5th annual trends in managed services - amazon web … ·...

5th Annual Trends in Managed Services

RESEARCH REPORT

JUNE 2016

5th Annual Trends in Managed Services: Section 1 1

About this Research CompTIA’s 5th Annual Trends in Managed Services is aimed at gaining a better understanding of the key trends in today’s managed services provider space. Research Objectives:

• DEMOGRAPHIC OVERVIEW: Identifying the profile of today’s managed services practices, including business lines adopted now and in future, present and future revenue expectations, etc.

• INTERNAL OPERATIONS: Measuring and tracking operational efficiency of MSP businesses, including what commercial software tools are used internally, SLA priorities, pricing models, training and human resource issues

• EXTERNAL STRATEGIES: Determining current MSPs’ strategic planning activities, including formal business plans, sales and marketing goals, customer interaction and vendor relationships

Methodology: This quantitative study was conducted in three parts: Part I: Consisted of an online survey fielded to 400 U.S. managed services providers (MSP) during March 2016. It focused on core tracking questions that CompTIA has fielded over the years. Parts II and III: Consisted of subsets of the sample from Part I. Each stream of 200 MSP respondents received separate subsets of survey questions. The overall Part I margin of sampling error at 95% confidence is +/-‐ 4.9 percentage points, while Parts II and III each had a margin of error of +/-‐ 6.9. This study consists of three sections, which can be viewed independently or together as sections of a comprehensive report. The individual sections and full report can be viewed at the research page on the CompTIA website. Section 1: Market Overview & MSP Demographics Section 2: MSP Internal Operations Section 3: Commercial Software Tools Usage Section 4: MSP Strategic Planning As with any survey, sampling error is only one source of possible error. While non-‐sampling error cannot be accurately calculated, precautionary steps were taken in all phases of the survey design, collection and processing of the data to minimize its influence. CompTIA is responsible for all content contained in this series. Any questions regarding the study should be directed to CompTIA Research and Marketing Intelligence staff at [email protected]. CompTIA is a member of the Marketing Research Association (MRA) and adheres to the MRA’s Code of Market Research Ethics and Standards.

Market Overview & MSP Demographics

SECTION 1:


Key Points • Managed services comprises the second most popular business model in the channel today. Three in

10 respondents ranked managed services as the leading generator of revenue in the last 12 months, second to the 44% that cited IT solutions (e.g. projects with elements of hardware, software and services) as the No. 1 revenue source. This compares against a list of 12 other potential business model choices including VAR/reselling, IT support and help desk and consulting services.

• The market is also maturing. Forty-‐three percent of MSPs say they’ve been in the market for five years or more, with another 45% offering these services between two and five years. That leaves just 12% of MSPs that are less than two years old.

• Two thirds of respondents this year describe themselves as a skilled expert at managed services.

That’s a big leap from CompTIA’s study in 2012, when 39% of MSPs described their acumen at that high level. And there’s more change from 2012 when 52% of respondents said their MSP skills were competent and getting better. In this year’s study, that number dropped to 33%, reflecting the jump in MSPs that now rate themselves full experts today.

• Half of respondents expect the managed services piece of their business to undergo high growth

and comprise three quarters or more of total annual revenue. Another 45% said predicted that managed services dollars are increasing and will make up half or more of total revenue within the next two years.


Managed Services: Market Overview This fifth iteration of CompTIA’s managed services study continues to explore the current state of the managed services providers (MSPs), including internal operations, strategic planning and customer relationships. MSPs today are facing a number of challenges and opportunities. For one, the rapid adoption of cloud solutions is changing the way many businesses buy and consume technology. At the same time, end customers are demanding IT-‐related service offerings that are more sophisticated than basic network and device monitoring. Think mission-‐critical business applications, cloud infrastructure management, and data analytics. Finally, on a macroeconomic level, there is ongoing margin erosion, commoditization and vendor consolidation – a trifecta that necessitates new strategic thinking on the part of most MSPs. Consider a few market statistics on managed services:

• Research firm MarketsandMarkets predicts that the global managed-‐services market will grow

from $107B in 2014 to $193B by 2019, at a Compound Annual Growth Rate (CAGR) of 12.5%. North America is expected to be the largest managed services market in terms of revenue generated, but Asia-‐Pacific (APAC) is expected to emerge as a high-‐growth market. The firm defines managed services by segment, including managed data center, managed network, managed mobility, managed infrastructure, managed communications, managed information, managed security and other managed services.

• The MSP Alliance, an industry association representing managed services providers, estimates

that managed services revenue generated by cloud and MSPs in North America during 2014 reached $154 billion. In a 2015 CompTIA study of end users, 64% of end user organizations said their businesses are currently using what they believe to be an MSP for at least one operational function.

• And yet, the MSP market as best characterized today is commoditizing. According to

consultancy 2112 Group's annual Channel Forecast report, “managed services profitability fell 21 percent to 30 percent; just a few years ago, managed services were boasting gross profit margins as high as 60 percent. With the oversupply from multiple quarters, MSPs are competing on price to win and retain business, and that's driving down margins.”

