Monday, March 11, 2013

Many outsourcers will disappear

Have been reading from some interesting research on infrastructure outsourcing (IO) (Managed Service Providers, MSPs, if you like) from Gartner. They are predicting a market consolidation of up to 20% but here some other interesting snippets:

“Gianluca Tramacere, research vice president at Gartner, said traditional IO providers are at serious risk of extinction.”

“In the past decade many outsourcers have procrastinated, failing to make the changes needed to transform challenges into opportunities. Many will disappear- some slowly, some rapidly.”

“Traditional infrastructure outsourcers can no longer survive in their current state. The market won't allow it and customers are demanding much more.”

Source - http://www.4-traders.com/GARTNER-INC-12710/news/Gartner-Inc-Many-Outsourcers-Will-Disappear-but-Which-Ones-and-How-Fast-16371739/

The report also has the following to say about small providers:

Small Managed service providers

The most immediate implication is for small outsourcing and managed services providers. The value-add they provide is eroded significantly when compared with cloud services. As larger organizations providing cloud-based solutions attract more small business customers, small IT shops will lose customers, margin and traditional service opportunities.

This is also an opportunity for those service providers that are agile enough to transform themselves into cloud partners. What I mean by this is that there are opportunities to help small businesses take advantage of cloud services and save money either through migration services or cloud service reselling. The sales pitch is easy but the margins are low. In order to have a viable business model, volume is key. This means that the small managed service provider will need to grow their customer base significantly to maintain sustainability.

So what does this mean for the IT pro at a small outsourcing shop? I would expect that there will be far less hands on technical work and much more menial administration across many more customers. There will also be an increase in network architecture and management requirements as connectivity to the cloud will increase in important compared to local connectivity.

This again simply reinforces what I have been writing about for a long while here. Just one example:

http://blog.ciaops.com/2012/04/valley-of-discontent.html

The Internet will force change on every business but only some will survive.