Identifying new markets for Managed Services

Identifying Growth Markets for Managed Services Strategies for Managed Service Providers to capture a larger share of IT spending Identifying new markets for Managed Services WWW.OVUM.COM

Written by:roy Illsley Published December 2013 Ovum EXECUTIVE SUMMARY CATALYST The role and purpose of IT in an organization is undergoing significant change, driven by the need for businesses to become more agile and have greater control over the cost levers when it comes to using technology. This transformation of IT involves many different aspects, not all of which are technology related, but the one thing they all share in common is that IT modernization is about changing to meet the current and future demands of business. OBJECTIVES OF THE RESEARCH PROJECT Ovum conducted a global survey of over 700 enterprise organizations to understand the opportunity for service providers to become strategic partners to enterprise customers supporting the new IT department. The research also interviewed a number of tier two and tier three service providers to understand their perspective and identify areas of divergence and convergence with the enterprise survey. This research uncovered some new insights such as the new services CIOs say they will need in the next 24 months, attitudes to how service providers currently sell to their customers, the areas where IT departments need help today, and where the different decision makers think help is needed. This report will share the findings of this research and provide evidence of where the opportunities exist for service providers to enter new markets. SUMMARY The global market for third party suppliers shows signs of small single digit growth over the next few years, but this overall trend masks some market variations that service providers can use to significantly grow their share of the IT wallet. Thisreport discovered three new market opportunities that service providers are perfectly placed to address. These are security management, DevOps and the growth of application monitoring-as-a-service, and mobile application monitoring and testing.however, in the second report (You talking about me! Fixing MSP services to drive growth) the research discovered how service providers must change the way they engage with customers in order to ensure they can win this new business. The other major finding was that these opportunities vary by geography and industry vertical, so ensuring these new offeringsare correctly timed for and targeted at the appropriate audience is the key to success. KEY MESSAGES Ovum s market forecasts show greater use of third party services. Security management is where customers are looking to MSPs for help in the next 24 months. Mobile application performance monitoring and testing remains largely under-served. DevOps provides the catalyst to grow application monitoring as a service. Use of the correct management tool is key to delivering successful application monitoring-as-a-service. Limited resources are the number one problem for CIOs. Ovum. This White Paper is a licensed product and is not to be photocopied Page 2

OVUM S MARKET FORECASTS SHOW GREATER USE OF THIRD PARTY SERVICES The trend of organizationsuse of third party service providers is a complex picture. Ovum research (ICT Enterprise Insights 2013 Global Sourcing, n=6700) shows that in certain geographies such as Nordics and Australia the move is positive, with growth of 6% and 15% respectively predicted for 2014/15. However, in France and Germany the trend is for an 11% decline in use of third party suppliers.. The UK, US, and Latin America all show a small2.5% increase in the use of third party suppliers. However, someservicesare performing better than others,, see Figure 1. Application management is showing positive growth in nearly all geographies.network etwork management by contrast shows an almost universal decline,, and this demonstrates that the market is moving from its traditional service offerings, albeit at different rates in different geographies. Figure 1: Use of third party/outsourcing services:performance by type Source: Ovum ICT Enterprise Insights 2013: Global Sourcing, n=6700 O V U M SECURITY MANAGEMENT IS WHERE CUSTOMERS ARE LOOKING TO MSPS FOR HELP IN THE NEXT 24 MONTHS Ovum asked what services enterprises would be looking for from MSPs. The clear number one service was security management with 17% putting it as the highest priority,, and over 20% putting as one of the top three priorities. Figure 2 shows the responses from all respondents and clearly shows that topics such as desktop

management are much lower on the agenda for enterprise customers in the next 24 months than network or application management. The picture changes slightly when it is viewed from a company size perspective. In the large enterprise sector security management remains a top three desired capability, alongwith application management and business service management. Desktop management was the lowest reported priority with less than 7% of respondents putting it as a top three priority. In the SMB sector 20% put security management as the highest priority capability demanded, with network management as the second most popular selection. In this sector, service desk was the lowest demanded capability with 7%. In the mid-sized organizations the pattern remains similar to that of the SMBs; security management was the number one selected capability with 19%, and desktop management agement the lowest demanded capability with only 4%. From a market vertical perspective security management was the number one demanded capability in government and retail with 27% and 17% respectively. However, the banking and education sectors put storage management as the number one capability with 19% and 18% respectively. The increase in storage from an education market perspective, Ovum believes, is driven by increased demand from students to video lectures and to have them available on-line for reference. Retail also placed desktop management as a joint number one, which goes against the general trend,, but signifies a niche market opportunity for specialist service providers. The least demanded capabilityin the government and education verticals was network management, with only 2% of the respondents in each case; service desk was the lowest in retail, again with 2%, while in banking, business service management, with 6%, was the least demanded capability. The decline in network management aligns with the overall 8% decline expected by Ovum in the global market. This demonstrates that service providers must begin to adopt new green field service offerings such as DevOps to remain relevant to their customers needs. Figure 2: Opportunity for MSPs in the next 24 months Source: Ovum Enterprise Challenges Survey October 2013 n=700 O V U M Ovum considers that the differences show some interesting levels of maturity in certain technologies, but security remains globally the top issue on CIOs minds. While this is not new, the demand for external help

