Half of MSPs are worried about margin erosion and competing on price

Managed service providers (MSPs) are concerned about margin erosion as many of them still compete with one another ‘solely on pricing’, says CompTIA.

The IT trade body surveyed 400 MSPs in the States for its fifth ‘Annual Trends in Managed Services’ report, which found that MSPs see high growth ahead, but many firms are ‘vexed by cloud challenges and employee retention struggles’.

"Bullishness on future business is tempered by worries about margin erosion," CompTIA added in a statement. "Just over half of the firms cite margin erosions as a factor that keeps them awake at night."

“Naturally occurring market commoditisation accounts for a portion of slimming margins, but some of the blame also falls on MSPs themselves, many of whom continue to compete with one another solely on pricing,” said Carolyn April, senior director, industry analysis, CompTIA. 

“The level of confidence among MSPs in how they are running their businesses is quite high. Two-thirds of the companies we surveyed consider themselves to be skilled experts at managed services.”

Some of this confidence is due to market maturity. Nearly 90 per cent of companies have been offering technology services for two years or more.

Revenue growth is also a contributing factor. Three in ten companies say their services business was their leading revenue generator over the past year.

Half of all MSPs surveyed expect high revenue growth over the next two years, with services accounting for 75 per cent or more of total revenue.

Topping the list of things that keep MSPs awake at night is cloud computing, cited by 62 per cent of companies.

Kris Nagamootoo, Senior Manager at CompTIA, remarked: “They still haven’t figured out whether the cloud is a good thing or a bad thing, they fear that customers will simply bypass them and look to cloud providers for their basic needs." 

54 per cent of MSPs offer cloud-based solutions and services as a strategic part of their business. Another 44 per cent only support cloud services when requested by a customer.

Nagamootoo said many companies are missing out on big opportunities to be “cloud orchestrators” for their customers. 

“Just as they remotely managed on premise devices and applications, they can manage what a customer has in the cloud,” he explained. “It’s a natural spot for an MSP.”

CompTIA says that MSPs must also act to stem ‘the persistent problem of employee churn’. A majority of firms say in the past year they’ve lost at least one staff technician to an end-user organisation’s IT staff.

“Employees who leave are usually seeking more stable hours, better pay or a job that’s more challenging than simply monitoring and waiting for an alarm bell to go off” April said.

“It’s a problem that MSPs will have to address.”