technologies they need to remain competitive in today’s market. Businesses want the benefits of new technology at a predictable monthly cost, with access to expertise should they need help. Working with a managed service provider mitigates their risk.

On the Supply-side, you have IT, Network, and Services companies working to increase profit margins, reduce revenue fluctuations and improve customer “stickiness”. Managed services help them do all three. We’ve not only seen traditional IT companies grow their managed services businesses, we’ve seen them take aggressive moves into market adjacencies. Worldwide, telcos have been acquiring system integrators to shore up their ability to provide “one stop shopping” to their business customers while growing their profitable managed services revenues. This has allowed them to broaden their services portfolios to offer “managed LANs and desktop services”; areas traditionally owned by value added resellers. To differentiate themselves from the pack, managed service suppliers have been strengthening their customer service level guarantees which has further mitigated customer risk; fueling the market further.

With regard to technology enablers, we’ve seen an explosion in virtualization and network management technologies. Virtualization has changed the game - everything has become shared - networks, data centers, servers, storage, voice systems, you name it. Combined with lower cost network management platforms and new software pricing models, you have a technology environment that has made it easier for businesses of all sizes to build a managed services business.

And with regard to the economy, we all know the story there. Rising fuel prices have put the squeeze on everyone. Businesses have seen costs increase while their customers have less to spend. Going “green” has become a top company initiative; rising oil prices have helped people “do the right thing” and look for more efficient ways to get the job done. We’re driving less, telecommuting more, and using high end web and video conferencing services. We’re using technology more out of necessity. We’re doing this with less IT staff and budget. All of this driving us toward a different way of purchasing IT – we want it “as a service”.

These four forces have been building to create a perfect storm for managed services. While these forces have been coming together, there has been another force holding the market back. The force of customer restraint; restraint caused by a lack of trust in providers of managed services.

Until now, we have had a steadily growing supply of managed service providers, but not a standard definition of managed services nor a standard of quality for managed service delivery. Both key in establishing customer trust. This is changing. Over the past several months, we’ve seen our industry start to come together with managed service definitions and standards for service quality. Cisco has its Cisco Powered Managed Services designations that have set a high bar for service delivery while industry experts like Michael Speyer, Forrester, have developed managed service definitions that represent the collective thinking of our industry. These developments together have been creating the perfect storm for managed services – for once, I’m looking forward to the rain!