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Managed services market splitting into two

The managed services market is splitting between the low and high end with commoditsation adding to the pressure at the lower end

Some of those managed service providers that have been leading the market for the last few years are now finding that the landscape is shifting and the market is broadly splitting in two.

The divide is coming between those that are providing low level, largely commoditised, services that are producing lower and lower margins and those that are looking for projects that can last years and be worth millions.

This week Autotask brought together many MSPs at an event in London and brought up on stage a couple of its partners that have been developing their proposition over the last few years to provide an insight into how those looking to succeed in the market are adapting to change.

Steve Cox, COO at TSG, said that the danger for those that remained at the low end of the market were the narrowing options to add value.

"The market is splitting into two streams with the commodity market selling to a certain customer, often sub 50 seats. But those customers have some easy self service options which starts to make [the case for a serious MSP] redundant." he added "we want to add value and the larger customers still see the benefit."

Cox said that there was a need to continually evolve the business and the skills to make sure that what it was offering was still relevant.

"Not everyone can afford the investment in building a R&D team and developing IP can be expensive. But most MSPs have customers in specific verticals and have some expertise and then they can partner with people with other skills to deliver all that our customers want," he said.

Mark Banfield, senior vice president and general manager international at Autotask, agreed that the pressure was increasing on those that were not able to build a solution and add services.

"The little guys are becoming commoditised," but he said it was encouraging those that could deliver services to build on that and develop a higher value proposition.

Roger Harry, CEO of Circle IT, said that its response to the commoditisation at the low end of the market had been to shift the business towards projects, landing contracts with public sector organisations, legal firms and in education.

"Up until 2012 we were a typical parochial South Wales managed services provider. Typical support contracts were worth £200 a month if you were lucky up to £1,000. The real way we grew that business was the focus on vertical markets," he said.

The support contracts now range from £1,000 to £35,000 a month with Circle putting staff on site and providing much greater levels of service.

Circle started with the legal sector and built a reputation with one client and then built relationships in that market to grow the business.

"The key area is to get beachheads into the verticals that you want to sell into. Build on those beachheads with intelligence," he added "All key verticals come from relationship building."

He added that one of the challenges is to change the sales focus to support larger contracts and getting specialisations and accreditations in verticals to make sure it had the foundations in place to make sure it had the ability to compete for the big business.

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