with security management is, and Ovum believes this, if delivered correctly, could convince CIOs to move more traditionally sensitive activities to third-party suppliers. MOBILE APPLICATION PERFORMANCE MONITORING AND TESTING REMAINS LARGELY UNDER-SERVED The dominant use case of MSPs in terms of application monitoring is for business critical applications with 15% of respondents stating that they use a third-party for this purpose. While this shows the market has still got a long way to go before it becomes saturated it also shows that this is the current top use of application monitoring. Ovum considers that service providers should be looking beyond the current use case to the next area where they can build a specific capability. Mobile application testing and monitoring, the survey revealed, is currently only ranked as sixth by respondents, yet this is an area that is expected to see significant growth over the next few years. Ovum research (Ovum ICT Enterprise Insights Mobility survey 2013 n=6700) shows 65% of respondents are expecting to develop existing, or implement new, mobile development platforms in 2014. The highest growth market is retail banking and insurance. Education (excluding higher education) is the lowest growth opportunity. The Ovum Enterprise Challenges Survey 2013 confirms this with 15% of the banking and insurance sector reporting using mobile application testing and monitoring, which was the top use case, compared to the education sector where it was the lowest use case. Ovum identifies this trend as a new phenomenon and one that is accelerating fast; if the MSPs are not careful new mobile startup companies will begin to emerge in this space and will reduce the potential for service providers to offer a comprehensive service. Ovum considers that these new startups will only focus on part of the market and therefore fragment this new market just at the time it needs to be consolidated. This fragmentation of the market will destroy the potential margin and revenue from a comprehensive solution that service providers could offer. DEVOPS PROVIDES THE CATALYST TO GROW APPLICATION MONITORING AS A SERVICE DevOps is a movement that aims to improve all the aspects of an organization s ability to develop, test, release, and maintain applications. DevOps requires the different teams to collaborate and share best practice on the process and procedures needed to deliver change to the users quickly and safely. The top use case globally of application monitoring (38% of respondents) was a tactical use of the technology to help identify which team should be allocated a problem. The low level of strategic use of application monitoring as part of a DevOps initiative showed that this remained an untapped market. 11% in the SMB market reported using application level monitoring as part of DevOps. 26% of large enterprise businessesreported using application level monitoring as part of DevOps. However, the response to the question what do you plan to use application monitoring for in the next 18 months showed the opposite trend. In the SMB sector 50% reported they plan to use application monitoring for DevOps. 41% of all respondents stated they had plans to use application monitoring for DevOps (see Figure 3). Ovum considers this opportunity needs to be addressed in way that matches what the customer is trying to achieve. The value for customers is not a direct cost saving, rather it is increased flexibility because problems Ovum. This White Paper is a licensed product and is not to be photocopied Page 5

and issues are reduced, requiring less resources, enabling these to be re-directed to other more valuable activities. The opportunity for service providers is clear: 15% of respondents state they outsource to a third-party application management provider. 17% state that poor application performance causes them to seek help from a third-party. 18% of respondents stated that they were completely or mostly satisfied with the third-party s ability to address poor performance. These figures demonstrate a high degree of capability in the service providers when it comes to solving performance problems. However, solving performance issues was also the most selected poorly addressed capability (22%), indicating that some service providers are doing a good job, while others are not. Ovum recommends that service providers with a proven track record use this as evidence and consider having a dedicated practice area for DevOps and performance management. In addition to end user enterprise research, Ovum has conducted interviews with 10 telcos and IT services/hosting players. Ovum found that telcos in North America and Europe are actively investing in their managed services team to bring these skills into the organization and this is a critical aspect of their long term strategy. Key services and capabilities that telco MSPs are looking to deliver or develop today or have on their road map are: Development of cloud orchestration support for cloud services Application performance management and monitoring with customer portal capability Increased automation Figure 3: DevOps Opportunity Source: Ovum Enterprise Challenges Survey October 2013 n=700 O V U M

