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MSP Market Report

A study into the


managed IT services provided
by UK IT Service Providers
January 2010
TabIe of contents
ntroduction .....................................................................................................3
Market overview ..............................................................................................5
Research findings ............................................................................................7
The T service provider business model ......................................................7
The services provided ..............................................................................8
How services are delivered .......................................................................8
The challenges facing T service providers ..................................................9
Future expectations ................................................................................ 10
Summary ....................................................................................................... 11
The case for the Outsourced T or MSP - model ......................................... 12
Recommendations ......................................................................................... 13

Number of computer systems managed


0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Less than 250 251 to 1,000 1,001 to 5,000 5,001+
Diagram 1: Who participated?
1
http://stats.berr.gov.uk/ed/sme/smestats2008-ukspr.pdf
Introduction
T has become a critical component of running a successful business, providing the machines, tools,
applications and services that companies need to run successfully. There are approximately 4.8 million
private sector businesses in the UK, employing around 23 million people, and delivering an estimated
combined turnover of 3,000 billion
1
. These businesses must ensure their T systems are up to date,
secure and effective, but many particularly smaller organisations - cannot justify the investment in
internal T resource or expertise.
This suggests an ideal opportunity for UK T service providers, but with reports of headcount freezes,
eroding margins and stunted profitable growth, it seems tapping into this potentially valuable market is a
challenge.
We wanted to better understand the current trends in the T services sector and gain insights into the
challenges market players are facing, so we questioned T service providers across the UK about their
business models, their key pain points and the steps they are taking to overcome these.
This report presents the findings of the research, within the context of the wider market trends impacting
the T services sector. t also provides analysis into the research results and offers good practice advice
and recommendations to help T service providers adopt a business model and technology platform that
will deliver profitability and growth.
Research methodoIogy
This study surveyed approximately 450 T service providers in the UK.

Around 40% of the respondents were small T service providers managing less than 250 computer
systems (desktops, notebooks and servers). Almost 50% of the companies manage between 251 and
5,000 systems, with the remaining 10% providing T services to over 5,000 endpoints.
Who is this report for?
This report is primarily aimed at those people who own, run or work within the T service provider sector,
serving a small to medium-sized enterprise (SME) customer base. Channel players such as distributors
and resellers may also find this guide beneficial in enabling their companies to introduce value-added
services and increase profitability, at a time when resale margins are being tightly squeezed.
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2
http://stats.berr.gov.uk/ed/sme/smestats2008-ukspr.pdf
Market overview
Never before has technology been so integral to the way we do business.
The internet is breaking down global barriers, enabling companies to work and collaborate with anyone,
at any time, from any location. The age old desktop PC has been replaced by a plethora of devices such
as laptops, netbooks and smart phones, which are driving the increase in mobile and remote, working.
Windows is no longer the dominant software it once was with Macintosh and Google gaining market
share and available on more devices than ever. Add to this the way we access and use a growing
number of applications and services is being strongly influenced by developments such as cloud
computing and virtualisation and it is not hard to see how reliant we have become on technology.
Analyst predictions that T spend is on the rise, despite the challenging economic conditions experienced
in 2009, only serve to emphasise the growing reliance on technology in the workplace. Forrester
Research expects European spending on T goods and services to start growing from Q1 2010, while
Gartner estimates global spending on T will grow 3.3% to $3.3 trillion in 2010, reversing the worst slump
the industry has ever seen.
The market opportunity
But what does this mean for T service providers?
Worldwide, the overwhelming majority of companies fall into the small to medium-sized enterprise (SME)
category and this is no different in the UK, where SMEs account for 99.9% of all businesses
2
. This
market is growing too, with these companies employing an estimated 13.7 million people in 2008 (2.1%
more than in 2007) and turnover estimated at 1,500 billion per year over 60 billion higher in 2008 than
in 2007.
SMEs are keen to take advantage of the latest technology tends, new internet applications and delivery
models such as software-as-a-service after all, these promise the ability to compete on a global scale
and drive efficiencies and profitability into their businesses. But while SMEs understand the now critical
role that T is playing in their business, the majority simply don't have the internal T department or
dedicated resource to support, maintain and manage increasingly complex networks, devices and
infrastructure.
SMEs just want their T to work all the time and therein lies the opportunity for T service providers.
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Market chaIIenges
So on the face of it the SME market seems to offer rich pickings for T service providers, with a potentially
huge customer base that needs the help of experts to keep the cogs turning and make sure they keep up
with T developments. With margins on hardware and software sales declining, an increased emphasis
on delivering high value services could also be just the ticket for channel players to increase profitability.
But if that's the case then why are T service providers still struggling with limited resource, eroding
margins and a ratio between turnover and profitability that just doesn't add up?
Quite simply, the traditional break/fix model for T service delivery that is adopted by so many service
providers just doesn't stack up. When something goes wrong, the customer calls in the T service
provider to fix it, and then pays by the hour for a technician to visit their site and resolve the problem or
uses pre-purchased hours on a maintenance contract. n practice, this reliance on 'problems' occurring
on customer sites can lead to strongly fluctuating turnover and problems with resource planning.
But perhaps the biggest limitation to this 'break/fix' methodology is the inability to grow profit margins. A
technician can only do a certain number of hours in a day, and that means the T service provider can
only charge for that many hours. As a result, however much the customer base increases, more resource
is always needed to meet that demand, and profit margins will never grow.
So the challenge faced by T service providers is twofold. Firstly, the present services they deliver must
be set up as efficiently as possible in order to reduce the 'cost' of the service and thus recover some of its
profit margin. And secondly, they must look to new models that avoid a reactive approach to solving
problems and instead focus on proactive management and support of customer T systems.

