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, and TSIA members can read executive director Thomas Lah’s paper, “The Emerging Economic Engines of Technology Providers.” 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.

product revenue versus service revenue  

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Source: TSIA’s T&S 50 index.

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.

service revenue is growing  

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Source: TSIA’s T&S 50 index.

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.

what is xaas  

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XaaS (as-a-service) solutions are more than just selling a subscription to products and services.

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.

successful as a service offer  

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Successful as-a-service offers include having a solid strategy, design, transition plan, and operation plan.

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.

Learn How to Grow Tech Profits with Managed Services

The bottom line is this: If you want a profitably growing business in tech, you need to seriously plan through your strategy for both the technology and the operation of the tech. You’re going to own it. The customer wants to subscribe to technology, and they want you to operate. You may sell the best tech in the world, but unless you can offer them an operations model that supports it, they’re going to go somewhere else.

Not sure if you have the right strategy or the right organizational capabilities to be successful in the services-led tech economy of the future? At TSIA, we can help you identify if you’re on the right track and we can teach you how to be a powerful force that stomps out your competition.

To help you reach your goals even faster, TSIA also offers Strategic Services. For managed services, we provide speaking engagements, workshops, and focused advisory on these topics and more to help you get started:

  • Managed Services Relation to XaaS: How do managed services offers relate to cloud services (SaaS, PaaS, IaaS, etc.)?
  • Creating an Executable and Measurable Managed Services Strategy: How do I create an executable and measurable MS strategy that also aligns with our product strategy?
  • Defining Market Focused Managed Services Offers: What are the most market relevant MS offers for technology solutions?

Reach out to TSIA today so that together, we can develop a plan of action to take advantage of the amazing opportunities managed services and XaaS offers will open up for your organization.

 
 
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George Humphrey

About Author George Humphrey

George Humphrey, is the vice president of research, Managed Services, for TSIA. He is a networking and communications industry veteran of over 20 years with extensive experience in managed infrastructure and application services. Throughout his career, he has held several leadership positions in managed services, including global strategy, product line management, marketing, operations, and client management.

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