THE FUTURE OF MANAGED SERVICES IN EMEA

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1 01 THE FUTURE OF MANAGED SERVICES IN EMEA An Report Sponsored by Webroot Background Managed services, including cloud, hosting and service provision is a development of the continuing move to online applications, databases, processing and platforms. It is being driven by a number of factors including the driving down of costs, pressure on available resources and skills in on-premise IT departments, the broader availability and reliability of high speed online connections, growth of mobile in enterprises and the need for applications and software to work together. A major attraction factor is the ability to scale, both up and down, in uncertain times. This sector is now growing fast, with global providers and local hosting companies competing on price and service. It requires a transition on the part of the client from capital expenditure on IT to a operating cost-based provision, with all the implications for growth, salespeople remuneration, service-level agreements (SLAs), networking resilience, security and management among supplier channels. As can be expected, there is some level of uncertainty and discussion on which strategies to adopt, both among users and the channel themselves, and this emerged in the study. The broad sweep of change, however, is seen to be progressive, and largely unstoppable. The position now The survey was pan-european, with the major markets France, Germany, Netherlands and the UK obviously prominent. Other countries included Estonia, Finland, Greece, Ireland, Portugal, Romania, Spain and Sweden, and the companies ranged in size from small firms with under 10 employees, who made up around a quarter of the sample to the large enterprises with over 500 staff (8% of the sample).

2 02 Some 80% of these firms are either pure MSPs or VARs or systems integrators with a hybrid model who are on the journey with managed services. The importance of managed services to these companies can be seen from the survey which shows that over a third of those supplying managed services get at least 50% of their income in this way. In the next two years, this is planned to rise to nearly half, showing how the market is planning on increasing managed services provision so that it comes to dominate their strategic thinking. Those offering managed services or planning to do show show quite a wide range of solutions; so that there is no dominant service. Remote system management (35% of respondents) leads slightly over Data/Network security (34%), User/Endpoint security (33%) and internet/web security (32%). These all now lead the category which used to top such surveys remote data backup (30%). Data storage is offered by 29%, with hosted at 28%. So there is quite of range of services being offered: mobile device management at 23% can be expected to rise sharply as enterprises move this out of the pilot phase in the coming year. Looking at those planning to offer services, there is no discernible pattern or difference from those currently providing services in this way, so the progress is being seen across a broad front. Who are the customers for managed services? By industry, the leaders are manufacturing, retail, IT companies themselves, banking/finance and transport/ logistics. Those lagging behind in take-up include automotive, pharmaceuticals, human resources and utilities. The professions, including legal and architectural and construction are in the mid-range. Looking at the geographical split, there is no real difference between the UK and rest of Europe in terms of markets covered; where IT has traditionally found more business among the London financial markets or in German manufacturing this is not reflected in the survey results. Industries like legal and pharmaceuticals are covered across Europe by managed services offerings, it appears. Hosted and data storage appear marginally more popular outside the UK, though most of those surveyed offer them in some form. Current service offerings and future plans >>

3 03 But perhaps the most important question to start with is why managed services? What is the appeal to the partners who supply it and intend to supply more? Some way out in front is the recurring revenue stream - cited by 20% of those indicating a view as being the top driving force and very important. A possibly linked feature is the way they thought managed services allowed them to meet demand and help customer retention. Demand for services is obviously of rising importance, as growth potential was another key feature and offering managed services was seen by many as increasing the value of their own business. So it seems that those surveyed clearly understood that this is a changing, developing and valuable market. Given the hesitancy over moving to a revenue model seen by some channel partners a few years ago when the idea of managed services was first suggested, it appears that the thinking has changed. We have come some way since the time two years ago when the most popular managed services download from one of the largest global distributors was a whitepaper setting out how salespeoples remuneration could be organised when moving from a capital to a revenue model in the channel. On a geographical split, those outside the UK appeared keener on scalability and flexibility, but this perhaps needs to be qualified by the higher levels of confidence seen by the other European economies at the time of the survey. Perceived advantages of Managed Services >>

