MSPs have played a crucial industry role over the last 12 months. Comms Business looks at what comes next.
In many ways the Covid pandemic catapulted the role of MSPs much further forward, ensuring businesses were best placed to not just survive but even thrive during turbulent times. Mark Hollman, interim vice president of market development at Colt Technology Services said the Covid crisis pushed MSPs further to the forefront to inspire business continuity and growth. “Over the past year due to the pandemic, we have all seen how business requirements have changed dynamically. Businesses have had to adapt swiftly, irrespective of large enterprises or SMEs to maintain the operations. While the priority was to maintain the business continuity, the biggest hurdle that most of the business faced was to maintain the security and IT infrastructure, given majority of the workforce were working remotely and continue to do so.
“Change in the business landscape also leads to an accelerated digital transformation journey. Multiple benefits offered from MSPs such as scalability, flexibility, skilled staff, high-level security and backup solutions; and lower cost lead to the adoption of the latest technologies while maintaining business growth.”
Martin Saunders, product director at Highlight agreed that MSPs have a really important role in technology adoption. He said, “As technology becomes increasingly complex, MSPs can keep on top of everything and simplify what is on offer.
“The MSP can take the role of an expert. Most businesses have difficulty in deciphering the technical ‘hype washing’ presented by vendors that hook the latest buzz words into their existing portfolios. Providers can identify the vendors that have a coherent and tangible offer in the market. These MSPs are vendor agnostic and can show their value by using the best technology in the market rather than the vendor with the biggest name or marketing budget.”
MSPs are the key enablers in allowing businesses across the UK to digitally transform, according to Daniel Bailey, investment director at mid-market private equity firm ECI Partners. He explained, “True digital transformation is more than just lifting and shifting IT infrastructure into the cloud. It is about a business becoming a cloud-native organisation and adopting the right culture and behaviours to make the best use of the technology, capability and scalability benefits that public cloud environments offer.
“Due to IT being such a fast evolving and dynamic space, it is important for organisations to have an MSP partner that can ensure they remain on top of developments. A company would need to invest significant resources to stay abreast of all of these developments on its own with an in-house team.”
Greg Jones, business development director for EMEA at Datto, said that, with IT playing an essential role for millions of small and medium businesses, MSPs have become essential service providers to this evolving market. He pointed to the company’s recent research that found 22 per cent of MSPs reported that their total revenue per year grew by up to 5 per cent over the past three years, with 24 per cent of MSPs reporting growth of up to 10 per cent. He added, “As SMBs increasingly entrust their IT to MSPs, individual MSPs are benefiting from that growth.”
Navigating the pandemic
Hollman said none of us could have imagined the impact of Covid and lockdown. “IT departments were working day and night to set up remote network access, cloud applications, and the necessary security measures. In a nutshell, MSPs weathered the pandemic by striking a delicate balance of existing services and adapting their portfolio services to stay relevant in the business; to meet the changing requirements of their clientele along with the business dynamics in the UK. This has resulted in many service providers continuously increasing their offerings far beyond the traditional services expected of the MSPs.”
But Saunders at Highlight feels it’s been a mixed picture. “From what we see, some have done well and some badly. The ones that have been successful have focused on service and helping their customers. Others that have not fared so well did not differentiate themselves with services and are still trying to sell me-too products with a focus on price.”
Bailey believes in order for businesses to continue to operate through the pandemic, cloud migration and the services of MSPs have become vital. “Alongside this, Covid-19 created pockets of growth opportunities for products such as Microsoft Teams and Zoom, of which MSPs sold hundreds of millions of licenses last year.
“While many businesses have had to make cuts to services, it’s unlikely that the IT department was impacted, so MSPs have generally retained their customers. Additionally, a lot of MSPs’ services are contracted, meaning that they have recurring revenue and secure income, which will have offered some certainty over the last 12 months.”
For Jones at Datto the pandemic has dramatically increased demand for cloud and IT for many businesses, with MSPs playing a critical role “in helping businesses meet the demands of the accelerated digital economy”. He added, “A remote workforce opened new security vulnerabilities for SMBs, and cloud migrations have offered an opportunity to improve collaboration and business resiliency across a distributed workforce.
“MSPs see a continuation and acceleration of trends that were already in place before the pandemic: increasing cloud migrations and a focus on security. MSPs also expect SMBs to better appreciate their reliance on their IT provider and disaster recovery plans.”
Financial uncertainty is a big issue for Saunders. “When businesses go through financial difficulties, it has a knock-on effect for MSPs. If a customer with a long-term contract suddenly closes, the MSP is still responsible for the underlying services that cannot be cancelled. The revenue vanishes but the costs remain.
“Highlight is designed for service providers. As a pure SaaS provider, MSPs can add or remove Highlight services at any time, without penalty. So as usage goes up or down, so does the monthly invoice.”
He emphasised, “Remote working presents another challenge. Businesses that relied on their office space, now have staff working from home. This poses a commercial challenge. Potential long-term contracts that were very lucrative are being cancelled and replaced with more residential broadband connections. Whilst this is a challenge, it is also a big opportunity. As part of this switch, MSPs can capture some of that reduction in office-space spend and channel it into the technology and infrastructure that facilitates a better home working environment.”
