Historically when we've thought of convergence in the tech industry, we thought of a variety of technologies merging together, such as voice and data or storage and networking. Hyper-convergence infrastructure is a term used to encompass storage, computing, and virtualization. Stand aside pings and packets, there's a new type of convergence out there. We're talking about service convergence, and it's something we've identified at TSIA as a major market trend.
The Rise of Managed XaaS
In 2009, J.B. Wood published a book called, Complexity Avalanche: Overcoming the Threat to Technology Adoption. One of the main assertions of the book was that technology was evolving at such a rapid pace that customers could no longer keep up with the massive onslaught of features and functions. Simply put, the technical complexity of technology was outpacing the customer's ability to consume the technology creating what we call the “Consumption Gap”.
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The consumption gap was first introduced in the 2009 book, Complexity Avalanche.
As a result of the Consumption Gap, tech providers have stepped up their game to fill that gap with services. Not just simple services like installation and maintenance, but with high-value service offers like consultation, design, integration, premium support and, my personal favorite, managed services.
As the services market continues to evolve, customers are changing the way they procure technology. With the technology-as-a-service (XaaS) era in full swing, the product is now the service and the service is the product. Through benchmarking over 50 different managed services providers of all types, shapes, and sizes, TSIA has identified that Managed XaaS is the primary contributor to profitable growth for today's top tech players.
TSIA defines Managed XaaS as, “A solution comprised of product (hardware and/or software), professional services, support and operations elements bundled into a single per unit per month price governed by a managed services agreement. Services are delivered from a remote network operations center. Delivery resources are typically shared across multiple clients. Product elements may be hosted and/or on premises. Product may be single tenant or multi-tenant.”
Managed Services and Managed XaaS: A Service Convergence
In Managed XaaS solutions, the product and service offers converge into a single subscription solution and it is proving to be one most sought after solution from technology providers. Consider this: in 2014, managed services was only 6% of a company's overall services revenue stream. Just two years later in 2016, that number jumped to 24%! In 2014, Managed XaaS was only 6% of managed services revenue. In 2015 it more than doubled to 13% of a company's service revenue. In 2016, that number doubled again to where Managed XaaS is now 26% of all managed services revenue. This has propelled many company's managed services revenue to surpass those of professional services.
Due to the growth of Managed XaaS, many managed services providers are looking to increase operational efficiencies, drive scalability and reduce redundancy. This leads us to the second major area of service convergence in managed services: organizational convergence.
Organizational Convergence
Service delivery is one of the areas we're seeing significant organizational convergence between managed services, professional services, and support services. For example, 47% of managed services providers (MSPs) are leveraging a shared delivery organization where support and/or professional services delivery are combined with the managed services delivery team.
Another example is that 44% of managed services delivery teams have incorporated a program management office (PMO) into the organization. A third example of organizational convergence in managed services is with regard to customer success. 64% of managed services providers use a shared client management team to focus on upselling, cross-selling and renewing managed service agreements.
Now that managed services has gone “mainstream”, 2017 will continue to be an exciting year for technology services as we see many other examples of service convergence playing out.
Our upcoming Technology Services World conference this May will have a major focus on this area with our theme, “Organizational Convergence in a Recurring Revenue World,” so be sure to join us in sunny San Diego to find out how the industry is evolving with keen insight from your peers and TSIA researchers.