The Managed Service market is massive and continues to show very healthy growth rates (9% CAGR to $282 Billion*!) Most managed service providers (MSP) remain very optimistic about their business. Yet, there is no doubt that the technology and client needs have been evolving rapidly, and along with with them MSP market. MSPs have been making headways in selling Cloud services, expanding beyond core services and getting better in sales and marketing to acquire and retain clients. They are, at the same time, seeing increased competition (on the business and talent fronts) and feeling the pinch of meaningful reductions in the once juicy rebates that some major vendors used to provide.
We saw several meaningful trends in 2019 (some have been taking some prior to 2019). In the short write-up below, we share with you the top 2019 trends that we expect to continue in 2020.
Security, Security and Security
Focus on security has dramatically accelerated with several high-profile cybersecurity breaches that have hit the service providers in 2019. This forced MSPs to take a much harder look at their own as well as their clients’ tools and processes to counter this threat. For example, in late 2019, we surveyed MSP attending IT Nation Connect (FL, USA) where 84% strongly agreed that vendor solutions must offer Multi-Factor Authentication (MFA) and Single Sign-on (SSO).
Any MSP who intends to thrive and grow or simply wants to attract respectable valuations to eventually sell their business, solution-selling of “X-as-a-Services” with recurring revenues streams is and will be the way to do business. This includes a myriad of services bundled as solutions in areas such as infrastructure, productivity, backup and security. Many reasons are behind this, but most importantly, clients now demand outcome-based services from their MSPs, so this shift is now a matter of survival.
From PAX8’s Wingman who has taken the disti world by storm, to a fully reinvigorated Ingram and to Connectwise blurring of the lines in its recent push in distributing software to MSPs, distribution will continue to thrive. In the same IT Nation Connect in late 2019, we found that more than 70% of MSPs are buying all or some of their product offerings from distributors. The Doomsayers who portended “the death of distribution” have been clearly wrong on this one!
Mergers and Acquisitions
We are seeing M&A trend accelerating in 2019 with MSPs of all sizes. This trend will continue as thriving MSPs will want to integrate more services under one roof and/or expand to new verticals and geographies. M&A in the MSP space will continue to trend strongly in 2020 and beyond.
Blurring the lines: MSP vs Telco
Successful MSPs have been pushing the envelope beyond their traditional offerings by selling communications and connectivity solutions, mostly on a SaaS/Recurring Revenue basis. (dubbed as Unified Communications as a Service – UCaaS). Equally interesting, telco agents (who are born salespeople!) have been ramping up capabilities to sell their clients security, backup and productivity solutions, areas that have been traditionally considered as bread-and-butter MSP offerings. This area will surely be both an opportunity and a threat to the MSP industry.
Automation and Up-skilling
With an acute staffing crunch and increased focus solution-based offerings, various forms of workflow automation and standardization will continue to take hold in the MSP sector: Operations, security, provisioning, support and billing. This will help MSPs mitigate the staffing crunch and shift their teams’ focus to higher-value activities such as advanced technical work and sales and marketing. As a case in point, sales and marketing was the top MSP pain point in Datto’s 2019 State of the MSP report.
There is no question about the size, potential and attractiveness of the Managed Services market. As technology and client needs evolve, forward-thinking and disciplined MSPs will handsomely benefit from the ever-changing landscape. It is and will not be an easy journey but the rewards are surely there.