A new survey of 581 IT professionals conducted by 451 Research finds that the total percentage of enterprise IT budgets allocated to hosting and cloud services is expected to increase from 28 percent this year to 34 percent in 2017. That's the good news.
As impressive as that six-point gain may seem, though, the research also reveals that a significant portion of hosting and cloud services spending is on unmanaged or self-managed infrastructure or application services. Only 44 percent of infrastructure services spending and 49 percent of application services spending is for offerings bundled with additional managed or security services.
Even then, managed services only account for 14 percent of the spending; followed by 9 percent for security services and 5 percent for professional services. Managed hosting providers were being employed by only 26 percent of the respondents compared to 69 percent reporting they were using a public cloud infrastructure provider.
Challenges and opportunities
Collectively, those results would suggest that many providers of cloud services are bundling a fair amount of managed services with their offerings. For example, when Oracle promotes moving databases into its cloud all the managed services surrounding those databases are provided by Oracle.
Under the heading of the glass being half full, those results also suggest there’s plenty of opportunity to deliver managed services in these environments. The challenge MSPs face is twofold. One is that many vendors are trying to compensate for thin margins in the cloud by bundling product-specific managed services with their offerings. The other issue is that despite the increased shift to the cloud there doesn’t appear to be a significant increase in the number of IT organizations being replaced or supplemented by managed service providers.
What makes that even more frustrating for many MSPs is that line of business executives consistently complain about the lack of agility in their internal IT organizations. In theory, an MSP should be able to scale services up and down much more easily. At the same time, IT organizations routinely complain about a shortage of skills when it comes to be able to adopt emerging technologies or deal with chronic pain points such as security. Managed service providers are generally in a much better position to hire the best talent compared to an internal IT organization.
Why some MSPs are missing their chance
Of course, the 451 Research study itself is only dealing with the IT budget known to IT leaders. There’s probably much more consumption of managed services showing up in budgets outside the IT department. Still, it’s clear MSPs have some work left to do in terms of differentiating the value of their services compared to the services a vendor or an internal IT organization can provide.
It's not clear whether that differentiation isn’t appreciated as much as it might be due to the perceived total cost of employing an MSP or because most managed service providers are fairly challenged when it comes to marketing their services. The one thing that is certain is that managed service providers now have a once-in-a-decade opportunity in terms of how IT services are consumed. Unfortunately, it doesn’t necessarily appear that enough MSPs are seizing that moment.
Photo: Lionel Abrial