4 04 An interesting perspective emerges when we ask channels what customer perceive as the advantages of managed services: Reducing costs and capital expenditure rate very highly, but speed of adoption leading to flexibility and hence scalability comes out strongly as well. It is not clear to what extent this is based on the actual experience of how customers use managed services, or derives from the messages used by the channel itself to help sell the concepts. Even including the other factors, business process transformation, which was seen as marginally less important than the other advantages in the survey, cited above, all six factors were strong drivers of managed services with customers, in the view of those surveyed. It is worth noting that the scalability and flexibility case, while attractive to those in the survey from their own point of view, is seen as having much more impact and possible benefits for customers, so any marketing on this issue needs to clearly differentiate its messages between end users and channels. On what respondents considered to be issues for customers, the scoring tended to show a range of possible areas, from technical concerns such as mobile management to contractual compliance and working with SLAs, plus an understanding of where the data resides, all linked into issues of network performance. Of high importance, and offering a critical part of the channel s package, is integration with existing legacy systems. With a lack of skills and the right tools also showing as an area of moderate importance, it means that clients will be depending on partners for help and assistance, though there are also minor concerns over potential hidden costs and vendor lock-in which will need to be addressed by partners. Again, we see a mixture of technical and contractual issues which the partners need to address. Factors driving customer adoption of Managed Services >>

5 05 Trends and the future In terms of where the market is going, there could be an indication of emerging maturity in the market, as is the answer profile to the question: How important do you consider the following criteria in selecting a vendor partner? So what do those surveyed currently think important in selecting vendor partners? The standout issue is quality of support, with a large number saying this is the most important aspect, particularly among smaller channel firms. Linked to this is the quality of the product and the reputation/strength of brand, again showing that channels are looking for reassurance in uncertain markets. Perhaps not so surprising, then that, while not a critical issue, the size of the vendor matters to many of the survey respondents. And, while few made it the topmost criteria, margin, commercial terms and competitive pricing are going to figure in their selection of a vendor to work with and to supply support. Marketing support seems less important, but again this may reflect the relative youth of the managed service market, where it is not yet possible to show many years of established engagement and where case studies are not widely available. I think what we are seeing signs of here is a market moving rapidly beyond the hype cycle and towards maturity. Attributes such as size, marketing, reputation/brand which are so important in terms of establishing a new market and achieving initial acceptance become less important as it matures. As both buyers and MSPs gain in experience and understanding they want to see real evidence of quality, both in terms of product and support, and are looking for value in terms of competitive pricing and crucially for MSPs, in terms of margins and other commercial terms, says Alan Norman, managing director of IT Europa. Paradoxically, successfully addressing some of these will require greater emphasis on areas such as marketing and increases the importance of forging relationships with the right vendor partners and those with the strengths to support MSPs in meeting increasingly demanding customer requirements, he says. Criteria for selecting vendor partners >>

6 06 Unfortunately increasing maturity brings with it other problems such as increased competition and the challenges of differentiation in the face of increasing commoditisation. This is reflected in responses to the question on the issues faced as they move to expand managed services. So what is holding managed services back, given that both channels and customers seem to like the idea and are attracted by the revenue model and flexibility? Most of those surveyed don t see too many problems: few score major issues as very important; the main one is meeting the SLAs with customers, followed by problems with marketing and differentiation of models. This latter is to be expected in such a young business and with customers with little experience of using managed services. The SLA issue is one which can be addressed on a technical level, but putting guarantees in place needs care, as does all new forms of contract, and outside expertise may be welcomed here. Perhaps this is why the stand-out issue which rates as important, but not overwhelmingly so, is how to select an appropriate vendor partner. This was the leading issue for partners, regarded as important or very important by most of those surveyed. Supporting the idea that this might be a problem area for channels are the findings on the change of business model and choosing the right technology. While not seen as of vital importance, these two issues are obviously of concern, and scored highly in the categories as being of some importance. Given the changes needed and the requirement to adopt new ways of working, this is not surprising, but can be expected to decline as experience grows. The level of competition was also marked as a moderate concern issue; again this is unsurprising given the level of uncertainty and pace of change. It does reinforce the emerging theme that channels are looking for support, reassurance and for easy to adopt models that can remove some of the uncertainty. Barriers to expanding Managed Services >>