• The MSP market is also consolidating, especially among PSA, RMM and BDR software vendors. Consider last year’s M&A activity alone: SolarWinds scooped up LogicNow, Kaseya bought PSA vendor Vorex, ConnectWise completed the integration of its own PSA arm with the LabTech RMM division, Autotask acquired CentraStage, and Continuum bought R1Soft to add backup to its products. Individual MSPs also are merging, as evidenced by Carousel Industries purchase in June of fellow Rhode-‐Island MSP, Atrion.


Taking Stock Today The central tenet to the MSP model is a provider-‐customer relationship based on a contract backed by a service level agreement. Much as they do for other utilities, customers pay on a recurring basis for remote IT services such as desktop and network management, applications management, remote help desk, backup and disaster recovery, etc. This model creates an operational expense for end user organizations rather than a hit to their capital budget for on-‐premises infrastructure. (It should be noted that often there are capex charges associated with the lifetime of a managed services contract for such items as network upgrades and on-‐site visits.) MSPs use their own data centers for remote monitoring, contract with a hosting center, or increasingly take advantage of the cheap compute available via the major cloud infrastructure providers such as Amazon and Microsoft. They are managing not only their customers on premises infrastructure, but those workloads and applications that reside in the cloud. Most MSPs remain quite small in nature, often less than a $1M in revenue annually. They typically serve small to medium-‐sized customers and/or individual departments within larger organizations. And most are wearing multiple hats beyond the managed services variety. This CompTIA study found that managed services comprises the second most popular business model for the channel. Three in 10 respondents ranked managed services as the leading generator of revenue in the last 12 months, second to the 44% that cited IT solutions (e.g. projects with elements of hardware, software and services) as the No. 1 revenue source. This compares against a list of 12 other potential business model choices including VAR/reselling, IT support and help desk and consulting services.

��!��(� ��#��"��"��!�'�

��!��)��

�,,0��

�� *+0�� %�

��"��

+-0��

%$,�� %�

��$��$��%�(�•  ��&$,��•  ��%(,��•  ��&',�

��$��$��%��•  ��&$,��•  ��'&,��•  ��)$,�

�� !�� %#$)��-'##��


The market is also maturing. Forty-‐three percent of MSPs say they’ve been in the market for five years or more, with another 45% offering these services between two and five years. That leaves just 12% of MSPs that are less than two years old. With experience often comes confidence, and that quality is indeed growing among today’s MSPs. Two thirds of respondents this year describe themselves as a skilled expert at managed services. That’s a big leap from CompTIA’s study in 2012, when 39% of MSPs described their acumen at that high level. And there’s more change from 2012 when 52% of respondents said their MSP skills were competent and getting better. In this year’s study, that number dropped to 33%, reflecting the jump in MSPs that now rate themselves full experts today. Despite MSPs’ buoyed confidence and self-‐assessed acumen, their transition to managed services has been a slow slog over the past decade. While largely touted as a channel panacea to declining hardware sales, a full pivot to managed services remains a target for many channel firms that today remain a mix of older business models and new recurring revenue models. There are myriad reasons for this, but on a basic level, change is hard -‐-‐ new skills, new revenue models, new customer conversations and new sales and marketing strategies are required. And the return on investment for the MSP model takes time that many channel firms – especially the smallest of them -‐-‐ can’t afford. But for many channel companies, the motivation to transition is strong. The reasons cited for pursuing managed services are many and have remained mostly consistent since the 2012 study was conducted. Increasing sales revenues, protecting customer base, and improving service utilization rates are just a few of the drivers that MSPs cited with near-‐equal incidence in 2012 and 2016.

