Every industry evolves. Companies that prepare prosper, those that don’t perish. Take the office products industry (OPI), which used to be highly fragmented with thousands of independent stationers throughout the country selling supplies to businesses. Then, in 1986, Staples created the office supply superstore. I joined Staples in 2006, twenty years after its inception, they were the biggest, most profitable of the major players including Office Depot, OfficeMax and Corporate Express. In those twenty years, four companies had essentially consolidated an industry. Today, the evolution of the office products industry continues, with Amazon becoming a major threat and talk that Staples should acquire the combination of both Office Depot and OfficeMax.  

By now you’re asking yourself, what does any of this mean to me as a technology service provider? On the surface, not a lot, but look deeper. This is a cautionary tale.

Managed Services Market Consolidation

Thousands of smaller independent companies are losing market share to big direct companies, a process known as market consolidation. The evolution of the channel will continue. Every MSP and VAR can learn from the office products industry example. Not sure if it's relevant? Consider the fate of book stores instead. Today, there are 50% less book stores in the US than there were in 1994, with e-Books accounting for 30% of all book sales. Amazon has roughly 65% of the e-Book market with Barnes & Noble and Apple making up the difference.

Technology facilitates market consolidation. Imagine 50% less MSPs 20 years from now?

Total Eclipse of the Channel

I am talking about a concept called the "Channel Eclipse," a phenomena where large direct players are taking market share from MSPs and VARS. It started with hosted Exchange. Remember when it was highly profitable for a service provider to install and maintain Exchange? I do! It was a gravy train. But not anymore. The gravy train has been derailed and replaced by hosted Exchange which yields tiny margins and resembles table scraps instead of a profit feast. Now, with the proliferation of hosted apps, file sync and share solutions and hosted servers, it’s becoming more difficult for MSPs and VARs to make good margins in other areas of their business as well.

This is about survival of the fittest. The service providers who will succeed are ones who acknowledge the impending eclipse and prepare for it. MSPs and VARs have to change the economics of their business so they can compete in the future. The Channel Eclipse won’t happen overnight, but it is happening. Don’t make the mistake of saying it won’t happen to your business or in our industry. This is not meant to be gloom and doom, it’s a wake-up call. MSPs have an opportunity to take advantage of the changing market conditions. They just need to acknowledge change is at their doorstep and create a plan to reinvent their businesses.

Email jimlippie"at" for more information on creating a plan for your business.

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