Hollman noted, “While enterprises count on MSPs for most of their IT requirements, MSPs do have their share of challenges ranging from finding and hiring new employees given the current situation, specifically highly trained IT employees on the latest technologies, experienced sales representatives to support the sales pipelines.”
Bailey agreed that, in a highly competitive market, certain skills are in high demand. “Recruitment and retention are the most prominent challenges for MSPs in the next 12 months, as the sudden increase in demand has undoubtedly led to a critical skills shortage and if an MSP doesn’t have the ‘right’ forward thinking skills and capabilities, it could lose clients to a more dynamic competitor.
“It’s also a challenge for MSPs to choose which vendors they align themselves to. In cloud alone for example, there is Microsoft, Oracle, SAP, AWS, Google, Alibaba. A key strategic question that MSPs need to address is whether it is better to be a generalist or a specialist.”
Jones said MSPs are facing challenges with their work/life balance. “The Datto report found that MSPs are having more after-hours calls, as their clients have been less able to work standard business hours over the last year as they balance work and home responsibilities.
“MSPs also struggle with sales and marketing efforts, often citing the lack of in-house resources and technical backgrounds as reasons. Last year, on top of the pandemic, Datto’s report revealed that sales and marketing is still one of the main issues keeping MSPs up at night.”
MSPs are extending their portfolios while maintaining the basic services such as backup, business and DR, network monitoring, security and productivity apps. Hollman at Colt explained, “MSPs are changing their business by integrating forward in IoT space, AI, AR and machine learning, cloud applications, and cybersecurity services. While offering integrated services, some MSPs also introduced wellness and workspace programs to reduce stress as a part of customer delight.”
According to Saunders, for most MSPs, the big change is from one-off sales to recurring revenues. He said, “Everyone in the industry is in some phase of this transition. Some are close, others are still getting revenues from single contracts and maintenance deals. The switch to a recurring revenue model requires MSPs to build a new organisational structure with account managers that look after and service customers and ensure everything is performing.
“The finance department is also having to adapt. To move to a recurring income, MSPs need billing systems that can keep track of costs alongside recurring incomes. One of the biggest mistakes for new players is that they go out of sync with what services they buy compared to what a customer is paying for. The MSP ends up paying for services that are no longer being billed to the customer. We know of service providers that have got into significant financial difficulties because they’ve not kept control of their recurring cost base.”
ECI Partners’ Bailey noted how a lot of vendors, rely on MSPs to sell and support their services, with many MSPs reselling Office365 licences, for example. “This relationship is currently symbiotic, as software businesses don’t want to start supporting an SME’s technology estate. They do however still want to sell their products to that customer. So, MSPs act as a channel for vendors, reselling solutions into hard to reach parts of the market and knitting a vendor’s products together with other software and solutions to create a cohesive IT estate. The MSP can then support that estate on an ongoing basis.
“At a high level it’s unlikely this relationship will change, however as with all relationships, there are occasionally points of friction, such as the periodic changes in the incentive structures set by vendors for MSPs. But there is also a lot of opportunity, for example, a vendor can discontinue old products and release new ones, giving the MSP an opportunity to sell new services into its customer base.”
Jones at Datto thinks the relationship between the vendor and the MSP has changed a lot during the Covid pandemic. “This is now a great time for partners to review their vendors to understand if they fit into their business plan and add value; if they are aligned with the vision and goals of the partner, and if the vendor has shown them support throughout the pandemic.”
New MSPs emerging
Hollman said that if we look at the UK MSPs landscape there are many new MSPs emerging having expertise specifically in cloud migration strategy and consulting. “AI and machine learning, cybersecurity to IT support and compliance. They are focusing on a niche domain compared to established MSPs who usually offer wide range of services.”
For Saunders, the new MSPs emerging are 100 per cent recurring revenue based and service orientated. He said, “These MSPs are typically asset light. They do not have lots of equipment and they do not build data centres or networks. They avoid heavy assets because they drag these types of businesses down. This makes them more agile from a technology point of view.”
Bailey at ECI Partners said the MSP marketplace remains highly fragmented in the UK. “A key difference between the newer and more established MSPs, is that some of the growing small MSPs have a real specialism in one technology area, and hence grow quickly due to their mastery of a particular product or solution. Highly specialist skills in these areas are in short supply and not everybody wants to work for a huge business, such as a systems integrator. Therefore, some of the most highly skilled individuals can be found at smaller businesses.”
Datto’s Jones feels “we are slowly starting to see” new MSPs emerging in the UK market on the back of the pandemic. “Boutique service offerings are key; gone are the days of businesses having to fit and adapt around rigid IT solutions – this is now a thing of the past. MSPs and IT solutions should truly help and support businesses in achieving their company goals. Many SMBs lose money due to poor business processes around the integration and use of technology.
“Looking back over the years, we know that the best time to adapt and change normally comes on the back of a crisis. At Datto we believe we are now entering the golden age for MSPs as many companies are now turning to technology to support them in embracing the workforce of the future.
“If MSPs focus on the following five areas they will see huge growth over the coming years: security, improving business process, business continuity, flexibility of services and offerings, and empowering the end user.”