The rush to managed services

Managed services was already a bona fide trend before the economy went south, given the growing complexity and fast pace of technological change, but the stumbling worldwide economy is increasing the interest in this area. It makes less and less sense for businesses to be managing their own IT resources when many of those resources can be network-based and delivered more efficiently. The credit crunch only increased the pressure to keep capital expenses low, and businesses that want to stay competitive can hardly afford to ignore the productivity advantages that Web-based services and network-based collaboration can offer.

As Henry Dewing, analyst for Forrester Research, pointed out in a report last November, the scary economic environment is coming at a time when the IT industry is on the cusp of a 10-year investment cycle.

“History has proven that the IT industry generally operates in 10-year alternating cycles of innovation and growth followed by cycles of refinement and digestion,” Dewing said in his report. “Forrester sees late 2009 to 2017 as an innovation and growth cycle, where business will rapidly invest in new and innovative technologies. This increased investment and innovation will prompt buyers to consider managed options — giving them more nimbleness and breadth to try a variety of solutions.”

By turning to managed services, businesses can limit their capital investments and yet increase the flexibility of their IT infrastructure, Dewing said.

Both AT&T and Verizon touted managed services sales as part of the good news in their business sales last year, and both view managed services as a strategic offering going forward. TW Telecom last week announced a full managed services offering. And in one main area of growth — telepresence and videoconferencing — a bad economy is even helping drive some managed services sales. Other service providers continue to expand their managed services offerings.

But knowing that this is a significant area of new growth and delivering on the managed services promise (to customers and investors) are two different things. And as so many companies rush into this space, how will telecom service providers compete?

It’s telling that in Dewing’s report, only AT&T finished among the top four companies when business users were asked to identify the third parties they used for IT service projects. IBM, Hewlett-Packard and Accenture were the top three. Many large enterprises may not currently see their telecom service provider as a source of IT expertise — that’s one of the reasons we see AT&T teaming with IBM and expect to hear the formal announcement of Verizon’s Accenture partnership any day now.

The small- to medium-sized business market may be more ripe for telecom service providers, but here the challenges are to keep the services simple, understandable and easy-to-use, and deliver them at scale. There are companies focused exclusively on managed services — Savvis and Presidio Networked Solutions are just two we’ve written about recently — that also compete in this space

My point in saying all this is that managed services is definitely the way of the future, but there are inherent challenges and there will be much competition. Service providers need to understand where they can best deliver value and thus compete effectively and generate profits.