The managed service provider market has drastically expanded in a small space of time over recent years with many MSPs now offering more services than ever before. In years gone by they focused on the remote monitoring and management of servers and networks.
However, MSPs have tended to diversify in order to distinguish themselves from their competitors. MSPs now often remotely support a client's endpoint devices and build offerings around mobile device management. They have also frequently developed specialisms in such areas as managed print services or security-as-a-service, for example.
The advance of cloud computing has added another complex blend of challenge and opportunity into the mix. The biggest challenge is around finding ways to manage new hybrid environments, which combine the traditional on-premise world with new cloud-based infrastructures. But there are also great opportunities for MSPs to grow in delivering new cloud-based services, like cloud-based backup and disaster recovery, for example.
Today, all the indications are that the MSP market is continuing to develop dynamically. According to research posted by consulting firm, Everest Group at the end of last year, the managed spend in the MSP market grew robustly by 11 to 16 per cent in 2014 to reach $85-90 billion while the current market size at the time of publication, in terms of Net Fee Income (NFI), was approximately $1.5 billion. Our own research at Kaseya concurs with this positive picture. Our 2016 Global MSP Pricing Survey finds that 23 per cent of respondents report that their three-year average annual monthly recurring revenue (MRR) growth is over 20 per cent, with an additional 30 per cent reporting average annual MMR growth for the past three years between 11-20 per cent.
MSPs also reported increased revenues from most of their portfolio offerings in the year leading up to the report – from services like Backup and Recovery; Desktop and Server Support and Cloud.
Yet, high-growth is not something that happens to MSPs by chance. The evidence shows that if MSPs want sustained growth, they have to plan for it and work toward it step by step. For example, high-growth MSPs charge more for their technicians; charge more on average for ongoing server support and maintenance per month; and have a higher average size monthly managed services contract.
The data also suggests that high-growth MSPs share a determined, continuous focus on finding areas of growth and competitive value, and clearly articulate this value to their clients. High-growth MSPs are much more likely to offer new ‘emerging’ services. They are, for example, over twice as likely to offer cloud monitoring services than their peers. In addition, they are much more likely to offer monitoring services – and even guaranteed SLAs – for their clients’ services. Finally, high growth MSPs are 85 per cent more likely to provide hosting services for customer-owned equipment.
High-growth MSPs also tend to have more of a strategic focus. This group indicated more frequently that their clients’ top IT problem or service need is to address heightened security risks, increase IT as a competitive advantage, and deliver higher standards of availability than their lower-growth peers. The report also highlighted that security and cloud services need to be two of the biggest focuses of MSPs moving forwards.
The Kaseya 2016 survey found that more than 70 per cent of high-growth MSPs are offering desktop security services and that “heightened security risks” was the top IT problem or service MSPs expect their clients to face this year. Added to that, over 50 per cent of respondents said they now offered cloud services (IaaS, PaaS, and SaaS). Continuing a trend we have already referenced, high-growth MSPs outpace their low-growth counterparts in offering Cloud services (58 to 48 per cent), and in expected increase in revenues in 2016 (66 to 56 per cent).
These results of course, are more than just an indicator of the current status of the MSP market today, they also point the way forward to areas that providers might want to focus on in order to drive strategic growth in the future. A key theme is the need to differentiate. Customers are looking for more comprehensive services from MSPs – and so MSPs need to look at developing attractively priced bundles with increasing levels of capability to differentiate themselves with more advanced and specialised services in developing areas like security and cloud. With regards to security, adopting a more proactive approach should be a key priority. It will save MSPs money and improve your engineering/technical staff productivity significantly. Security issues create tremendous disruption – like any other systemic infrastructure issue. MSPs therefore should look to take steps to minimise this before it occurs by setting up regular scans, delivering policy-based automation, and managing access with password management, multi-factor authentication and single sign-on processes.
On the cloud side of the equation, the focus should be on determining how to best assist customers with cloud migration, operations and management. Cloud services will not replace managed services. On the contrary, they increase the need for services which support cloud migration and cloud service management. It’s also key, of course, if they want to drive dynamic growth, that MSPs develop the right sales, marketing and IT capabilities to address this fast-moving marketplace.
Selling and marketing managed services is after all very different from selling hardware and software. Having the right software in this area will pay tremendous dividends in terms of deals won and the profitability of those deals. It’s also very important to participate in vendor communities, meetings and events to learn more and keep up to date with market opportunities. Managed services is a fast moving market with new players and new approaches entering all the time. Even if you operate in a small geo market with limited competition, your customers are still informed about the wider possibilities and opportunities.
Arguably the most important tip that any MSP looking to drive dynamic growth can receive is to invest in great tools and to leverage all the technological capabilities they can. Efficiency translates into both profitability and competitiveness. The more efficient their operation, the faster an MSP can grow and lower their business risks. That’s why it’s worth any ambitious MSP investing in integrated and professional tools that reduce variability, automate routine tasks, speed problem resolution and support your expanding managed services portfolio without needing to be replaced.
With service portfolios diversifying and the onset of the cloud giving the market a further boost, there is a great opportunity out there for MSPs who understand the market and have the strategic focus and the determination to take advantage.
With market momentum continuing, now is the time for MSPs to take action and position themselves for dynamic growth.
Miguel Lopez, GM, MSP Market Segment for Kaseya
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