Channel Futures Quarterly MSP Survey: Uptick in Recurring Revenue, Strong Cloud Sales

Back in April, Channel Futures launched a benchmark survey to get a pulse of the top trends and opportunities in the industry during the first quarter of 2021. The MSP space experienced a dramatic shift following the coronavirus pandemic. We wanted to gauge how providers are faring now that the smoke has begun to clear. The survey results gave us good insight into the various aspects of how MSPs function, the challenges they face, and the services they offer. In particular, we noticed several trends around recurring revenue, cloud-related sales and security-related sales.

Coming “out” of the pandemic, it’s clear some MSPs were still able to grow their businesses. This was all despite familiar pitfalls, which include widespread shortage of talent and inefficient remote monitoring and management (RMM) tools. Of course, there’s also the constant threat of increasingly advanced cyberattacks. Looking ahead, given these findings, it appears MSPs are in a unique position to thrive in economic shake-ups, and drive value to customers. 

Our survey uncovered some of the key trends and impact the tumultuous year that was 2020 brought forth. Here are four of the key research findings gleaned from the survey, along with perspectives from industry experts.

Recurring Revenue

We wanted to know how these smaller, privately held companies in the channel are performing. So we asked folks how recurring revenue in the first quarter of 2021 compared to the year-ago quarter. About one in eight (12%) of respondents said their recurring revenue increased more than 20% in the first quarter — an encouraging nudge upward. About 27% said recurring revenue was up by at least 11%. That shows there’s a good portion of the community having a pretty successful year.

We asked Jason Ingalls, founder & CEO, Ingalls Information Security. for his take on what that means.

“Recalling that the workforce all went to the WFH model in Q1 2020, this makes me wonder if a) Q1 was a great quarter in 2020 in terms of recurring revenue for many MSPs handling remote worker requests from lots of clients, and Q1 2021 has shown improvement over that spike as the economy heated up; or b) Q1 2020 was relatively flat and Q1 2021 mirrored it,” said Ingalls.

Ingalls Infosec’s Jason Ingalls

“It certainly indicates stability in an otherwise unstable 12-month cycle. And generally, people indicated they were doing better than a year ago,” he added.

“I see a direct correlation here to the reliance of leveraging outside resources to facilitate the changing landscape of technology departments,” said Chris Ichelson, CEO, 360 SOC. “Organizations are leveraging the channel more than ever in search of the guidance to address the “new normal.” I also see the reactive correlation in cybersecurity to the amount of breach media coverage.”

Where MSPs Are Adding Vendors

The sentiment among the MSP professionals we surveyed pointed overwhelmingly to security. When we asked in which sectors MSPs added vendors in the first quarter, more than a quarter (29%) cited backup and disaster recovery (BDR). Managed security also came in at 29%, with cloud storage coming in close behind at 24%. Other notable mentions included …

… data analytics (17%); data center (14%); and IaaS, managed email and help desk (all 12%).

“You see vendors for risk management products and services being added first and foremost,” said Ingalls. “Cybersecurity risk is increasing and the market is responding. Hopefully the respondents are picking security partners rather than buying security software, unless they have dedicated (and rare) talent necessary to staff that software.”

360 SOC’s Chris Ichelson

“We have seen a recent “relatively high” increase in the publicity of cybersecurity events,” said Ichelson. “This in correlation is driving the reactive response to organizations trying to mitigate their cyber exposure. This is why we are seeing a decline from 2020 where we saw a major increase in work-from-home (WFH) technology. I also see that this plays into the security and BC/DR conversation with a borderless perimeter and more diverse device landscape. We see a direct tie to the exposure organizations face.”

Cloud-Related Sales

We know that Microsoft, Google and AWS had a strong first quarter in terms of cloud-related sales. In mapping this to the channel, it seems that providers had a strong showing as well. When we asked how cloud-related sales in the first quarter compared to the first quarter of 2020, 31% of respondents said sales were up at least 10%. More than one in four (28%) reported no change, which indicates they are holding steady. 

There is a portion of providers struggling with cloud sales. Hearkening back to the aforementioned public cloud vendors, the reason could simply be that they are able to offer cheaper solutions. Positioning value and service while competing with these companies is indeed a challenge.

“When we look at the impact of cloud adoption from 2020-2021, we should see an increase across the board. WFH, COVID-19 impact, adoption of cloud technology around collaboration and extending the business out are driving major cloud adoption,” said Ichelson. “No longer can organizations solely rely on an on-premises/legacy approach to technology.” 

Security Solution Sales

When we asked how security sales in 2021’s first quarter compared to 2020’s, 14% of respondents reported an increase of more than 20%. Thirteen percent reported an increase of 11%-20%; one in four (28%) said 1%-10%; and a whopping 33% said their sales remain relatively unchanged. 

“This is most interesting, as it indicates that not much has changed in the security sales space from a year ago,” said Ingalls. “I wonder if this indicates some stagnation in the distribution of security products or services, lack of innovation and new available products/SKUs, and/or lack of interest from customers. Worst case, it indicates that MSPs are unable to make a compelling case to their clients of the need for enhanced cybersecurity products. And after a year like the one we’ve had (SolarWinds, HALFNIUM, Colonial Pipeline), you’d think a security conversation between MSPs and their clients would be easier than a year ago.”

Net Sciences’ Joshua Liberman

“While I have not seen a breakout in security-related spending, we are seeing a large expression of pent-up demand for hardware both on premises and for outfitting remote workers,” said Joshua Liberman, president, Net Sciences. “Sadly, this is commensurate with the greatest shortages of equipment our industry has ever known. As much as things are up, it could be twice that if we could get things.”

“With two recent major breaches and countless amounts of smaller breaches, there is a huge adoption of cybersecurity solutions adoption going on,” added Ichelson. “Solutions like training and awareness, endpoint detection and response, managed SOC services and secure access service edge (SASE) are leading the way.”