A New MSP Era Is Here, So Where Is the Industry Headed?
MSPs are moving into the modern era in more ways than one. Is their competition increasing or decreasing?
December 23, 2021
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“Our competition is increasing. So we’re very pure-play security focused, and we don’t do the IT administration stuff that your average MSP does. However, because some of that work is commoditized, MSPs are all seeking to add security as a core discipline. The more that happens, the more competition there is in the marketplace.
“For us, the way that we can combat some of this is speaking to a pure security focus as part of our messaging strategy. But still, competition is increasing significantly. I think that also speaks back to the opportunity in the MSP industry at large, because some of these market dynamics are getting more people interested in building these sorts of capabilities, which is just going to underpin additional competition progress.
“I think, though, there is also going to be continued consolidation. Companies are going to continue acquiring other companies, so that’s something that will certainly continue.”
—Paul Caiazzo, CISO, SVP Corporate Development, Avertium
“We have offices on 39th St. and 6th Ave. in Manhattan, and there are seven additional MSPs on our block. So there’s the obvious idea of competition there. But I guess the question is, is it really competition? I don’t think so.
“Why? They’re going after clients that we wouldn’t necessarily go after. Everybody has their target clients. We have a lot of inbound leads coming in, but most of them we don’t qualify as someone that would be a good fit for us.
“To the consolidation point, that is a little bit more worrisome, because it reduces the overall number of companies out there. But it does tend to make their numbers stronger than ones that remain. So that would be more competition on the higher end of the spectrum for MSPs.”
–Joseph Rabinowitz, Co-Founder and CTO, Homefield IT
“Because of all this merger and acquisition and consolidation activity, and having some very strong backers on the private equity side, they know how to get good results. So it creates more competition for higher level clients across the board. I recently went through very significant growth, to getting to $1 million a month without any sort of funding or anything like that. Just funded by revenues.
“It is very, very challenging, and very bespoke a level of maturity in the industry. Even if we could go out there with messaging saying, ‘These … MSPs are incapable of doing the job that we’re doing, so they’re less competition to us,’ they’re still creating noise in the marketplace.”
—Paul Caiazzo
“I’ll use the company Electric AI as an example. They have made a lot of noise in the industry. They are actually a VC-backed MSP, and have raised something around $70 million to date. That’s a lot of money for an MSP in New York City, so we run into them a lot. And their value proposition is that they bring AI and automation into the MSP space. Obviously AI is a big buzzword in automation, so they claim that they’re able to charge significantly less than your typical MSP and leverage this proprietary automation that they have.
“The reality is that you can’t really automate a lot of this stuff. But they’re able to charge a third of what the industry rate is. Not because it’s profitable for them, but because they have $70 million from these VCs. So that’s an interesting challenge that we’re seeing in the New York market in the MSP center of competition.”
—Joseph Rabinowitz
“I think we’re going to see a lot more point solution competition, and then some acquisitions of those. But I think what will happen is that the disciplines and the domains will call us. Fraud, security, MSP reg tech — you’re gonna see more players get holistic views of that.
“And so over time, those kinds of companies will roll in there, but they must have the size to do that. We are seeing that pure play securities, banking, regulatory, etc. … all these industries are going to have their own little pieces of parts that they’re going to manage. That’s just going to occur over and over, and I think it’s going to grow, and then it’s going to contract, and then it’s going to grow again.”
—Kurt Guenther, President, Business Solutions Group, Computer Services, Inc. (CSI)
“I’ll add one word to it — redefinition. All of this is going to ‘redefine’ as it goes through these cycles and waves. What was recognizable as an MSP 10 to 15 years ago got blown up in the span of five years.
“If I look at the business and built an MSP today, it would still kind of look the same way as we were doing business 10 or 15 years ago in many regards. Our financials look similar, or approaches, but it would be a lot more instrumented, a little bit more high tech. And it will absolutely be a mix of direct margin and brokered margin, still with the big public players, and other point services that will make the financials.
“I don’t think a lot of people are used to that today as MSPs. But my theory is that it will change. It’s a different way to make money, and creates more opportunities overall.”
—Stephen Moss, SVP and GM, Connected Workforce, Insight
“It’s all about finding that point of differentiation. That is going to create even bigger challenges. The rest of this stuff is because there’s so much noise in the marketplace — especially for commoditized services.
“How do we stand out? That’s very difficult. Outside of the quality of work, customer engagement or intimacy or whatever it is that you message around, there are a lot of people saying the same things. So I think it’s going to be even more challenging going forward.”
—Paul Caiazzo
“It’s all about finding that point of differentiation. That is going to create even bigger challenges. The rest of this stuff is because there’s so much noise in the marketplace — especially for commoditized services.
“How do we stand out? That’s very difficult. Outside of the quality of work, customer engagement or intimacy or whatever it is that you message around, there are a lot of people saying the same things. So I think it’s going to be even more challenging going forward.”
—Paul Caiazzo
It is a new era for managed service providers. The last year has had a profound impact on MSPs, who have had a lot of aspects of their business disrupted in some way. Despite this, there has been widespread optimism and sustained or increased revenue throughout the industry. In Datto’s recent Global State of the MSP Report, a good chunk of providers expressed that now is a good time to be an MSP. In fact, a large percentage claimed that they came through the pandemic with revenues either unchanged or improved.
But, of course, it’s not all sunshine and rainbows. That sense of optimism is expected to continue, but MSPs are still keeping a sharp eye on potential hurdles. The battle for customers is intensifying, and with it come concerns about revenue growth, profitability and competition.
At this fall’s Channel Partners Conference & Expo, we conducted roundtables with channel experts addressing hot topics in areas such as cybersecurity, cloud and MSPs.
The new era of MSPs, and whether they see their competition increasing or decreasing, was among hot topics addressed during our roundtable with industry experts.
Panelists included:
Paul Caiazzo, CISO, SVP Corporate Development, Avertium
Joseph Rabinowitz, Co-Founder and CTO, Homefield IT
Kurt Guenther, President, Business Solutions Group, Computer Services, Inc. (CSI)
Stephen Moss, SVP and GM, Connected Workforce, Insight
Scroll through our slideshow above for highlights from this roundtable.
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