No End to Managed Services

I recently read Steve Beaver’s thoughts on 2016 here on TVP. Naturally, Steve had plenty of great things to say, but it was what he had to say about the end of managed services that got me thinking. Does the rise of cloud services really mean that managed service providers (MSPs) are the new walking dead of IT? (My words, not Steve’s.) Personally, I don’t see that. I still think that many customers will need help to make cloud services work for their business. I suspect that there is a corollary to the Jevons paradox: as (cloud) services get easier to consume, customers will require more help to consume more of them.

The first thing to be clear on is that there are many workloads that will never be in the cloud. There are many more that will not be in the cloud in the near future. So, the entire ecosystem of business that helps keep on-premises IT working will still be needed for a while. But change is definitely afoot; customer needs and wants are evolving. There are more applications being delivered on cloud services. Some replace existing on-premises services. Some are totally new applications that could not exist without cloud services.

I should also define what I mean by “managed service providers,” (MSP) since there are many forms of MSP. For this article, I am talking about organizations that provide outsourcing for managing IT. I’m fairly sure Steve had a different definition in mind, but this is what I was thinking about: basically, smart people on the end of a phone and a VPN who act like part of the client’s IT department. These are the first- and second-level help desk roles that Steve expects to go away. Personally, I see changes to, but not removal of, these roles. I do see real problems for value-added resellers (VARs). The VAR business model is about selling hardware and software as well as the services to implement both. The MSP business is based around multi-year support contracts and the VAR business more around projects. There are many companies that have both MSP and VAR functions, often in different business units.

My opinion is that customers’ use of IaaS does mean there is less need for hardware replacement and rack and stack activities. These customers no longer buy new data center technology every three to five years. Instead, they rent access to those services from an IaaS provider. The IaaS provider looks after the physical hardware and the virtualization platform. The IaaS customers still need to manage everything from the virtual hardware up. Installation, patches, and upgrades are still the customer’s responsibility. Customers still need to manage policies, capacity, and performance. This ongoing management is exactly what managed service providers do for their customers. This is a new skill set for MSPs but one that will be increasingly important as customers use more cloud services. For example, the MSP can make a big difference to its customers’ IaaS bills by managing their VM configuration and provisioning to minimize cost. I have spoken to a service provider who was able to halve one customer’s AWS bills. This service provider definitely has a future, even if all its customers migrate to cloud services.

Adopting SaaS, like Office 365 and Xero, removes the need for server software upgrades. However, the fundamentals of managing these applications for users do not disappear. There is a still a need for user management, add, change, and delete. Mailbox quotas and policies are still important. This is another area where a good MSP will be expanding its skill sets to provide a new kind of value to its customers. Cloud services are definitely making customers ask for different services from managed service providers. No matter what the marketing materials say, most cloud services need ongoing management. Many customers would far rather rent the expertise to manage cloud services, just like they did for the same services on-premises.

I have worked for a couple of different VARs here in New Zealand. A lot of the project work at those VARs was replacing old servers and desktops with new hardware and software versions. Moving the servers to SaaS and IaaS removes the on-site servers and upgrades. These VARs are the ones that are likely to be hurt by cloud service consumption. Projects that are based around selling new hardware and then implementing new software are becoming scarce. Some of these VARs have been setting up their own cloud practices and helping customers move to cloud services. Some VARs are developing their own specialized cloud platforms and services. All VARs are seeing changes in their business and the need to deliver new services. All the VARs I worked with complained about the low margins in selling hardware. They should be celebrating the reduction in the hardware sales. Services have always been far higher margin than commodity hardware. Smart VARs have seen that there are new services they can offer. Cloud migration and integration are difficult, so services can be high margin.

Both MSPs and VARs face changes to their business as cloud services overtake on-premises IT. Both types of business need to change in order to survive. This is nothing new: change is the only constant in life.

Posted in SDDC & Hybrid CloudTagged , , , ,