Miguel Lopez, General Manager MSP Market Segment, Kaseya, looks at what separates high growth managed service providers from lower growth competitors
The managed service provider market has been shaped by rapid evolution and growth, including an expansion in the range of services offered by MSPs.
In the early days, MSPs typically concentrated on remote monitoring and management of servers and networks. However, as time has gone by, they have tended to diversify in order to distinguish themselves from competitors. Many MSPs now remotely support a client’s endpoint devices; build offerings around mobile device management; and develop specialisms in such areas as managed print services or security-as-a-service.
The advance of cloud computing has added another complex blend of challenge and opportunity into the mix. The biggest challenge lies in finding ways to manage new hybrid environments that combine the traditional ‘on premise’ world and cloudbased infrastructures. But there are also great opportunities for growth in delivering cloud-based services, like cloud-based backup and disaster recovery.
Today, all the indications are that the MSP market is continuing to develop dynamically. According to the consulting firm Everest Group, managed spend in the MSP market grew 11-16% in 2014 to reach US$85-90 billion. Last year, the market size in terms of Net Fee Income (NFI) was approximately US$1.5 billion.
Research at Kaseya supports this positive picture. In our 2016 Global MSP Pricing Survey, 23% of respondents reported a three-year average annual monthly recurring revenue (MRR) growth of over 20%. An additional 30% reported average annual MMR growth of 11-20% over the past three years.
In addition, MSPs reported increased revenues from most portfolio offerings in the year leading up to the report, from services like Backup and Recovery, Desktop and Server Support, and Cloud.
Planning for growth
Yet, high growth is not something that happens by chance. The evidence shows that if MSPs want sustained growth, they have to plan for it and work toward it stepby-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 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. They are much more likely to offer new ‘emerging’ services than their peers, being more than twice as likely to offer cloud monitoring services, for example, and 85% more likely to provide hosting services for customer-owned equipment.
High growth MSPs also tend to have more of a strategic focus. For example, they indicated more frequently than lower growth peers 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.
Security and the cloud
The Kaseya 2016 survey shows that security and cloud services are key areas of focus for MSPs. A ‘heightened security risk’ is the top IT problem or service MSPs expect their clients to face this year, and over 50% of respondents now offer cloud services (IaaS, PaaS, and SaaS).
High growth MSPs are leading the way in both these areas. More than 70% of them now offer desktop security services, and they are outpacing low growth counterparts in offering Cloud services (58% to 48%) and in expected revenue increases in 2016 (66% to 56%).
The way forward
These results are more than just an indicator of the status of the MSP market today; they highlight 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, who will need to develop attractively priced bundles with increasing levels of capability to differentiate themselves, including 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 as it will save MSPs money and significantly improve the productivity of engineering/technical staff. Security issues create tremendous disruption, which MSPs should seek to minimise beforehand by setting up regular scans; delivering policy-based automation; and managing access with password management, multifactor authentication and single sign-on processes.
On the cloud side of the equation, the focus should be on determining how best to assist customers with cloud migration, operations and management. Cloud services will not replace managed services; in fact they increase the need for services that support cloud migration and cloud service management. It’s key for MSPs to develop the right sales, marketing and IT capabilities to address this fast-moving marketplace.
The right software
Selling and marketing managed services is 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 important to participate in vendor communities, meetings and events to keep up-to-date with market opportunities, as managed services is a fast-moving market with new players and new approaches entering all the time.
Arguably the most important tip for any MSP looking to drive dynamic growth is to invest in great tools and to leverage all the technological capabilities they can. Integrated and professional tools that reduce variability, automate routine tasks, speed problem resolution and support an expanding managed services portfolio are a good way to improve efficiency and reduce business risk.
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 of developments. With market momentum continuing, now is the time for MSPs to position themselves for dynamic growth.