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Managed IT Services Market Landscape 2014


The managed IT services market continues to evolve. The scope of both technology and services including breadth and depth of services is in a constant evolution. The market has been largely divided into the following segments:

  • Enterprise ITO and BPO providers
  • Enterprise SIs and VARs
  • Industry Niche Managed IT Services Providers
  • IT Staffing
  • IT Consulting
  • Small Business IT Managed Services
  • Large Scale Technology Providers

The move to cloud computing has, and will continue to enable the market share growth for Industry Niche Managed IT Services Providers. Prior to this "Shift to the Cloud," most businesses had their IT networks, servers and backup mechanisms onsite, and a local IT outsourcing firm would manage it for them. Many MSPs have started to deliver managed solutions to clients with and without managed data center services. Either way this generally requires an upfront investment by the MSP.


The shifting competitive landscape and commoditization of the infrastructure (data center) side of the business, are shaping the service provider landscape. Given the uniformity and standardization that cloud services are effecting, and by extension the inherent scalability that cloud computing creates for software providers, large players can now enter the space and service the end client.


Today an MSP must be able to unify and manage any type of software or solution a client needs, and on any device. The MSP should not be competing with Google or Microsoft on their cloud platform, but should be able to integrate and manage the vendor’s platform along with the rest of their IT needs. The challenge for many MSPs today is that this path isn’t clear, and there are many options for platforms and third party software that have yet to be proven.


This amalgamation is allowing for greater and greater scale, and placing the overall enterprise value of the industry into fewer hands. Of the 100,000+ IT solution providers in the market, less than 10% yet realize significant revenues from managed services. And of these greater than 90% of these MSPs are operating with under $5M in annual revenue, the overwhelming majority of which bring in $1M in revenue. Less than 5% are generating revenues north of $10M .

For MSPs, the greater the contracted recurring revenues, the smoother the financials. This greater stability leads to better financial lending conditions, including better financial leverage where appropriate.

An Introduction to the ITO Market


While the market is highly fragmented with a variety of business models, ranging from the IT staffing IT, to data center hosting, to solution providers, to consultants, and outsourcing companies, there exists significant growth potential as the number of businesses outsourcing continues to grow (nearly 3 out of 4 mid-market companies today outsources at least 2 IT components compared to only 1 in 5 a decade ago) and the scope of what is being outsourced continues to grow and evolve as well.

The business models that are most profitable and emerging as the leaders have a high degree of “recurringness” i.e. the revenue model is recurring revenue oriented with long-term client relationships coupled with multiple products, services, and solutions.


While there are a number of IT service providers today, only a handful have well-defined industry client concentrations. Even fewer have well-established, multi-year managed service contracts coupled with an economically efficient services delivery model.


ITO Marketplace Forecast

At the core of the IT function, is the promise that IT will make the business more safe, efficient and productive.  The information technology and outsourcing needs of small and middle market companies are evolving and shifting towards being primarily "Business-centric" and "Worker-Centric"; as opposed to IT as a stand-alone function.


The outsourcing marketplace is a highly competitive and fragmented industry that is poised for enormous growth in the next decade as companies fight to maintain their competitiveness and profitability.


Cloud Managed Services Market Landscape

The market demand for cloud services is expected to exceed $240 billion by 2020. Today, cloud market landscape is comprised of multiple technology leaders.


cloud msp managed services market landscape

The service leaders landscape is comprised of vendors that provide implementation services to help migrate customers to the cloud and to ensure their utility and utilization of cloud services. Some providers act largely as consultants while others act as VAR's for Cisco, HP, IBM, Microsoft, and still other providers have created industry solutions.


