How MSPs Can Take Advantage of the XaaS Business Model

By Sheen Khoury

Sheen Khoury

IT leaders are seeing a greater need to work with managed service partners these days. Spurred by the ongoing complexity and cost of technology, the rapid shift to cloud services and the lack of in-house skills, managed service providers are valuable partners in deploying and managing distributed IT environments for diverse user needs.

First, a little history: value-added resellers (VARs) reinvented themselves by outsourcing and offering services, giving birth to MSPs. The rise of MSPs changed again with the public cloud. The advent of infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS) allowed IT to unload the burden of paying for expansive data centers, yet there was still ample work to procure, design, secure and optimize cloud infrastructure.

Now, IT leaders are looking to MSPs for help in managing and optimizing large swaths of their IT environments as services, from disaster recovery and backup to monitoring, operating on top of cloud service providers (CSPs) such as Amazon Web Services, Microsoft Azure and Google Cloud. And the demand is growing. For example, the global managed security services market is expected to reach $46.4 billion by 2025, while in the third quarter of 2020, the worldwide unified communications-as-a-service space jumped 30% year-over-year. Disaster-recovery-as-a-service (DRaaS) could reach $14.6 billion by 2025.

The COVID-19 pandemic, which created a widely distributed workforce almost overnight, has only amped up demand for cloud services. Many enterprise IT organizations are finding that managing hybrid and multicloud environments in-house can be a burden and introduce extra risks, if staff levels and specific skills aren’t aligned.

XaaS: The Next MSP Revenue Driver

The opportunities for MSPs in this expanding market are profound, opening new revenue streams as services. A formidable opportunity is anything-as-a-service (XaaS), a market that Gartner predicts will hit more than $304.9 billion this year and grow to more than $362 billion in 2022. Organizations are gravitating toward XaaS vendors such as Salesforce, Microsoft 365, IBM and SAP. MSPs can play a leading role in making this complex environment more manageable and cost-effective.

For MSPs, there are real benefits to the bottom line. They can rapidly expand recurring revenue streams and gain an even closer and ongoing relationship not only with their customers but also with the CSPs that are critical partners in this as-a-service world. Cloud-based services allow the MSP to narrow the technologies they focus on by removing infrastructure from the equation, eliminating the need to understand dozens or hundreds of hardware systems and components.

For customers, the benefits are significant:

Powering the as-a-Service Business Line

The challenge for MSPs becomes selecting the right partners for their XaaS solutions. MSPs can shed some of the skills they used to rely on, particularly around …

… hardware. With the accelerated migration to the cloud, the need to manage massive internal data centers is going away.

However, MSPs need to find partners that can pare down all the niche services that end users consume in their environments. It’s too costly for MSPs to work with a lot of vendors, so they need to find the right two or three for each service. The goal is to go deep across different IT areas with a targeted number of vendor partners rather than broadly with many.

This strategy of going deep enables MSPs to build and deliver better services – and better quality of services – to end users. This strategy allows them to produce more skill resources in each tech segment. Rather than investing heavily on a wide range of skills and certifications and training hundreds of people on dozens of technologies, MSPs can train employees in fewer technologies per service area.

Moving from Transactional to Aspirational

The rise of multicloud, hybrid cloud and SaaS has changed the game for MSPs. For many years, the primary objective of the MSP was to reduce costs for IT customers by managing their environments less expensively than they could do internally. MSPs could expertly run organizations’ data centers, saving IT the expense and hassle of doing it themselves.

Now, the focus has shifted to reliably and explicitly meeting the needs of customers under pressure to successfully accelerate digital transformation programs and navigate the challenges brought on by the pandemic. Progressive MSPs give IT the means to be a hero within the larger enterprise by delivering niche services that bring agility, efficiency and customer delight.

Sheen Khoury is chief revenue officer at OpsRamp. He has more than two decades’ experience in enterprise software sales and support. Khoury can be found online at LinkedIn or @Opsramp on Twitter.