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MSP Ups and Downs, Part II: Pricing

Joe Nardone, of Expert Data Labs in the Pittsburgh, PA area, runs an IT service consultancy and MSP shop that seems rock solid. Nardone believes that some day soon IT services will be just like a monthly or periodic utility bill for small and medium-sized businesses bundled to fit business needs. Like cable, electric or water, Nardone says, IT services would literally and figuratively 'fit the bill.'

The economies of scale under such a setup and the prospect of IT as a utility and as an increasingly outsourced function of both SMBs and some enterprise organizations are among the main reasons for the growth of managed services.

This is why it seems peculiar that despite growth in a down economy and inflation in the prices of healthcare, gas, food and other essentials, that many MSPs are decreasing their pricing at a time of rapid growth and increased demand for managed services.

According to Jeffrey Nelson, CEO of Anexio, a Sarasota, Fla.-based MSP, MSPs are slashing prices like used car salesmen in checkered blazers to retain old customers and gain new ones.

This, Nelson suggests, is because while a growth in service offerings and demand has created that utility service feel, specialized services are naturally falling off a bit resulting in what he says is an industry that has "commoditized itself" and would therefore see pricing pressure.

Nelson and others in the know in the MSP space have seen little change in pricing of services aimed at SMBs due to inflation.

Conversely, the cable bill culture and the coming cloud service provider incursion on the MSP market are what are affecting pricing and strangely enough are ultimately what can bring pricing back in line with MSP growth.

Apropos, a growing number of MSPs are blending unified telecommunications and PC service product sales and have access to cloud offerings. Once this is combined with proactive managed services and support and more MSPs enter the fray, prices will likely stabilize.

You don't need to be an egghead economist with a knowledge of graphs and charts to know that low prices and growth don't work in tandem in the long run, unless you're Wal-Mart. At last count, most MSPs and SMBs aren't wearing blue vests and greeting you when you come to the door.

It's vital, then, that price stabilization and consolidation of MSP companies and the services they offer are what's ultimately needed to catch up with growth.

Posted by Jabulani Leffall on March 11, 2011