105�

..5�

'+�

�� #��•  ((+��

�� (-'2� �� )�� %�� &�� 1��,+�� "�

��&��!� ��#�

��#��%��

��"��

��%��

�� !��$�� -+,1!�� !��6/++��

��&��#��#� ��

,)   ��#��#� ��" ��'� ��

-)   �� #��"��

.)   �� "��

/)   ��'��

0)   �%��$��$��%�� "��

1)   �"�� "��#��"��

2)   ��

3)   ��"� ��&�

��(�� "��"��"��%��"��'� "��"�� "�� #��%)��$��'��+��%�3� ��+��)��

�"��(��*��#��0./2(��(��41..��


In a couple areas the trending data has changed, however. In 2012, a third of respondents indicated that expanding their share of wallet with existing customers was a catalyst for them to pursue an MSP practice. This year that percentage climbed to nearly 6 in 10. That’s an important driver because the managed services market, despite somewhat slow adoption by the channel, is already commoditizing. This is mainly due to a raft of MSPs competing solely on price in order to secure a contract closure or renewal. One of the only ways to reap more dollars from those customers sold undervalued contracts is to upsell and expand the number of services that they are consuming – especially in the area of newer technologies such as cloud, mobility, big data and Internet of Things. This past year also saw an increase in the number of respondents that said the desire to control all aspects of a service offering was driving them to a managed services model. In 2012, 40% of MSPs cited this reason; today it’s climbed to 53%. In a cloud-‐based world, the channel is beginning to view itself as an orchestrator of a customers’ entire set of solutions from on-‐premises infrastructure to cloud offerings. As such, they are angling to control a solutions route from point A to point B, procurement to onboarding to billing. With customers on recurring revenue contracts, the orchestration role is more of a natural fit than it is in a traditional reseller scenario. Expectations for managed services future growth run high. The needle is already trending up, as recurring revenue is becoming a larger piece of the services pie for many channel firms. Asked to breakdown total services revenue in the last year, respondents attributed 57% to recurring revenue services sales compared with 43% from non-‐recurring revenue professional services engagements. That ratio held true across MSPs of all sizes. Over the next two years, MSPs are clearly expecting that gap to widen. Half of respondents expect the managed services piece of their business to undergo high growth and comprise three quarters or more of total annual revenue. Another 45% said predicted that managed services dollars are increasing and will make up half or more of total revenue within the next two years. What gets edged out as managed services revenue grows? Product sales and one-‐off project work, not surprisingly. Roughly a third of respondents said these two business lines would likely decline as a percentage of total revenue. One outlier: among the largest channel firms just 14% expect a drop in one-‐off project revenue compared with a third of small and medium companies. This may reflect the fact that larger firms can afford to be diversified equally across a number of business streams, without having one totally dominate.

+1�

*-1�

-(1�

(1�

,)1�

+.1�

+1�

++1�

,)1�

�� "��

�� "�� $,'1��

��%�

�� "��!��$.,1��%�

��

� ��

��

�� "��#�� )'(-"��"��2+''��

��


MSP Offerings Today But is greater confidence in the MSP business enough to take on the next frontier of managed services? Today, end user organizations of all sizes, from SMBs to enterprises, want MSPs that can deliver advanced services, such as cloud infrastructure management, application management, and even business process outsourcing. This will require technical skills that many of today’s MSPs do not yet have, which means training and/or recruitment of new employees. Judging by the list of services that MSPs currently offer, it seems they have a way to go before they are active providers of more advanced offerings. Security, server management, storage, network management and desktop management are the top five managed services currently in the catalogs of today’s MSPs. Those are important, but basic, table stakes services to offer. In order to meet the lofty growth expectations, most MSPs will need to expand into more complex types of offerings or specialize in a particular vertical industry or niche market.

#&*�

%'*�

$*�"!*�

��

��

��

��$��!(�-��&��!.� 85=� 35=�

��%��!� 85=� 35=�

�!�� 83=� 38=��!&��!,��!�� 82=� 39=�

�� !��!� 81=� 39=�

�$ �� "�$�!(,�� 81=� 39=�

��$�� %�� 7:=� 39=�

��&��!�-��!��.� 7:=� 3:=�

��!�� !� 79=� 41=�

�� 78=� 42=�

�� 78=� 3:=�

��!$�� !�� 77=� 41=�

��!� ��%�� 76=� 43=�

�� %��

�!�(� ��

�'�� %��

��

��$��*�� + � �� %�� 3127*�� *��>511��

MSP Internal Operations

SECTION 2:


Key Points • MSPs are feeling a lot better about internal operations than they were in 2012, when CompTIA last

fielded a set of questions on this topic. In fact, the data show a dramatic shift in self-‐assessment, with three quarters of this year’s respondents describing the overall operational efficiency of their MSP business as a very efficient/well-‐oiled machine. That compares to a third reporting that same level of confidence four years ago.

• On average, between half and 60% said they were optimally efficient across such functions such as technical processes, sales effectiveness, MSP pricing structures and customer retention. On average, roughly 4 in 10 said they were close to optimal across all functions. Respondents were least confident about their efficiency in maximizing ROI on new areas such as cloud computing or a vertical specialty.

• More than 4 in 10 respondents said they have operated MSP practices for more than five years, with another 45% having done so for between two and four years. Conversely, just 3% of respondents reported being new to market, with less than a year under their belt.

• Employee retention is an issue for MSPs. Last year alone, 80% of MSP respondents said they have

had one or more technicians jump ship to work for an internal corporate IT department. While also taxing work, internal IT in many circles has a reputation for a more predictable work cadence, which could be a major reason for the movement.


Internal Operations: Efficiency Overview How well a business performs depends on balancing many moving parts successfully. Executing an external business plan, for example, is an obvious and critical piece to get right. These are the leadership decisions that touch customers, dictate short-‐ and long-‐term strategic goals, and set metrics to gauge performance and the means to course correct when needed. Section 4 of this report will zero in on how MSPs are approaching this crucial macro aspect of their businesses today. But in sections 2 and 3, we address the other major component to business: internal operations. Internal operations encompass the technology, processes, automation and human resources that serve as the engine behind daily business activities. For MSPs, how efficiently these functions run and how nimbly they can adjust to environmental changes serves as one of the single biggest indicators of long-‐term success. Without a house in order on the inside, the other key pillars of a business can be weakened.