7 07 As expected, in this sort of market, the sources of information on prospective partners and technologies are multiple. Simple web search will open up new products and show discussions and possible competitors, giving a basic picture of the product side of the market. A group of those surveyed did this, but my no means overwhelming. Many rely on referrals from vendors and associates, then comes information from events and publications as sources; some follow industry analysts, but the overall picture is one of the channels looking for answers but finding limited resources available to guide them, so not engaging in a great deal of direct research activity. Market segments By size of company, the larger MSPs those with more than a hundred staff tend to offer a wider range of verticals, though by no means all; some are still tightly focused on say, manufacturing or media markets. The larger firms tend to offer more options as well, particularly in areas such as ERP or CRM, and have their eyes firmly set on that recurring revenue stream, few of them regarding this as less than important in their replies, and all of them saying that cutting customer costs is important or very important to them. The large firms also cite integration with legacy systems as an issue with their customers. Some, but not all, say their customers are concerned at having the skills to deal with managed services. With greater resources available to them, the customers of the larger firms are said to be less worried by support and vendor lock-in, though they are as concerned as everyone else by the issues around mobile working. Competitive pricing is a real concern to the larger firms when selecting a partner. Smaller partners tend to be more concerned at the levels of support, but more interested in marketing help. Similarly those outside the UK are less concerned with marketing help, but perhaps even more concerned at competitive pricing and margins, and rely more on events to help their research. Preferred sources of information >>

8 08 Conclusions The is a market in a period of change and development: there are lots of questions, both among partners and customers; both groups seem aware of risks and opportunities and are looking for help and support, particularly the smaller managed services providers. The market seems to be progressing on a broad front, both in terms of the applications being delivered, and across all vertical markets. There is no apparent geographical difference among European countries, although we are aware of national features in many markets which call for local provision and data hosting. With the survey suggesting that there are at least eleven areas of concern and issues that need addressing it is clear that both partners and their customers will be looking for advice and support, plus some clear thinking from vendors, and that this should feed through in any messaging and marketing. The main message for anyone wanting to expand in this market is to show a clear technical strength, an understanding of the contractual and compliance issues, and to be able to reassure partners and others with a strategic vision. Produced by IT Europa Contact: Stephen Osborne +44 (0) Webroot, Webroot SecureAnywhere and Channel Edge are trademarks or registered trademarks of Webroot Inc. Webroot Channel Edge MSP Program The increase in global Internet security threats means businesses now have to allocate a significant portion of their budget to protecting their users, monetary assets, data, and intellectual property. Unfortunately, implementing traditional client/server endpoint security solutions often entails suffering unplanned downtime and performance issues. As a result, many MSPs have added endpoint management to their portfolio of services only as a loss leader, and have to factor a modicum of customer pain into each implementation. As a leader in Internet security, Webroot has redefined endpoint protection with our feather-light agent and straightforward management console. Webroot is partnering with MSPs to deliver powerful security solutions that protect against even the most sophisticated online threats, without sacrificing system performance. Webroot s latest product line offers a comprehensive array of intuitive, cloud-driven protection features that deploy with ease and are simple to manage. Backed by a unique, real-time threat detection architecture, Webroot provides scalable security that addresses historical challenges MSPs have faced quickly and efficiently, while helping generate new revenue streams and maintain margins. With Webroot SecureAnywhere Business solutions, MSPs can also take advantage of extended RMM service capabilities from providers such as LabTech Software. This allows simple deployment and management of endpoint security across mobile devices, multiple domains, and geographically dispersed customers and offices from a single, centralized console. The value to MSPs not only includes reduced costs, but also improved productivity and increased recurring revenue streams. Webroot EMEA 6th floor, Block A, 1 George s Quay Plaza, George s Quay, Dublin 2, Ireland +44 (0) channeledge@webroot.com