MSP Trends That Will Reshape the Market in 2018
The digital economy works on the currency of ‘cloud’. For so many years now, the shout out has been for companies to move over to cloud-based storage, infrastructure, and application solutions. In the era of Anything-as-a-Service, enterprises need to think of vendors as strategic partners, and need to onboard those with capabilities to deliver end to end support. Because of the ever-increasing number of cloud technologies that a company has to work with, the relevance of managed service providers (MSPs) is at an all-time high. In this market, there are a few defining trends and transitions brewing, which have the potential to permanently re-shape the market in 2018. Let’s take a look at these trends.
Erosion of Margins Driving Changes in the Market
There’s been undeniable erosion in gross margins of MSPs in the past 2-3 years, primarily because of the emergence of a large number of players. Apart from increased competition, there are other factors responsible for this margin shrinking. For instance, MSPs are commoditizing services. Also, customers are clamoring for getting more services at lesser prices. This is even forcing MSPs to bundle valuable services such as security management into their service offers, for free, or for prices that hurt the bottom line. This is driving a major change in operations for MSPs. There’s a tremendous focus on automation of sales, billing, provisioning, and support of cloud services. This is being supplemented with efforts to reduce costs and improve operational efficiency. Also, MSPs look to offer whole solutions instead of one-off services.
Clients Expectations around Security
The threat landscape is changing rapidly; new attack vectors are added to the threat system, which means that enterprises need to keep evolving themselves. When enterprises engage large MSPs offering a wide range of cloud-based applications and infrastructure services, they expect them to also take complete responsibility for their information security needs. MSPs, however, need to brace up for tough conversations with clients. This is important for both the stakeholders – MSPs, as well as clients.
The key concerns to address, for both parties, are:
- The need to embrace a growing number of security tools, all of which may or may not be supported by the MSP
- The concept of shared responsibility for information security, and to explicitly mention the granular details in the contract
- The role of the MSP in helping the enterprise recognize its network vulnerabilities and data security loopholes, via simulated cyber attacks
- The need for regular awareness exercises carried out by the MSP to educate the enterprise leadership
In 2018, there’s every reason that the race among SMBs to move more servers to the cloud computing model will intensify. Not only is this approach inexpensive, but also safer and reliable in many cases, as compared to the on-premise model. This will also add a lot more complexity to the cloud ecosystem for SMBs and enterprises. More cloud-based applications mean more user accounts, more movement of data between systems, and data transfer from cloud to on-premise systems. In general, this means that companies (and their MSPs) need to manage more, and do so in a landscape becoming increasingly complex. Because businesses are reliant on cloud technology for their routine operations, MSPs are bracing themselves to manage and deliver upon the disaster recovery and business continuity. In such an ecosystem, MSPs that can offer reliable disaster recovery and continuity will be the ones that get long-term contracts from businesses.
The Changing Market Dynamics Because of Evolving SaaS-MSP Relationships
There is going to be a lot of market focus on the relationship between SaaS companies (the creators of cloud-based business applications) and MSPs (companies that sell and support these services). Traditionally, SaaS vendors have not shown the inclination to figure out how the channel works. However, considering the major contribution of MSPs in the revenue mix, it’s likely that they will now have the motivation to work along with MSPs to strengthen their hold. This also means that we need to watch out for MSPs that try to push a specific SaaS company’s products on its own consumers. As per data released by Cloud Technology Alliance, 26% vendors distribute services via MSPs. The number is all set to skyrocket in 2018 and beyond.
The Need for More Choices
In the early days of cloud computing-based services, the major motivator for enterprises was the move from the CapEx model to operational expense model, which passed on major benefits to the bottom line. However, enterprise IT leaders now understand cloud-based applications and want to try out solutions from different vendors. Education is easily available, and because of it, enterprises now look for choice. This is a cue for MSPs to think big, expand their service offering, and embrace their clients’ preference for more choices within cloud applications.
Bundling – The Way Forward for MSPs
To boost revenues and to enjoy continued business from a customer, MSPs realize the need to offer wholesome services bundles. These bundles are made to appeal to specific verticals and customer segments. Many MSPs already offer such bundled services, spread across network management, information security management, cloud applications, and storage. All these services are made available for a monthly fee.
In the times to come, all MSPs will need to integrate IaaS and SaaS services to stay aligned with the ‘industry-specific solutions’ approach to service delivery. MSPs will invariably need better technologies to be able to integrate services with each other, as well as with their clients’ core business processes. Instead of strengthening back-end systems, MSPs need to develop their cloud capabilities.
There are certainly a lot of forces, some working in parallel, and some against each other, but all of them impacting the current state of the MSP market nevertheless. For enterprises looking to work with an MSP, and for service providers looking to expand their offerings, it’s super important to keep track of these trends and align their strategies and tactics to accommodate them.
Author: Rahul Sharma