There’s been a substantial increase in the number of IT service providers in recent years, but in a challenging economy those that rely on a break-fix model will be the first to feel the pinch. That’s among the findings of a recent survey, 2009 IT Services Trends and Practices.
The survey was sponsored by Kaseya, a developer of IT automation software for IT professionals and managed service providers (MSPs). Jim Alves, executive vice-president of product marketing for Kaseya, said the survey data confirmed a strong increase in the size of the service provider market, but also a wide variance in sophistication and size.
The survey paints a picture of the service provider space that skews toward the smaller provider, with 59.1 per cent of the 2256 service providers that took part in the survey reporting they touch less than 250 computer systems. Next up was 251 to 1,000 systems at 30.2 per cent, and 1,001 to 5,000 at 10.7 per cent. No respondents reported touching more than 5000 systems.
Some 52.9 per cent of respondents said their business model could be best described as Break/Fix Incident Response, with just 29.5 per cent using a Block Hour-Based Agreements and Project Billing Model, and 17.6 per cent doing Fully Outsourced.
Because of the economy, Alves said there’s been strong growth in the low-end of the service provider space as laid-off IT staffers try to put their skills to work as contractors. However, because of their size, he said they tend to be more active on the break-fix side.
“In the current recession we’re in, when people get laid off and they have tech skills, these guys don’t wait around for a job to come, they don’t sit at home playing video games, they look at starting their own business and they look at making money,” said Alves. “There are a lot of small service organizations doing mostly reactive work for the customers they have.”
There is a market for these smaller service providers, said Alves, particularly with SMBs that can’t afford to hire internal IT staff, or would rather have them focus on more strategic IT initiatives. SMBs will often feel more comfortable going with a local service provider they know and are comfortable with, rather than contracting a large company.
To be successful in a tight economy though, Alves said these smaller service providers need to break free of the break-fix, hourly billing model and move towards IT automation tools (such as Kaseya’s) and toward a recurring revenue model.
The survey found a wide variance in billing projections for 2009, with as many respondents forecasting decreases as forecast increase. It’s a variance Alves attributes to the hourly vs. recurring billing model.
“When billing by the hour, the chances are billing will decrease substantially because companies are looking at how to cut costs, but its recurring the customer sees a model of what’s getting provided,” said Alves. “Larger MSPs are all seeing increases in revenue. One MSP in Texas told me he’s not the heaviest thing in his customer’s boat. When systems are up and running, they say it’s a cost I’ve budget that’s fixed. It’s variable costs they’re usually dropping.”
Alves said getting smaller service providers to that recurring revenue model is part business model, part value proposition. Service providers should look at the types of services they currently provide, such as patch management and systems management, and consider how they can put together a value proposition for customers.
“Successful MSPs have two people in the organization: one focused on where the business is going, what the value proposition is and how to get in front of people to sell it, and another looking at how to deliver it efficiently and effectively for ultimate customer satisfaction,” said Alves. “If your organization isn’t structured like that it will be difficult to grow and change. One person cannot scale, and it’s like that in any business. You become your own worst enemy.”
Alves said Kaseya 6 can scale down to these smaller service providers, providing them with automation and remote management capabilities including an ITIL-based service desk, workflow tools, a scheduler, and new live connect tools.