The IT service provider business modeI


Break/fix incident response
Block hour-based & project
billing
Fully outsourced T
How services are biIIed
37%
38%
39%
40%
41%
42%
43%
44%
45%
46%
47%
By the hour Blocks of time Flat monthly fee
Research findings
The IT service provider business modeI
Traditionally, T service providers apply the 'break/fix' business model. Customers identified a problem,
then paid the service provider to fix it for them. This model is still popular in the UK services sector, used
by 30% of the UK companies examined, but the majority are currently billing based on projects and block-
hours paid for.
When we look at how services are billed to clients, just under half (46%) of T service providers rely on
billing for the number of hours worked. This is no surprise when we know the majority also adopt the
'break/fix' model or charge for block hours, which means the majority of T service providers generally still
earn the greatest part of their turnover reactively.
Diagram 2:
Diagram 3:

IT services provided

Systems used to deIiver managed IT services


0%
10%
20%
30%
40%
50%
60%
70%
The services provided
n general, T service providers have the same offerings, although spam and anti-virus support are among
the most popular types of services. The reasonably balanced numbers of services also points to a
broader holistic approach where service providers are offering everything as a service for their customers.
Diagram 4:
Diagram 5:
How services are deIivered
The research shows the majority of T service providers use partial tools to simplify a specific
management activity, for example patching or anti-virus. n contrast, less than a quarter use a centralised
T automation platform to manage all aspects of a client's network, although the number that still depend
entirely on 'manual interventions' - and therefore use no tools - is also low.
n
The biggest chaIIenge facing IT service providers
Staying profitable;
becoming more profitable
Completing the volume of
work with limited staff
Providing a higher level of
service to clients
Differentiating our services
from the competition
Other (please specify)
3%
20%
48%
13%
16%
Steps taken to maintain profitabiIity
0%
10%
20%
30%
40%
50%
60%
70%
R
e
d
u
c
e
d

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The chaIIenges facing IT service providers
The vast majority of UK T service providers stated profitability as their key challenge. One in five (20%)
also stated differentiation from the competition as a challenge, which comes as no surprise considering
the services offered are very similar across all the companies we questioned.
Diagram 6:
Diagram 7:
When we look at the steps that T service providers are currently taking to maintain their profitability,
overwhelmingly, they are increasing their emphasis on generating sales and acquiring new customers. t
is however interesting to note that 37% of respondents have adopted some form of Automation of T
tasks in their quest to maintain profitability.

Expectations of biIIing projections in next 12 months


Remain the same
Decrease moderately
Decrease substantially
ncrease moderately
ncrease substantially
13%
25%
25%
32%
5%
Business modeI v. future biIIings
0%
20%
40%
60%
80%
100%
Break/Fix Block-hours and
projects
Fully
Outsourced T
ncrease substantially
ncrease moderately
Stay the same
Decrease moderately
Decrease substantially
Future expectations
Perhaps surprisingly, despite a challenging economic situation, the majority of T service providers have
positive expectations for the future with respect to turnover. Only around a third (30%) expected billing
levels to decrease in the next 12 months, compared to 45% that expected moderate or significant
increases. A quarter of T service providers said turnover would remain the same.
Diagram 8:
Diagram 9:
Here, it is interesting to note a link between the business model used by the T service providers and their
expectations for 2009. Those that still depend largely on reactive (break/fix) business models are much
less positive about their turnover, whereas 60% of those who offer a fully outsourced T function expect
an increase.

