Managed Services Growing at Double-Digit Rates

Stock ChartThe segment is already huge and will continue to grow at double-digit rates over the next four years as business demand increases for reliable IT and telecommunications alternatives to fixed costs, according to a new report by Insight Research Corporation.

The Insight report, released earlier this week, pegs the 2013 global managed services market at $152 billion. In the U.S., businesses ranging from enterprise to SMB will spend $34 billion managed IT and telephony services. Over the next four years, managed services spending will increase 11.6 percent annually. In the U.S., the market will balloon to $51 billion.

“A large percentage of business activity now depends on the Internet for everything from electronic commerce to intranet applications to customer service. These data applications are driving exponential traffic growth onto corporate networks, while increasing their complexity,” said Fran Caulfield, Research Director for Insight Research. “Managed Services allow corporations to handle this growth, while the most complicated elements to the skilled .”

The Insight study covers everything from basic voice and data transport services to managed networks and endpoints to security services – essentially the full spectrum of managed service offerings.

Noteworthy is the growth of managed services among service providers – the traditional providers of either transport or hosted services. As computing matures, more services providers are offering more than just end-to-end connectivity and virtual services, but managed services over the assets, applications and services. Insight believes this expansion of the service provider portfolio will contribute greatly to the managed services market expansion.

Managed services has transformed the channel over the last decade, providing value-added resellers and integrators built on one-time product sales and term contracts with a persistent and predictable revenue stream. It’s also helped solution providers scale their capacity, as managed services replaces the traditional on-site support paradigm with a one-to-many automated administration and support model.

The 2112 Group’s recent Channel Profitability report found managed services are the most lucrative offering of the major channel business models. Managed services, according to 2112, generates between 40 and 60 percent gross profits for providers. By comparison, hardware margins are under 10 percent and software sales are under 20 percent and falling.

The evolution of services to include service and cloud providers is also transforming the managed services landscape. Vendors are increasingly looking at all service providers – regardless of their level and capacity – as potential managed service providers, as they see the need for more than just service delivery; services need support and automated support is more lucrative and less expensive.

While Insight’s managed services report is optimistic, there is a chance that the estimate is actually low. As more cloud services fold into the managed services category, and more vendors and solution providers automate applications, infrastructure and back office delivery, the managed services market could swell even higher by the end of the decade.

The report is good news for solution and managed service providers who offer automated and managed systems. However, the continued expansion of this market will likely put pressure on the already battered hardware and software resell market.

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