Managed services flourish in tight market

Managed services flourish in tight market

Several industry representatives are reporting the settling economic gloom is starting to impact transactional and project-based IT work as customers look to rein in costs and lower risk. But despite the darkening skies, many see a silver lining in managed services.

Frost and Sullivan ICT director, Andrew Milroy, said the market downturn had triggered a shift away from investing in internal infrastructure towards variable costs and increased spending with third-party IT services providers. He cited a rise in the number of projects being put on hold or delayed, as well as cuts to upgrading technology.

“In a downturn, organisations are focused on gaining efficiencies and controlling cost. As a result, managed services and cloud computing opportunity is very strong – paying for software functionality on a monthly basis for example, rather than outlaying the whole cost of a licence,” Milroy said.

“Suppliers trying to push new software advances might find their traditional business model, where people spend a lot of money to implement those, is affected. In hardware, new product will be more difficult to shift.”

Milroy was confident managed services would grow as sustainability, cost and risk garnered more attention. He broadly defined managed services as third parties managing, operating or supporting IT infrastructure.

“It’s about making more with what you’ve got. Managed services have been around in Australia for some time, but smaller- to medium-sized organisations might start to engage more,” he reckoned. Milroy said mid-market players, such as Datacom and Ethan Group, were in a good position to grow annuity-based contracts.

“The other thing is larger organisations are starting to take managed services more seriously, whereas previously they might have used security as a barrier,” he said. “It’ll be more about bottom line, than trust and the cash benefits. We’re going back full circle – the move from select to more outsourcing and people wanting more support.”

Managing director of integrator Ethan Group, Andrew Rayment, said it had invested $2.5 million in the last three months to build out its managed services capabilities and will outlay a further $1 million to develop associated software. The company now accrues 50 per cent of its net profits from this space.

“There’s a high barrier to entry and you need to have strong earnings to get into this space, and then hope it works,” Rayment said. “But if you get enough enterprises on-board, you get the returns on cost.”

Ethan Group has seen steady demand for infrastructure-based managed services across all organisations, but is also providing new types of services such as managed firewalls, software-as-a-service (SaaS), mail and vertical-based offerings such as managed services addressing aged care centre staff.

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