Download the brief on the Microsoft Systems Center market. Download the Small Business Playbook


Ephor Group’s continued focus on the IT outsourcing and IT service provider marketplace is driven by several key trends including:

  1. The need for all small businesses and mid-market enterprises to outsource multiple business processes/functions to not only remain cost competitive and to gain access to capabilities/expertise/resources/tools otherwise unaffordable;
  2. Evolving market dynamics such as the increased need for cloud, social, mobility, risk management and governance requirements;
  3. Highly fragmented market is ripe for M&A consolidation;
  4. Economically efficient model driven by recurring revenues (long-term contracts, valuations, high switching costs);
  5. Operational performance driven by people performance, scalable customer acquisition and service cost models;
  6. Increased dissatisfaction with service levels from Fortune 500 vendors presents opportunities

The outsourcing marketplace is a multi-hundred billion dollar industry encompassing tens of thousands of providers selling hundreds of different products and services. When you consider that virtually every business outsources some business process, you can appreciate the total size of this unique marketplace. If you are an outsourcing provider, it is critical to secure your position of this marketplace.

Outsourcing Market Opportunity

In the early days, the term "Outsourcing" typically meant that a single process, such as payroll or benefits, was handled by a 3rd party. Today, the small business and mid-market outsourcing market encompasses almost all business functions and processes; essentially anything not deemed to be core or a competitive advantage can (and perhaps should) be outsourced.

Currently, outsourcing takes many forms as some organizations contract outsourcing service providers to handle distinct business processes, such as benefits management or marketing. And many organizations outsource entire functions. In fact, the majority of businesses outsource to three or more business processes ranging from very common (payroll, benefits, staffing and information technology outsourcing - ITO) to entire functions: financial and administration (F&A) processes, human resources (HR) functions, call center and customer service activities, procurement (supply chain) and logistics.

In fact, the average business outsources part or all of at least two (2) business processes and/or functions. Not only are companies challenged with becoming more efficient to maintain the status quo, competition is eroding margins, globalization is causing changes in cost structures, and technology is either a hindrance or a helper.




Outsourcing Adoption

Most Common Outsourced Functions and Processes

Business segments typically outsourced include information technology, payroll and benefits, staffing, human resources, facilities and real estate management, and accounting.

Many companies also outsource customer support and call center functions like telemarketing, customer service, market research, and web development.



Selling Outsourcing to Buyers

Economic conditions require employers to operate more efficiently and achieve more with fewer resources. Achieving ongoing efficiencies, innovation and improvement to the mutual profit of both parties is key to long-term success. Outsourcing deployed effectively can reduce costs, increase agility, improve service levels. Buyers today utilize a committee process and always seek a branded sector leader.

Outsourcing Decision Drivers: The Two-Headed Monster

  1. Price to Value ROI. The business case depends on
    • Usability and Per User Utility
    • Implementation fees
    • Training and upgrade costs
    • Annual or recurring subscription fees plus pay-per-transaction fees and/or (pay-for-performance)
  2. Relationship Motivation of the Buyer
  3. Success Stories and Industry and Company Situation Fit
  4. Technology Solution + Services Delivery Model
  5. Holistic versus Point oriented
  6. Flexibility and/or customization/configuration requirements


Outsourcing Trends

Employers are looking at outsourcing to better control costs and remain flexible costs structures. Access to the best technology solutions is also a major consideration as most companies do not want to manage multiple providers and point solutions nor do they want to re-invest in upgrades or replacements.

Prevalent Outsourcing Trends:

  1. #Cloud, #Social, #Mobile, #SaaS #KPO.
  2. Buyer adoption will continue to prefer a “Phased” over a “Big-Bang” approach.
  3. The demand for analytics will continue to increase.
  4. Industry specialization will continue especially from services-oriented and labor-demanding industries.
  5. Shift towards more function outsourcing (a complete tactical business process) over labor arbitrage outsourcing.


Outsourcing Key Performance Indicators

What Are the Keys to Creating a Branded Company in the Outsourcing Sector?

  1. Industry Vertical Practice with preconfigured industry solutions;

  2. A "Perform Culture" that continually innovates and improves account management, shared services, quality, and productivity;

  3. Engagement synchronization regarding the performance against budgeted model forecast and targets/expectations:
    • Operational KPIs (metrics and ratios) that outperform the competition; and
    • Service Excellence.

Outsourcing Key Performance Indicators:

Outsourcing Key Performance Indicators

"It's difficult for mid-tier companies to find a partner with the right organizational fit and scalability, particularly if they need services on site in a number of locations; however, forward-thinking organizations have adopted online services delivery models are realizing results." – Garry Meier.


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