�� #��#��&��$�

��#�� !��

" ��##��*�2$��3� ;?B� :7B��2 �� "��,�"��"'�$,�"�$��3� ;=B� :9B�"��#$"'�$'"�� ;<B� ::B�!%��!" �$��"��#� ;<B� ::B�" ��##��*�2�'#��##3� ;<B� :;B�� #$�� $��$� ;:B� :=B��'#$ ��"�"�$��% ��"�$�#� ;8B� :>B��#��*��"��%(��$ � $��"��'#��##��#� ;6B� ;6B�

��#��%(��##� ;6B� ;6B�� )��'#��##�#�"(��#�2�.�.�� '�,�(�"%�� '#3� <=B� 97B�

+*.�

().�

��$��!��#0� $��"#��) "��

��"*��$0��1 ��

��

� '"��-�� ! ��/#� "��#��"(��#�867<-��#�-��C866�� "�#�


On a positive note, today’s MSPs are feeling a lot better about internal operations than they were in 2012, when CompTIA last fielded a set of questions on this topic. In fact, the data show a dramatic shift in self-‐assessment, with three quarters of this year’s respondents describing the overall operational efficiency of their MSP business as a very efficient/well-‐oiled machine. That compares to a third reporting that same level of confidence four years ago. And while a quarter of today’s respondents took a more tempered view of their business operations, deeming them efficient in some areas and needing work in others, that number is still far fewer than the 66% majority that provided the work-‐in-‐progress assessment of themselves in 2012. Why is operational efficiency so important to an MSP business? Clearly it’s important to any business type in any industry, but unlike other channel business models that drive revenue by maximizing the number of billable project and break/fix hours that staff is working, the MSP model ironically reaps more when doing less. It’s not that MSPs are lazy – in fact they are they are often in 24/7 mode -‐-‐ but that remote management of a large volume of customers’ infrastructure compels automation as much as possible. Inefficiency in such an environment – lack of automated processes and no uniform approach to managing multiple customers – can be a drain on the bottom line. The recent boost in confidence about efficiency likely reflects several realities. One, today’s MSPs have simply been in business longer and with that comes more experience coupled with trial and error. Bottom line? The committed get better at what they do. More than 4 in 10 respondents said they have operated MSP practices for more than five years, with another 45% having done so for between two and four years. Conversely, just 3% of respondents reported being new to market, with less than a year under their belt. Secondly, it’s important to note that the majority of these firms did not start out offering managed services. Most are resellers or solution providers that decided to add a recurring revenue arm to their business. And often it started out as a very insignificant piece of their portfolio. As a result, the MSP piece of the firm may not have gotten the full attention, resources and focus necessary to achieve “well-‐oiled machine” status. But over time, as managed services drove a larger slice of sales, closer attention to operational detail got paid. Lastly, as MSPs grow in size and complexity, they often discover that they need third-‐party help. This tends to trigger evaluation of commercial software such as professional services automation and remote monitoring and managements platforms, which can greatly improve internal operational performance. While very few smaller MSPs initially deploy these tools for cost reasons or simply thinking they do not need them, as they move upstream in size their objections begin to fade. Section 3 of this report drills down in detail about current trends in MSP adoption and use of commercial PSA and RMM platforms. When asked to self-‐assess efficiency across the individual functions performed as part of their managed services business, respondents remain balanced. On average, between half and 60% said they were optimally efficient across such functions such as technical processes, sales effectiveness, MSP pricing structures and customer retention. On average, roughly 4 in 10 said they were close to optimal across all functions. If there is one place to single out, it is how respondents believe they are maximizing ROI on new business services such as cloud or their efforts at an industry vertical specialty. Forty-‐seven percent felt they are performing optimally here, the least positive result for any of the other MSP features inquired about. That’s not surprisingly, given that these are new specialty areas for many MSPs and so they are addressing a learning curve.


Operations Challenges Despite the fact that managed service is a well-‐established discipline in many corners of the channel and a familiar part of the industry for a decade or longer, many firms remain in transition. And with transition comes an array of challenges. Many of the hurdles to managed services adoption involve human resources. The cost of retraining both on the technical and business sides, for example, along with employee recruitment and restructuring of sales compensation plans. The latter is no trivial matter, particularly if a firm’s sales force has been used to selling products and/or project work and paid a single commission based on a total sale. They grow accustomed to large checks, though commission regularity ebbs and flows based on the number of deals they land. In managed services, end customers on contract pay smaller amounts on a recurring basis – often monthly. MSPs must establish a comp plan that somehow accounts for this incremental and predictable receipt of revenue, while not resulting in such small commission checks each month that sales reps revolt. To avoid that scenario, many MSPs will pay their reps upfront commission on half of the customer’s contract, then pay the other half at the tail end of the contract. That’s just one model, however.

