Let’s talk about the elephant in the room: most tech companies that are not pure-breed managed services providers (MSPs) have a love/hate relationship with their managed services business. They know managed services is a potential revenue growth engine for them, yet they worry about how managed services revenues will affect their P&L.

If I had a nickel for every time I heard that managed services was “dilutive” to the company’s margins, I could buy ad space in Times Square announcing that managed services is one of the fastest growing lines of service. Leaders of OEMs (original equipment manufacturers) often fear that offering managed services will cause “channel conflict”, but nothing could be further from the truth.

...we can see that services now account for more than half the revenue in the tech industry. Yes, services are more important to the tech industry than tech is.

Technology Consumers Want More XaaS (As-a-Service) and Managed Services Offers

Let’s talk about facts. The reality is that economic engines are evolving in tech. This is something that we’ve talked a lot about in our research and at our conferences. But for brevity, using TSIA’s Technology and Service 50 (T&S 50) index to take the temperature of the industry, we can see that services now account for more than half the revenue in the tech industry. Yes, services are more important to the tech industry than tech is.

That doesn’t mean that cool widgets and software aren’t important. What it does mean is that customers are voting with their wallets, and one thing has become clear—technology buyers want a services-led, consumption-driven model. Also, this same research has shown that product revenues have been shrinking since 2011.

Think about it this way: If product revenues are shrinking, and services are “attached” to products, shouldn’t services be shrinking as well? The short answer is “yes” for standard attach services, such as support, professional, education and field services. But these are a different kind of services that are growing: “as-a-service” (XaaS) and managed services offerings.

So, if you’re in tech and you want to grow revenues, you must develop one or both of these offerings. Are there exceptions? Sure, there are. For example, 2018 was a great year for PC manufactures. Interestingly enough, almost every one of the top 5 global PC manufacturers are now offering their PCs as a service. Why? Even these companies growing device revenues recognize their customers are demanding an alternative model to CapEx, self-operated solutions.

The big question is, “Are tech companies really ready to offer services-led solutions?”. The short answer is no, they are not. As-a-service solutions require a completely different offer, sales, delivery, financial and client management model.

When you’re selling as-a-service solutions, you’re not just selling a subscription to products (hardware or software), what you’re selling is the subscription to the tech through a consultative, business-focused approach that includes holistic operation of the tech.

Coincidently (or not), managed services also require a completely different offer, sales, delivery, financial and client management model than traditional tech.

XaaS and Managed Services Offers: Two Great Tastes That Taste Great Together

Over the past year, TSIA has created an inventory of organizational capabilities required to be successful in as-a-service, subscription-based solutions. Coincidentally, roughly 90% of those capabilities are also prevalent in successful managed services organizations! In fact, 35% of managed services revenue is now coming from managed XaaS solutions.

TSIA works closely with our members supporting them with transforming their traditional tech business to XaaS and managed services-focused businesses. Many tech companies that have been dragged into offering managed services by their customers don’t even realize the goldmine they’re sitting on. Managed services and XaaS business are like peanut butter cups: Chocolate is great, so is peanut butter.  Put them together and you have MAGIC!

35% of managed services revenue is coming from managed XaaS solutions.