Managed Services: Top Trends Impacting MSPs in 2023

NERDIOCON — The managed services industry is experiencing a golden age, according to Datto.

Datto’s Greg Jones

“There are still challenges out there. But overall, this is a great time to be an MSP,” said Greg Jones, vice president, business development, EMEA, at Datto. “There’s a lot of opportunity, and we look at this time as a golden age for the MSP community.’

Indeed, more than nine out of 10 MSPs believe it is a great time to be in the industry, according to Datto’s Global State Of The MSP Report. Execs from Datto, a Kaseya company, were talking MSP trends at NerdioCon 2023 in Cancun, Mexico, Thursday. Channel Futures is there.

In terms of riding out the current economic turbulence, Jones said MSPs are better placed than most.

“Arguably, wherever economic downturn or recession, more money than average is spent on technology to accelerate businesses through this recession. And when we look back at previous recessions, IT has always been one of the strongest sectors to really weather a storm.”

However, vendors need to step up more to help new MSPs build their businesses, said Jones.

Vendors Need to Improve Support For MSPs

Jones said EMEA is around three years behind North America in terms of MSP maturity — but it is catching up.

At the same time, there are lots of new market entrants. Almost a quarter of MSPs surveyed said they are new to the business. This makes sense, given 95% of respondents agree it is a great time to be an MSP.

However, vendors need to do a better job in helping these firms develop their MSP practices, said Jones.

“There are a lot of new vendors that are just adding in a MSP track to their offering. It’s needed for MSPs to help them to go to market, but it can’t be an afterthought. Vendors need to really hunker down on the MSP. To help them in all aspects of the business — not only the tools and the technology, because arguably, that should be the last piece of the jigsaw. It should be more about helping them with going to market, sales and marketing strategy, content, business advice and really helping them on their business operational maturity level.”

Welcoming New Players to The Market

COVID had a massive impact on the MSP market, said Jones. As a result, it is now accommodating a lot of players that have seen its revenue potential.

“A lot of other industries lost lots of revenue and needed to recoup that and protect it for the future,” he said. “So, everybody is looking to lock in recurring revenue. If you look at most [private equity] and [venture capital] money, all they’re interested in is following the monthly recurring revenue.

“So even the likes of say big print firms – the likes of Kyocera, Konica Minolta, Brother – all lost the pay-per-click because people weren’t in offices. That services revenue. They said, ‘Actually, we need to …

… get into the managed services space because that’s guaranteed.’”

“So we’re seeing a lot of other industries coming in. M&A is absolutely huge in the MSP space,” he added. “And certainly with the economic downturn, the dollar is strong and a lot of U.S./Canadian firms are looking to buy across EMEA at the moment.”

The Return of Break-Fix

Another impact of COVID is an increase in revenue for MSPs from break-fix.

The last few years have seen monthly recurring revenue win out against break-fix as a money maker for MSPs. However, this year is different. Monthly recurring revenue has still increased for many MSPs – but so have break-fix revenues. That’s because there are a lot of ad hoc projects now coming into play, said Jones.

“When we came out of COVID-19, a lot of businesses certainly in the enterprise and the larger space said, ‘Actually, we were not as agile as the smaller SMBs getting up and rolling. We need to be more agile, more responsive, how can we do that?’ And they’re starting to look to us MSPs to help them with that digital transformation,” said Jones.

“When the co-managed organizations start to ask for assistance from MSPs, usually the revenue they bring is project-based revenue as opposed to monthly recurring revenue. So there’s a lot of opportunity for MSPs with larger enterprises that were once out of reach. A lot of the bigger enterprises are now saying, ‘We do need someone to help us with our digital transformation.’”

MSPs’ Biggest Challenge? Lack of Sales & Marketing Skills

In terms of challenges, MSPs are more worried about competition than ever before. That’s linked to the raft of new entrants to the market. However, the biggest challenge remains a lack of sales and marketing skills within MSP organizations, said Jones.

“Our top-performing partners, the ones that are the fastest and outperforming anyone else, are the ones that have sales and marketing departments; whereas, a lot of the other MSPs might be doing OK, but are not growing as fast as they wish, don’t have a sales and marketing department.”

They are focusing on the service delivery side of the business, but neglecting other essential aspects, he noted. Jones used the analogy: “It’s a bit spending every day polishing the speedboat and not focusing on putting the outboard engines on that will propel it.”

The issue is that a lot of MSP owners are “techies” and lack the required skills sets for sales and marketing. Said Jones: “The tech industry is very much logical-input-process-output. On the creative side, that’s totally different around sales and marketing. It’s a very different skill set and is very, very, very unusual that you can find someone that can traverse those three paths of tech, sales and marketing together.”