��

��

��

��(�� 19� 019� 3/9�

�!�� !�� 19� 059� 259�

�!�� )�&�&��*� 09� 069� 249�

��#�� 39� 059� 239�

��#�� "� 59� 059� 219�

�� 69� 059� 209�

��(��"�� 49� 109� 2-9�

��%��'�� /-.3%��%��:/--��

��


Across the board, larger MSPs (100-‐1,000+ employees) reported being less challenged by many of the activities listed above than much smaller firms (2-‐9 employees). This could be a pure function of size and more resources, although the common dictum goes that smaller companies are nimbler and able to shift more easily. Recruiting is the single biggest challenge for small firms, with half of them citing it as a major hurdle, compared with a third of medium and large MSPs. Formulating the right pricing structure was also an acute pain point for smaller firms. Pricing models will be discussed below in this section. Finally, there’s the matter of employee retention. There’s a harsh reality within the MSP ranks: the job can be fairly grueling if you’re a technician. The hours are long. Remotely monitoring and managing hundreds of customers’ on-‐premises equipment, along with those workloads they have in the cloud, is more than a 9-‐to-‐5 proposition. The need to meet service level agreements on a 24/7 basis only ups the pressure. Case in point: Last year alone, 80% of MSP respondents said they have had one or more technicians jump ship to work for an internal corporate IT department. While also taxing work, internal IT in many circles has a reputation for a more predictable work cadence, which could be a major reason for the movement. Another potential factor behind staff attrition hinges on the fact that many MSPs are not pure play in nature. They are straddling the traditional channel business models of products and project work and the recurring revenue models of managed services and cloud. This can muddy the roles technicians and sales staff believe they play within the organization and confuse mission. As managed services becomes a priority, it’s more likely that employees will be able to move with a singular focus and culture that often leads to more work satisfaction. Now continued automation progress and the adoption of commercial PSA and RMM tools do help alleviate some workplace burnout. And those mechanisms free up network technicians to work on more strategic projects within the organization, which also has the potential to elevate job satisfaction. Finally, most MSP employees are not unhappy in their current jobs. Seventy-‐seven percent of respondents report the average tenure of their current staffers at between three and 10 years, with 6% claiming an average tenure of 10+ years. That’s veteran-‐status in the MSP world. It’s important to note that there is an art vs. science approach to staffing an MSP business. There’s no ready-‐made, universal formula. Items to consider? What is the optimal ratio of technicians to customer seats monitored? How many new customers – whether in seats or as percentage increase in total client

"',�

%',�

$',�

(,�

&",�

%",�

#$,�

%(,�

#),�

��

��

��

��

��

��

��

(!,�� "�� ( ��#��'�� &�

� ��%��'�� !��,*+-%��%��.,**��

��


base -‐-‐ does it take to prompt a new tech hire? Figuring out these things out takes continual tinkering, influenced by the types of services an MSP offers or plans to offer, particular needs of the customer and internal budget considerations.

The data found an even distribution of MSPs that said their tech to customer seat ratio was either one tech per 20 seats, one tech per 30 seats, or one tech per 40 seats. Twenty percent each of the MSP respondents adhere to one of these three ratios. Broken down by company size, the smallest MSPs were most likely to abide by the 1 to 30 ratio. Twenty-‐eight percent of them staff in that manner, compared to 19% and 18% of medium and large MSPs, respectively. How many new customer seats trip the hiring wire to add a new technician? The sweet spot appears to be the addition of 30 new customer seats, a threshold that was cited by 36% of respondents. A quarter will bring a new staffer even sooner, when 20 new customers seats are added. There is a population of MSPs that do not use the technician-‐to-‐customer seat ratio method. This is most likely a function of how they charge for their services (e.g. by the number of devices managed vs customer seats). However, the sample size for this group in the study is too small to provide definitive guidance on what percentage of new customers will result in a new hire.

%+� "$+�"(+�

#(+�#$+�

'+�

�#%!��

�%!!��

�'%!��

�"�!!!��

�#�%!!��

%�!!!��

��!�� #�

��"��

��#!"&��,#!!��

Commercial Software Tools Usage

SECTION 3:


Key Points • The decision to use commercial software to help run a managed services practice confronts most

MSPs at some point, especially as a business grows and scales. For years, the genre has been defined by two types of software: professional services automation (PSA) and remote monitoring and management (RMM) tools. But now it also includes cloud versions of these tools, along with business/disaster recovery software.

• PSA software for MSPs is analogous to back office ERP or CRM platforms for end user companies. The software allows MSPs to manage their business operations, including such activities as resource management, automated time and billing, project management, report generation and more. It’s a growing market. Grand View Research forecasted in April that PSA-‐related software revenues will reach about $12.88 billion by 2022, up from $6.26 billion in 2014.

