It may be the silver lining in an otherwise stormy economy, but that doesn’t mean the managed services game is not without its challenges. TREVOR CLARKE reports.
As a result of the global downturn, organisations have shifted away from investing in internal IT infrastructure (CapEx) towards variable costs and increased spending with third-party IT services providers (OpEx).
Domestically, most of the publicly listed integrators have pointed to their managed services as a ray of sunshine in what was a very tough six months to the end of 2008. Data#3, ASG, Oakton, CSG and ComputerCorp are just a few that cited growth in managed services when posting their results. Add in the ambient noise from cloud computing and the fact most vendors are trying to market their offerings as complementary to managed services in one way or another, and it’s clear managed services is the flavour of the times. Yet, in spite of its popularity and potential as a revenue pot during these tough times, a managed services approach does have its challenges.
Step #1 – Assets
According to Gartner service provider analyst, Rolf Jester, the managed services game isn’t for everybody.
“You need to do your thinking fairly hard before you jump into this because superficially it is very attractive to have a stable, predictable revenue flow, multi-year contracts and across the board fairly decent margins,” he said. “The key pitfalls are, first of all it can be an asset-intensive business.”
This means capital, and with the way things are going in the economy with the tight flow of credit, it is not an easy time to raise funds.
“For some people it is, because if all is well for your business this is a great time. But once again, it is not for everybody,” Jester said. “Not all managed services models rely heavily on assets, but at the very least they rely on intellectual property, good methodologies and tools. All of which are investments that are not easy for the typical channel business under a bit of pressure. The time to do this is when you are doing fairly well, not when you are struggling.”
The analyst pointed to maintenance contracts as a good way to stabilise a business and also highlighted network management, datacentre management, LAN/WAN management, desktop, and applications management as options.
“Although they are not necessarily asset intensive, the world is moving in that direction. This is the big challenge really,” Jester said. “Over time but maybe even accelerated by the recession, we are moving towards a more asset-intensive model of IT services where there are big players who can afford to build big datacentres, build big networks, and reap economies of scale – players like EDS, CSC and IBM and even some of the bigger second tier players. They will have an advantage and maybe even exclusivity. It is a huge barrier to entry if you have to build a world class network and datacentre to even just enter the game.”