What are the top trends and opportunities in the managed IT services provider (MSP) market? Amid the coronavirus pandemic, the answer likely depends on where an MSP is physically based -- and what that MSP hopes to achieve over various time horizons.
Still, MSP market research can provide key clues about the industry's evolution -- along with potential opportunities and challenges ahead. To wit, Kaseya has released its ninth-annual MSP benchmark survey.
The company surveyed more than 1,300 MSP owners and operators about pricing and service delivery trends, new service offerings, and operational resources and requirements. Here are five of the Kaseya research findings, along with ChannelE2E's perspectives:
1. Internal and Customer-focused Security
Kaseya says: Security is the Number One priority -- including internal MSP security. Fully 37 percent said they felt their MSP business was more prone to cybercrime now than a year ago. Customer-centric security also is a big priority. Almost all respondents (95 percent) have had either some or most of their clients turn to them for counsel on cybersecurity plans and best practices. Additionally, nearly three in four respondents said that 10 to 20 percent of their clients experienced at least one cyberattack in the past year, Kaseya found.
ChannelE2E's perspective: Every MSP will enter the security pool. But not every MSP should swim out to the deep end of that pool. Shallow-end security involves proper hygiene -- such as patch management, backup and disaster recovery (BDR), endpoint protection and cybersecurity awareness training. Deep-end security typically extends into:
- managed detection and response (MDR);
- Security Operations Center (SOC) as a Service (SOCaaS);
- security information and event management (SIEM);
- security orchestration, automation and response (SOAR); and
- other alphabet-soup opportunities that require deeper expertise and more expansive MSSP budgets.
Decide where you can truly swim in the security market, and then partner up accordingly.
2. The need for compliance services is growing
Kaseya says: Amid regulations like the California Consumer Privacy Act (CCPA) and the New York Stop Hacks and Improve Electronic Data (SHIELD) Security Act, two-thirds of MSPs say their clients struggle to meet compliance requirements, and nearly one-third reported an increased need for compliance services in the past two years, Kaseya reports.
ChannelE2E's perspective: CCPA, SHEILD, GDPR and other government mandates are both challenges and opportunities. Plus, compliance regulations my soon specifically target MSP. Amid ongoing ransomware and cybersecurity attacks against MSPs, many industry leaders believe government officials will eventually develop regulations to help customers determine which MSPs truly understand and comply with local, state or federal cyber guidelines.
3. RMM remains MSPs’ core application of choice — but they prioritize integration above everything else.
Kaseya says: For more than half of respondents (61 percent), RMM (remote monitoring and management) software remains the most important application, followed by PSA (professional services automation, 21 percent) and IT documentation (11 percent). More important than the applications themselves, however, is integration between these core applications. In fact, nearly 70 percent of respondents said that integration between their core IT applications is very important, and 81 percent responded that this integration could help their organization drive better bottom-line profits.
ChannelE2E's perspective: The shift to integrated MSP suites started nearly a decade ago. Kaseya, ConnectWise, Datto, SolarWinds MSP, and Barracuda MSP, among others, increasingly position their offerings as complete, deeply integrated MSP software platforms. The platforms are certainly popular. Still, MSPs continue to lean on third-party offerings that also integrate with various tools and platforms. There are fast-growing players in multiple segments -- including:
- RMM (NinjaRMM);
- RMM-PSA combos in the low-end segment (Syncro);
- endpoint protection (SentinelOne, ThreatLocker);
- automated data gathering for visibility (Liongard); and
- IT service management (ITSM, ServiceNow for midmarket and enterprise MSPs).
4. MSPs show growth through new offerings and value-based pricing.
Kaseya says: The most successful, high-growth MSPs — those with an average monthly recurring revenue growth greater than 20 percent — have added about four to five new services to their offerings in the past two years.Underlying all of this growth is a continued shift toward value-based pricing models. Similar to Kaseya’s 2019 MSP Benchmark Survey, respondents this year opted for a value-based pricing strategy rather than cost-based or price-match strategies. Value-based pricing strategies develop prices based on the end result and the value delivered to the customer. Among all respondents, 38 percent reported that more than half of their revenue comes from a value-based pricing strategy. Contrastingly, only 17 percent of respondents reported that the majority of their revenue came from a cost-based pricing strategy.
ChannelE2E's perspective: For more on pricing models and business optimization, the best MSPs typically join peer groups or benchmarking organizations such as TruMethods, Taylor Business Group, Service Leadership Inc. and/or ConnectWise's IT Nation Evolve Peer Groups. Poke around those peer groups and you'll find that the best MSPs optimize for profitability before they chase revenue growth. And the most profitable MSPs typically have EBITDA margins of 20-plus percent.
5. Cloud support decreases but remains an opportunity for MSP growth.
Kaseya says: Public and private cloud adoption are among the top IT needs in 2020. However, respondents who manage client cloud environments dropped from 70 percent in the 2019 survey to 56 percent this year for public cloud, and from 59 percent in the 2019 survey to 49 percent for private cloud. Despite this, there still remains an opportunity for MSPs to grow their cloud management offerings, as nearly a quarter (21 percent) of successful, high-growth MSPs manage their clients’ public cloud environments.
ChannelE2E's perspective: Kaseya's research may highlight a growing trend that's increasingly clear to ChannelE2E's readers. Indeed, there's a clear difference between MSPs in the SMB market, and MSPs that bet their businesses on public cloud services. Check out ChannelE2E's Top 200 Public Cloud MSPs list, and you'll find very few of the companies are traditional SMB service providers. Still, a growing number of small business MSPs are finding new ways to monetize public cloud services. Among the potential springboards to success: Many MSPs are working with Nerdio to monetize Microsoft Azure services.
Bonus: Coronavirus Pandemic and MSPs
Kaseya says: The research was completed in December 2019 -- before COVID-19 became a pandemic. But Kaseya believes the pandemic will inspire MSPs to double-down on security and compliance activities, especially as small businesses extend access to Work From Home (WFH) employees.
ChannelE2E's perspective: The MSP and SMB technology market stabilized in the second half of April 2020, but plenty of challenges remain. Q2 of 2020 will likely be extremely challenging as manage small businesses struggle to pay their bills -- including recurring monthly invoices from MSPs. To be clear: MSPs are not recession proof. But ChannelE2E is optimistic about the overall ability of MSPs to weather the storm. Yes, there will be some business catastrophes. But most MSP houses will be left standing once the storm finally ends. And the best-built houses may ultimately grow into regional or national empires.