• Less than a third of respondents (27%) said buying and implementing commercial software in the PSA/RMM space was one of their primary priorities when they first started out. But that changes. The pattern that has emerged finds as MSPs grow and add customers, headcount and services offered, they begin to flock to these software tools to help them grapple with escalating complexity in their business.

• Typically, RMM and PSA have been sold as separate entities to the MSP community. That’s changing. A massive wave of vendor consolidation in both markets -‐-‐ along with new cloud-‐based entrants -‐-‐ has sparked a PSA-‐RMM integration trend.


Commercial Software: A Key MSP Decision? The decision to use commercial software to help run a managed services practice confronts most MSPs at some point, especially as a business grows and scales. For years, the genre has been defined by two types of software: professional services automation (PSA) and remote monitoring and management (RMM) tools. But now also includes cloud versions of these tools, along with business/disaster recovery software. In this section, we’ll discuss usage patterns and experiences that MSP respondents have had in choosing to work with one or more of these platforms. What do these tools entail? For its part, RMM is a mature, table stakes item for an MSP practice to have. At its core, the software allows MSPs to monitor their customer’s IT infrastructure from afar, which is the bread-‐and-‐butter of what MSPs do. This includes monitoring servers, desktops, applications and mobile devices, both on the customer’s premises or, increasingly, in the cloud. The data collected by the RMM tool is filtered back to MSP technicians, who can take appropriate action where needed such as patching, software updates and reconfiguration of systems. For its part, PSA software for MSPs is analogous to back office ERP or CRM platforms for end user companies. The software allows MSPs to manage their business operations, including such activities as resource management, automated time and billing, project management, report generation and more. It’s a growing market. Grand View Research forecasted in April that PSA-‐related software revenues will reach about $12.88 billion by 2022, up from $6.26 billion in 2014. Typically, RMM and PSA have been sold as separate entities to the MSP community. That’s changing. A massive wave of vendor consolidation in both markets -‐-‐ along with new cloud-‐based entrants -‐-‐ has sparked a PSA-‐RMM integration trend. Newly blended platforms are becoming the popular market choice for MSPs looking to buy. But there’s a strong caveat; to date, many are either incomplete integrations or simply not ready for prime time. Adoption Drivers Adding a managed services practice triggers a host of transitional decisions. Hire new sales reps? Retrain existing ones? More than half of MSP respondents in the study did both as they launched a practice. Other initial activities included training technical staff, building a data center, contracting with a third party NOC, and obtaining new lines of credit. Half or more of respondents said they took one more or more of these actions at the outset of their MSP adventure.

So what about buying and implementing commercial software in the PSA/RMM space? Ironically, not near the top of the to-‐do list for new-‐to-‐market MSPs. Less than a third of respondents (27%) said this was one of their primary priorities when they first started out. But that changes. The pattern that has emerged finds as MSPs grow and add customers, headcount and services offered, they begin to flock to these software tools to help them grapple with escalating complexity in their business.

And there are myriad reasons to seek out third party tools that span internal operational needs and external, customer-‐facing value. High on the respondents’ is the ability to resolve problems in a customer’s IT environments swiftly. One of the hallmarks of a skilled MSP is the ability to troubleshoot before an IT nuisance because a real business problem for the customer. RMM tools are critical to meeting that goal if an MSP has grown to the point of managing significant numbers of customer seats.


Beyond using the software for a system of IT-‐based alerts and proactive maintenance, other features that assist an MSP with their own business functions. The main catalyst for deploying PSA tools – cited by nearly 8 in 10 respondents – is to manage internal sales and marketing systems. The same percentage also cited as a demand driver the desire to automate the management of customer billing, which today is becoming even more of a priority as MSPs become the orchestrator of services such as SaaS apps that are residing in multiple different clouds.

For now, most MSPs are working with an RMM or PSA platform from a single vendor that is an on-‐premises package. But as vendors such as Connectwise, Kaseya and others begin to offer cloud-‐based versions of their products, more MSPs will begin looking at this as an option. And like what is happening across the rest of the IT industry, upstart cloud players are mushrooming in the RMM/PSA space that will serve as direct competitors to the more established players.

The majority of MSP respondents that are using one of the commercial software solutions on the market professed satisfaction with the experience, with high marks going for ease of deployment, length of rollout time, training requirements and the impact on customers. In all, 6 in 10 said the purchase was “well worth the investment” vs just 2% that found it “somewhat disappointing.”

For those firms not opting against either platform – at least for now – the chief reasons cited are that their business is not large enough to need (56%) and that commercial platforms are too expensive (50%).

