Innovation is Risk, and Risk is Your Business

Two conflicting themes permeate the managed services marketplace: the accelerating and continued growth opportunities, and the rampant talk of pricing pressure and commoditization. Both are true, but where you stand on these issues isn’t.

For many MSPs engaged in conventional services – break/fix maintenance, network monitoring, common security, email management, etc. – pricing pressures and commoditization are real, although some may be artificially induced. Prices and profitability will fall as services becomes less complex and easier to deliver. As services become automated, more providers will enter the market and prices will fall. It’s simple supply-side economics.

However, there is a class of emerging services that are, at least for now, immune to commoditization and pricing pressures – hosted and managed VoIP, unified communications, business intelligence applications, advanced security such as data loss prevention, mobile device management, asset tracking and more. These advanced technologies are only beginning to penetrate the managed services market, meaning there is relatively low supply and low competition.

Here’s the challenge for MSPs: Advanced technologies also don’t have a ready market. While they have a higher averaged price and better margins today, they’re also relatively unknown quantities to end users. Moreover, they’re unfamiliar to MSPs, too, and require changes to business models and investment in new capabilities.

Let’s address the first challenge: Investment and change. MSPs getting into advanced services will need to invest in training, infrastructure, applications, sales and marketing. And, they must do this while operating and supporting services that are increasingly less profitable and produce lower revenue yields. Funding those investments are challenging without changing underlying operations and business models.

The second challenge is unfamiliarity among end users. Once MSPs invest in advanced services, they must then educate the marketplace about the benefits and value of the service. Oftentimes, this means longer sales cycles and comparatively lower close rates. In other words, the new services won’t produce an immediate return to offset the initial investment costs.

Many MSPs avoid investing in new services because of this paradox in development expense and effort. They perceive the existing margins – even as they decline – as good enough. And so long as these margins continue bring in consistent, profitable revenue, MSPs will maintain course. It’s a strategy of risk aversion bolstered by false perceptions on the sustainability of their business.

MSPs are often risk-averse. But growth is a product of innovation – and innovation, by definition, requires risk. If MSPs want to maintain growth – much less viability and relevancy – they must innovate by adding more technologies and services that bring value to their customers, even if their customers are not looking for those services today. Innovation through investment is a means of future-proofing business against market and technology disruptions.
Yes, investments in innovation and advanced technologies do not guarantee success and can be expensive. But without such investments, MSPs are vulnerable to disruption. Innovation is a risk, and risk is the business of an MSP. This isn’t something to be avoided, but embraced.

Don’t miss out on our upcoming BIZ DEV Webinars…

Get the 411 on Price Integrity from Larry Walsh, Channelnomics
Larry Walsh, CEO of the 2112 Group, shares his insights about MSP pricing trends, what they mean to you, and how to avoid the pitfalls of undercutting your services

Thursday, November 17th
9:00 a.m. (Pacific) / 12:00 Noon (Eastern)
Register Now!

An MSP Value-based Pricing and Packaging Success Story
Michael Drake, president of masterIT, discusses his unique strategy for profitably packaging and offering up managed services to his customers

Tuesday, November 29th
9:00 a.m. (Pacific) / 12:00 Noon (Eastern)
Stay tuned – Details to come

Justin Crotty
Senior Vice President and General Manager
NetEnrich, Inc.