USE OF THE CORRECT MANAGEMENT TOOLS IS KEY TO DELIVERING SUCCESSFUL APPLICATION MONITORING-AS-A-SERVICE Those service providers that are not delivering good performance must look at what successful service providers are doing. Ovum believes that the tools are the key; those successful service providers will have standard processes and will be using simple to use, fast to deploy, yet powerful application monitoring tools. Without these tools a service provider becomes overly reliant on skilled individuals, and this represents a risk as the workforce in some locations is very mobile. The survey discovered a wide variation in understanding and use of application level monitoring, which we believe could provide the service provider with a way to enter the market through including some education/consulting in any proposal. However, as previously noted, some service providers are not doing a good job and this is impacting the reputation of those that are excelling. Ovum believes that while this may not be new to many service providers (some are delivering poor application performance management and some delivering an excellent service), the impact it could have on this potential new market is profound. Ovum believes working with a known tool vendor and holding a certified status could help service providers appeal to new customers by differentiating themselves. Ovum advises these tool vendors to embark on implementing such a scheme so that the DevOps and application monitoring-as-a-service opportunity is not restricted to the segment of the service provider market which currently has the best reputation. LIMITED RESOURCES ARE TOP MANAGEMENT CHALLENGE FOR ENTERPRISE IT DEPARTMENTS Figure 4 shows the top four responses to the question what is your biggest IT management challenge. The most reported highest priority challenge was a limited IT budget, which is not a surprise, but on deeper analysis this challenge translates to one of resources. This is a vicious circle. Organizations need to improve the service levels they deliver and to do this they believe that the level of complexity must be reduced, which needs IT budget and resources to implement new or changed processes and systems, however these resources are committed to maintaining existing systems. This dilemma is at the heart of the CIO s challenge, and the keystones of this vicious circle vary by organizational size. In the SMB space, the number one challenge with more than 50% of respondents was too few IT staff. In the large enterprises over 60% reported too many different technologies as the number one challenge. In mid-sized organizations, limited budget with nearly 50% of respondents was the number one challenge. The survey identified that the correlation between the different organizational keystones translated directly to the problems with using existing IT management tools and processes reported by these groupings. 44% of SMB customers reported the problem was too many different technologies and therefore a lack of IT staff to be able to manage these efficiently. 52% of large enterprises claim that the tools create silos of knowledge that make them inflexible, a problem exacerbated by the increasing number of different technologies that need their own specific management tools. 55% of mid-sized organizations reported the tools were too expensive, which matches this sector s number one IT management challenge of limited budget. Ovum. This White Paper is a licensed product and is not to be photocopied Page 7

Figure 4: Top 3 IT management challenges facing the CIO in 2013/14 Source: Ovum Enterprise Challenges Survey October /2013 n=700 O V U M An example of how to break this vicious circle is provided by a market-leading telecommunications and network services company. This company provides support for banks and financial services organizations and operates on two sites with approximately 140 employees responsible for ensuring that data and voice communications remain highly available. Given the critical and 24x7 nature of the client base, the company must provide a highly available network. With more than 18,000 IT devices to monitor and manage, this was consuming all of the IT staff s time and as a result they were reacting to network problems after they had caused a client to experience a loss of service. The solution was to partner with a managed services company who used a branded independent set of infrastructure management tools so that processes could be integrated and responsibility allocated dependent on demand. The benefits they have achieved include much better visibility and control of the IT infrastructure. As a result, network problems have decreased while performance levels have increased, and they are able to t start being more proactive in network management. RECOMMENDATIONS The research clearly found that CIOs are looking for help transforming the IT department, and Managed Service Providers are key to delivering the necessary new services needed to drive this change. However, the companion report (You talking about me! Fixing MSP services to drive growth) details areas where the Managed Service Providers must improve if they are to access a greater share of IT spending. Ovum's Knowledge Centers are new premium services offering the entire suite of Ovum information in fully interactive formats. To find out more about Knowledge Centers and our research, contact us: Ovum Europe Mortimer House 37-41 Mortimer Street London W1T 3JH, UK +44 20 7551 9000 crmgroup@ovum.com Ovum Australia Level 5, 459 Little Collins Street Melbourne, VIC 3000 Australia +61 3 9601 6700 Ovum New York 17 State Street, 32nd Floor New York NY 10004, USA +1 212 686 7400 All Rights Reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Ovum Europe Limited. Whilst every care is taken to ensure the accuracy acy of the information contained in this material, the facts, estimates and opinions stated are based on information and sources s which, while we believe them to be reliable, are not guaranteed. In particular, it should not be relied upon as the sole source of reference in relation to the subject matter. No liability can be accepted by Ovum Europe Limited, its directors or employees for any loss occasioned to any person or entity acting or failing to act as a result of anything contained in or omitted from the content of this material, or our conclusions as stated. The findings are Ovum's current opinions; they are subject to change without notice. Ovum has no obligation to update or amend the research or to let anyone know if our opinions change materially.