��$�� )��% ��

,(   � � �� #!��

-(   � � ��#� ��)� &��

.(   � � �� *�� !��&� ��

/(   �� !��#� �� !��!��

�

0(   � � ��&� ��

1(   � � �� &� ��) ��#�!��

2(   � � ��#� �� #��!�� )��

��(�� "��"��"��%��"��'� "��"�� "�� #��%)��$��'��+��%�2� ��+��)��

�"��(��*��#��0./1(��(��3��


Self-EvaluatingPSA/RMMInvestment&RolloutExperience

2%

39%

59%

Mostlyworthinvestment

Wellworthinvestment

Somewhatdisappointing OverallMSPsreported

highsatisfactionwithcommercialsoftwareinthefollowingareas:

• Easeofdeployment• Lengthofrollouttime• Trainingneeds• Customerimpact• Interoperabilitywith

othersystems

Source:CompTIA’sTrendsinManagedServices2016:Base:n=ITchannelfirms


15% 26%36%

15%6%

10newseats 20newseats 30newseats 40newseats 50newseats

PercentageofMSPfirmsthatsaytheyHIREanadditionaltechnicianwhentheygainthefollowingnumberofnewend-customerseats(userordevice)

DoingtheMath:MappingTechnicianstoCustomers

Source:CompTIA’sTrendsinManagedServices2016:Base:n=171ITchannelfirms

MSP Strategic Planning

SECTION 4:


Key Points • Nearly two thirds of MSPs (62%) said that cloud computing is the No. 1 item keeping them awake at

night, a percentage evenly distributed across MSPs of all sizes. A number of reasons are in play. One involves customers growing comfort with cloud-‐based applications that may lead to more self-‐service procurement, obviating the need for a third-‐party MSP.

• Today, 54% of MSPs say that supporting cloud-‐based solutions and services is a strategic part of

their business. Forty-‐four percent of respondents are support cloud services when requested by the customer. And just 3% of MSPs say that cloud services are not part of their managed services catalog at all.

• Slightly more than half of MSPs worry about margin erosion. Slimming margins can be pinned on

naturally occurring market commoditization, but some of the blame can be placed on MSPs themselves as they continue competing with one another strictly on pricing.

• More than 4 in 10 respondents said they spent time with their individual customers on a monthly basis in the last 12 months. This was not to deal with an immediate tech concern. A third of MSPs said they meet exclusively with their customers’ senior executives, while another third indicated that they routinely meet with both the senior executives and IT staff of their client’s. Slightly fewer (28%) said the meet only with their customer’s IT staff.


Strategic Thinking: What’s Keeping You Up at Night? For today’s MSPs, several key events are shifting the market. The rapid adoption of cloud solutions is changing the way many businesses buy and consume technology. At the same time, end customers are demanding IT-‐related service offerings that are more sophisticated than basic network and device monitoring. Think mission-‐critical business applications, cloud infrastructure management, and data analytics. Finally, on a macroeconomic level, there is ongoing margin erosion, commoditization and vendor consolidation – a trifecta that necessitates new strategic thinking on the part of most MSPs. Ironically, it is cloud computing and its continuing impact that is keeping most MSPs awake at night. Ironic in that cloud is also considered one of an MSP’s top opportunity drivers for the future. But as a source of worry, nearly two thirds (62%) of respondents cited cloud, a percentage evenly distributed across MSPs of all sizes. Why is cloud a concern? A number of reasons are in play. For one, many MSPs – as well as other types of channel firms – fret that as customers become more comfortable with cloud-‐based applications and services, they will increasingly opt to consume them directly, obviating the need – in theory – for a third-‐party solution provider or MSP. Consider that customer demand is the No. 2 source of concern among MSPs. Attitudes about cloud likely have something to do with this response, as MSPs continue to worry about cloud enabling the customer self-‐service option for procuring IT.

