Increased competition. Vendor consolidation. Ransomware outbreaks. In many ways, 2019 marked a crossroads for the MSP industry, with clear signs that the market is entering a new mature phase with high potential for growing separation between the haves and have-nots.
As we head into 2020, where do the biggest opportunities lie — for small and large MSPs alike? Here are three key trends to keep an eye on.
Trend #1: Security as a critical wedge and differentiator
Obviously one of the biggest stories of 2019 was the spike in coordinated ransomware attacks targeting MSPs and their customers. These attacks leveraged weak or stolen MSP credentials to hijack the MSP’s RMM or remote access tools and create a nightmare scenario — deploying ransomware across their entire client base to encrypt all of their clients’ systems at once. The largest of these attacks made national headlines (see the attack that infected 22 local governments in Texas, or the attack that crippled an estimated 400 dental practices), and, overall, these campaigns have unfortunately helped funnel millions in ransom payments into criminal accounts.
The good news is the collective efforts of MSPs and vendors (including NinjaRMM) to make 2FA mandatory has helped limit the amount of damage these attacks can do, and reports of client-wide infections have fallen.
The bad news is the genie is out of the bottle. Attackers see MSPs as high potential targets, and MSPs can no longer skate by offering to take on their clients’ security while neglecting their own. We’re going to continue to see attackers aggressively going after MSPs, and with each successful compromise the industry as a whole risks suffering from the snowballing storyline that “MSPs aren’t secure.”
Here at Channele2e, Joe Panettieri has referred to this looming threat as a “crisis of credibility.” I unfortunately believe there is a very good chance scrutiny on MSPs will grow in 2020. That means, beyond the direct threat that attackers pose, there’s also the challenge of controlling perception. Because for many MSP prospect clients the perception around security is rapidly changing.
For years now, the story that nearly every MSP owner has been drilling into their salespeople is that clients and prospects need to be convinced why they should care about security. Increasingly, that’s no longer the case. The new question MSPs need to be prepared to answer in 2020 and beyond isn’t “why should I take my security seriously,” but rather, “why should I entrust my security with you?”
The MSPs who can deliver the best answer — not just reactively, but proactively as part of their prospecting — are going to develop an extremely strong competitive advantage. Headline-grabbing compromises have the potential to put the entire MSP industry on the defensive. Those who figure out how to use the trend as an opportunity to go on the offensive are going to win. Those who can’t are going to find their clients peeled away by competitors.
Trend #2: Expect a big jump in sales and marketing maturity
Speaking of competition, another thing 2019 made clear is that the MSP market isn’t the vast, wide open space it used to be. According to a recent survey we conducted, 60% of MSPs consider their local market to be very or extremely competitive. Growth opportunities certainly still exist, but they’re increasingly converging around larger, more mature MSPs. The success of these companies has largely centered on two things:
- Developing either more specialized or more complete service offerings than competitors
- Delivering those services more efficiently than competitors and at scale
But with competition increasing, and more MSPs gaining operational maturity, those advantages are beginning to lose their potency. It’s becoming increasingly difficult to differentiate between offerings, and there’s only so much work you can do optimizing your operations before the juice isn’t worth the squeeze.
With mature MSPs maxing out on operational efficiencies, expect to see a growing number not just fine-tuning their service delivery engines, but developing increasingly high-performing, in-house sales and marketing engines, as well. For two reasons:
- The other primary path to growth — acquisition — actually became more difficult in 2019. According to IT Glue’s 2019 Global MSP Benchmark Report, the number of MSPs open to acquisition opportunities dropped from 31% in 2018 to 26% this past year. The reason cited: shops that are open to acquisition are getting scooped up faster, leaving prospective buyers with fewer options.
- Even as the MSP space has matured, sales and marketing has continued to be one capability almost everyone is lagging in and/or outsourcing. It’s something MSPs have been allergic to since the beginning, and to this day very few —even among the big guys — have sales and marketing operations truly figured out.
That’s why I think, despite the market becoming increasingly saturated, there’s still a prime, disruptive opportunity for MSPs of any size who can nail their digital marketing and sales outreach.
Trend #3: Consolidation seismic aftershocks
Like the previous two years, 2019 was full of merger and acquisition announcements on the vendor side. It generally takes time for the full effects of these moves to be felt, and now that the initial shockwaves have subsided many MSPs are understandably wondering just how significantly their status quo is about to be disrupted.
In many of these cases, only time will tell. But for MSPs who prefer to be proactive, there are a number of key questions they can ask their vendors if they haven’t done so already. For starters, there are the immediate concerns: “How will this affect my pricing, support, and integrations with the third-party products I use?”
Then there are questions that can provide deeper insight into the strategy behind the acquisition, as well as the long-term outlook and downstream effects: “What were the motivations behind the move? Was it about achieving cost synergies? Filling a product gap? Who were the product leads at the acquired company? Are they staying on following the merger? How does the acquisition affect the product roadmap?”
Then there are the questions I’d ask due to the fact I was a software engineer for 17 years: “When were the products involved in the acquisition built? What type of technology stacks were they built on?”
The answers to those questions can often be more telling than what you read in press releases.
Looking at the landscape, it would not be surprising to see a break from more massive M&A deals, but I do think we will continue to see smaller, new, innovative products acquired much earlier in their life cycle rather than see them grow into larger competitors. As a result, looking ahead to 2020, MSPs will want to work to stay proactive and vocally advocate for themselves in a world where they have slightly fewer choices than they did last year.
Salvatore Sferlazza is CEO at NinjaRMM. Read more NinjaRMM blogs here.