Summary
Ineffective business modeIs - the "break/fix model is used by around a third of UK T service
providers, but this means the majority are paid for the hours they spend solving a problem. This reactive
approach means revenues are inextricably linked to the amount of technicians that are available to
handle customer problems, which in practice can result in problems with personnel planning, strongly
fluctuating turnover and is guaranteed to cap the ability to grow profit margins.
Lack of market differentiation - T service providers across the UK largely offer the same services,
making it extremely difficult to differentiate their company from the competition. As a result, the focus
needs to be on the quality of those services offered to SME customers. A positive, ongoing relationship
with customers will be achieved if T service providers can, for example, actively demonstrate the value
they are delivering to their clients, such as meeting service level agreements (SLAs), reducing the
number of attacks on the network or increasing network uptime.
PartiaI tooIs rather than a centraI framework - T service providers typically use tools to make work
scalable, reproducible and verifiable, and the research shows the majority use partial solutions that
simplify a specific management activity, for example patch management. Few have embraced the use of
an T automation platform, so it comes as no surprise one of their key challenges remains profitability.
Using an overarching framework to automate tasks and control and manage every client network from a
central integrated system, can pay dividends in freeing up technicians and increasing that all important
profit margin.
Key chaIIenges - Profitability is the over-riding challenge facing most UK T service providers, followed
by market differentiation and then completing the volume of work with a limited number of staff. However,
the key steps that T service providers are taking to address the profitability challenge is to increase their
sales efforts.
Future expectations - Despite a challenging economic situation, the majority of T service providers
have positive expectations for the future with respect to turnover. Only around a third expect billing levels
to decrease in 2010 and it is interesting to note that it is the T service providers that largely depend on a
reactive, 'break/fix' business model who are much less positive about future growth.

The case for the Outsourced IT - or MSP - modeI


A number of UK companies are leading the drive moving away from a break/fix approach to adopting an
outsourced T or managed service provider (MSP) - business model. Many of these companies are
using the Kaseya T Automation Framework to manage every client's T infrastructure, network
components, servers and desktop PCs - remotely, comprehensively, and transparently.
These market leaders are realising very real benefits, including increased turnover and profits market
differentiation and the ability to grow their business to meet SME demand, without adding headcount.
Panacea
"We soon realised managed services could develop into a significant revenue stream for us and we are
now making it a definable part of our organisation rather than it just overlaying on top of the existing
organisation. The economic, environmental and time-saving advantages of managed services are clear.
Mike Olpin, Commercial Director
Ziptech
"Customers don't need to see engineers they just want their T systems to be up and running and
supporting the business, preferably with a fixed monthly cost. The only way that can be achieved is by
shifting away from the traditional T support break/fix model to one based on real time monitoring and
automation.
"There is a huge opportunity to deliver T services to the SME market, but it's changing fast and the fact
that Kaseya enables Ziptech to remotely monitor and automatically fix problems to drive up availability at
a fixed monthly price is a very strong competitive differentiator.
Jim Simpson, Managing Director
IT Lab
"We relied on a traditional break/fix model, whereby we reacted to individual client problems as they
happened. However, this was proving to be increasingly inefficient as the number of businesses looking
to outsource T support grew and demand for our services increased. Engineers were dealing with every
problem on a machine-by-machine-basis, which often involved travel to customer premises. nevitably,
this was affecting engineer productivity and our ability to provide a fast response to clients.
"Now our team can securely manage the T systems of every one of our clients from anywhere in the
world. Our reactive support workload which originally required four engineers for onsite work now only
requires two and the majority of their time is now dedicated to new implementation work rather than
break-fix support.
Matthew O'Neill, Strategy Director

Recommendations
Moving from a break/fix model to a Managed Service Provider (MSP) approach will enable your business
to enjoy recurring monthly revenues, with higher profit margins, lower overheads and an unlimited
freedom to grow.
Here are some key elements to success:
CentraIise controI - use a single, integrated web-based system to manage all your clients'
systems centrally, so standard roll-outs, upgrades and updates can be rolled out simultaneously
to save valuable time, and to ensure you have a complete overview of all your clients' systems at
your finger tips
Adopt an automated approach - set up automated tasks and processes to run across your
clients' networks, such as patch management, end point security and auditing. Their exposure to
security threats will be minimised, systems continuously updated, and will reduce your man hours
significantly by managing by exception
Define and impIement best practices - create and implement best practices based upon your
knowledge and experience, as it is your technical abilities and knowledge that set you apart from
your competitors
Integrated heIpdesk - Track and respond to your customer issues and requests automatically
and provide an end-user portal for easy access for your customers to create and view their own
tickets.
Define your SLAs - Define account templates for various Service Level Agreements (SLA) so
clients know exactly what to expect for the package they opt for.
Comprehensive reporting - One of the most important aspects of managed services is
communication to the client, so make sure you have reporting in place that will inform your clients
on what you have been doing and why their systems are highly available
The Kaseya IT Automation PIatform for MSPs
Kaseya's platform provides a unified set of tools that proactively monitor, manage and control T assets
remotely, easily and efficiently from one integrated Web-based platform. The Kaseya Managed Services
Edition software is an integrated T Automation framework specifically designed to enable MSPs to
manage multiple customers, install and configure systems, collect system status data, protect critical data
and system resources, and provide a robust set of managed services for their customers - without the
need for additional staffing resources.
For a free, 30 day trial visit http://www.kaseya.co.uk/forms/free-trial.aspx

About Kaseya
Kaseya is the leading global provider of T automation software for T Service Providers and Public and
Private Sector T organisations. Kaseya's T Automation Framework allows T Professionals to proactively
monitor, manage and maintain distributed T infrastructure remotely, easily and efficiently with one
integrated Web-based platform. Kaseya's technology is licensed on over three million machines
worldwide.
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