SME’s to drive managed services to $3.86bn by 2016

The local small to medium enterprise sector represents a key market for cloud-based offerings and will help push the managed services market to $3.86 billion in 2016, according to new research conducted by Frost & Sullivan.

The international growth consulting and research firm finds that the market earned revenues of $2.09 billion in 2010.

It said that under the current economic conditions, managed services have emerged as particularly critical for businesses in South Africa, as they aim to contain costs and improve efficiency.

Enterprises are increasingly outsourcing non-core IT processes in order to focus on their core mission.

The research firm pointed out that the emergence of cloud computing has given impetus to this trend, as businesses are now able to access the computing resources they need, when they need them, over the internet. “Small and medium enterprises (SMEs) are positioned to benefit immensely from cloud-based offerings as these services essentially circumvent the need for businesses to invest in costly capital infrastructure,” F&S said.

“Increased uptake of cloud-based services will be driven by the ever declining broadband costs,” noted Frost & Sullivan’s information and communication technologies industry analyst Ishe Zingoni. “The SME sector represents a key market for cloud-based offerings, as these companies often cannot afford to build their own infrastructure. The declining costs of bandwidth will make these offerings affordable and attractive to the sector.”

Very often, the cloud presents SMEs with the only route to access normally expensive computing resources. Shared cloud infrastructure, or the public cloud, is a viable option for SMEs that cannot afford to build data centres of their own. Thus, cloud services are poised for greater uptake in future, as businesses move towards managed hosting services.

“A critical enabler of this level of uptake will be the projected falling of bandwidth prices on a sustained basis,” Zingoni said. “As infrastructure becomes far more ubiquitous, particularly undersea cables and terrestrial networks, the costs of bandwidth and internet-based services, such as cloud offerings, are expected to fall.”

The research group argues that although managed services’ key value proposition is its ability to reduce costs, the reality is that the total cost of ownership (TCO) for a number of businesses is still high, or has even subsequently increased, negating any potential benefits to be derived from these services. A case in point lies in areas such as software as a service (SaaS), where challenges related to integration with existing systems have resulted in companies running SaaS systems parallel to their existing systems. This has further increased the total cost of ownership for these businesses, it said.

“Another manner in which managed services can potentially impose additional costs on businesses, relates to the sub-optimal customer service that can emanate from poor service provider response times and lacklustre technical innovation,” concluded Zingoni. “It is imperative for service providers to focus more on providing true TCO savings, rather than merely on price.”

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SME’s to drive managed services to $3.86bn by 2016