��

.47�

0.7�

0.7�

1.7�

1/7�

137�

2.7�

��"��#��

�� (�&�&��#)�

��

� ��

��

� ��

��

� ��%��'�� !��.,-2%��%��8.,,��


Additionally, as end customers move more infrastructure and applications into the cloud, some of the basics of MSP life begins to change. For example, historically MSPs remotely manage and monitor devices and solutions that are on-‐site at the customer place of business. And many MSPs sell the actual hardware they are managing, often as part of an initial infrastructure upgrade when onboarding a new client. With a cloud solutions model, that hardware revenue – particularly from server sales -‐-‐ is declining. In the first quarter of 2016, for example, Gartner found that worldwide server revenue declined 2.3 percent year over year. By contrast, shipments grew 1.7 percent from the first quarter of 2015. That trend will most likely continue and impact MSPs along with the broader channel. MSPs will also have to adapt to managing IT solutions that are in a public cloud, as well as private clouds and on-‐premises. But while this presents an integration and management challenge to many MSPs, the complexity of these new IT environments brings with it opportunity. The role of “cloud orchestrator” is bandied about today across the channel and it is very real. MSPs that are able to serve as the conduit for all things cloud and in-‐house for their customers are positioning themselves as indispensable service providers. Add a flare for security expertise to the mix, and the opportunity for them grows even more. Today, 54% of MSPs say that supporting cloud-‐based solutions and services is a strategic part of their business. That’s the case most prominently among the smallest MSPs (2-‐9 employees), among which 65% position cloud services’ support as a strategic piece of their business. Another group of respondents (44%) are getting behind cloud services’ support when requested by the customer. And just 3% of MSPs say that cloud services are not part of their managed services catalog at all. Among other items weighing on the minds of today’s MSPs is margin erosion, which 53% of respondents cited as a concern. A primary culprit behind slimming margins is commoditization, a natural occurrence in any maturing market. But in the case of managed services, eroding margins are not all due to natural market economics. This trend can also be blamed in part on the MSP community itself. What’s going on? In the quest to win customers contracts, many MSPs are undervaluing their services or constructing pricing models that do not drive maximum profit. Several dangers inherently arise when pricing is artificially low. One, it’s difficult for an MSP to elevate prices to the real market value during contract renewal because customers will balk at a major increase. And secondly, commoditization and margin erosion become a self-‐fulfilling prophecy as competing MSPs drive one another’s rates down. Priorities and Planning Worries aside, MSPs have strategic priorities in play for the next two years. No. 1 on the list? Acquiring net-‐new customers, a goal cited as major by nearly two thirds of respondents. Historically, the customer numbers game was the key to growth in a managed services space that depends upon volume. And it’s still integral to success. But today that’s changing as the real source of growth lies with existing customers and the ability to grow share of wallet there by taking them beyond service catalog basics to the expanding number of new, complex technologies. MSPs seem to be getting the message about the benefits of growing share of wallet with existing customers, as 58% expressed that as a major strategic priority for the next two years. And another 57% said they are focusing on expanding into new, emerging services such as Internet of Things. These moves are smart.


A combination of net-‐new customer growth and existing customer scale is the right balance to strike to help ensure steady revenue increases. Two other strategic priorities look outward and indicate evolution. More than half of respondents plan to focus on specializing in one or more vertical industries. Targeting a particular vertical, whether it’s healthcare, retail, professional services or another, is a keen way for an MSP to differentiate in the market with a set of skills not universally held by their broader set of competitors. The most popular vertical industries that today’s MSPs are working with are information technology, professional services, manufacturing, finance/banking, and retail. Additionally, another half of respondents plan to align with a new set of vendors. This most likely suggests they are taking a look at cloud-‐based vendors, chiefly SaaS providers. From a vendor perspective, this is a key development. In CompTIA’s 5th Annual State of the Channel study, published in September 2015, a majority of respondents said a main reason they would drop a vendor from their line card is because the vendor’s products and/or services no longer fit their customers’ needs or their own business model. This reality should prompt vendors to take a hard look at what does appeal to both of these constituents, both in terms of what they sell, but also how they construct their partner programs, benefits and channel compensation models.

��

��

��

��(�� 19� 019� 3/9�

�!�� !�� 19� 059� 259�

�!�� )�&�&��*� 09� 069� 249�

��#�� 39� 059� 239�

��#�� "� 59� 059� 219�

�� 69� 059� 209�

��(��"�� 49� 109� 2-9�

��%��'�� /-.3%��%��:/--��

��


Many partners today, especially MSPs and cloud-‐focused firms, will tell you that they are no longer so vendor-‐reliant, and instead market to the customer strongly under their own brand and reputation. Speaking of Customers When it comes to strategic planning, MSPs must always consider the customer relationship. It’s especially important in a managed services model because so much of what an MSP does goes unseen by the end user client. This is a good thing, for the most part, but being too invisible can work against a provider if it shields the customer to the extent of work being done or how well SLA terms are being met. For that reason, it’s key to conduct regular updates and meetings with customers under contract, both technical and business-‐focused in nature. The quarterly business review (QBR) is typically cited as standard operating procedure for MSP-‐to-‐customer interactions. But the study found that MSPs are taking that process further. More than 4 in 10 respondents said they spent time – in person or virtual – with their individual customers on a monthly basis in the last 12 months. What’s more, these interactions were not to deal with an immediate tech concern. MSPs worth their salt understand that cementing a long-‐term relationship with a customer means much more than troubleshooting tech problems in real time. It’s critical to also be proactive in helping that customer plan for future needs that align tech with the business goals.

��

+)4�

-14�

+04�

+14�

-.4�

+,4�

,04�

,,4�

+)4�

��"�

��"�

��"�

��

��

��

&��"'�!�� !��

��$��%�� +)*/$��$��5+))��


One indicator that these customer discussions are more strategic in nature is who’s attending the meeting. A third of MSPs said they meet exclusively with their customers’ senior executives, while another third indicated that they routinely meet with both the senior executives and IT staff of their client’s. Slightly fewer (28%) said the meet only with their customer’s IT staff. Smaller MSPs contained their interactions to IT staff more prevalently than larger MSPs, with 38% saying that’s how they operate. By insisting that the customer review process brings both business and tech executives to the table, MSPs are ensuring their place as a strategic advisor, not just a technical provider.

5th annual trends in managed services - amazon web … ·...

Documents