NerdioCon: Forrester’s Jay McBain Tackles Shifting Business Models

Jay McBain is always a riveting addition to any conference, and his keynote at NerdioCon 2022 was no exception. To a rapt audience, the Forrester analyst shared his thoughts on several different topics. These included where the market is going, shifting business models and how MSPs can capitalize on the latest industry trends. 

McBain began the session talking about what’s on the horizon for MSPs over the next 10 years, in the next 18 months, and everything in between.

The Economic Opportunity

“In terms of numbers, if we look at the global economy, every penny spent across every country is about $86 trillion,” said McBain. “The technology industry in terms of what businesses and government spent this last year is 4 trillion, which represents just over 5%. We are the only industry that’s doubling its size, later this decade. This is the fastest growing industry, and this is why we do what we do.”

McBain says that it’s so easy for anybody to call themselves an MSP. By his standards, shops have to be running somewhere around 30% of their business recurring. They have to use some professional tools. Put very simply, providers need to have some structure around their businesses.

“We know that there’s a long tail to this,” said McBain. “If you want to approach lists like the MSP 501, we’re talking about approximately $10 million in revenue. On our end, we are expecting 212 million once all the pennies have been counted, and 11.6% growth. This industry is now about 22 years old. When the pandemic hit, for the first time we were calling a growth rate less than double digits. We walked into 2020 at about 90.4. The pandemic essentially recognized us as essential workers, since managed services wrap around everything and the future of work.  So this growth rate, we expect to go into double digits – at least for the foreseeable future.”

This all rolls into a couple of major trends. McBain broke them into a few different ways that he thinks will be triple digit growth opportunities for managed services in the next couple of years.

Shifting Business Models

More than three in four (76%) CEOs think their current business model will be unrecognizable in five years. “Ecosystems” are the number one reason why. 

“Whether you sell pharmaceuticals, cars, manufacturing products, it doesn’t matter,” said McBain. “You can’t do it alone in this ‘decade of the ecosystem.’ So here’s what’s happening behind the scenes. If you are a fast growing company right now, and you have anything backed by venture or private equity folks, that’s pushing this model forward. You don’t need direct sales, you don’t need direct marketing, you don’t need a channel; let your product do all the work. We all saw Zoom explode during the pandemic, and we saw Slack get acquired by Salesforce for $27.7 billion. A lot of companies now are growing those million-dollar software companies — they are product-led profiles. We’re seeing direct-to-consumers start to play a bigger role.”

Partner/vendor relationships are an important element of this. The better that partners work with vendors and in the industry as a whole, the more instrumental they become. Not only in the technology sense, but driving in their business and other parts inside. 

Marketplaces

McBain predicts that, at the end of the day, one-third of the industry will go through marketplaces. That’s up from zero a few years ago. Consumer behavior is coming into the space quickly. 

“Marketplaces break down in a lot of ways,” said McBain. “But the fact of the matter is, today 64% of our industry goes indirectly. And that’s when we start to look at marketplaces and double-click. I think 20 marketplaces are going to be responsible for about 80% of all marketplace activity. These are big numbers. By the way, a third of $7 trillion businesses – multi-trillions of dollars – will flow through Azure and AWS and Google. On the SaaS side, they will flow through Salesforce, ServiceNow, NetSuite and others. On the traditional side, it will flow through the IBMs and SAPs, using Oracles. There are not not hundreds of marketplaces, but I think this will be fine.”

Hyperscalers and Automation

More than ever, partners need to drill down into what makes up their ecosystem, and how they can grow within it. They must understand at a very specific level where they can grow their business, skills, additional packages and practices. 

“If we’re not building out the capabilities to go chase these multipliers, we’re going to be in trouble,” said McBain. “Why? Because those multipliers come in much larger margins, and there are a lot of companies coming in right now getting successful cashing in. Take automation, for example. This is the No. 1 fastest growing sub industry. You’ve seen hyperscalers grow over 50 — this grew 73. You start to see some examples in robotic process automation. This is something MSPs know how to do. I worked at Autotask years ago, and I was always fascinated with the scripting, workflows, processes and business logic — not to mention all the wonderful things that PSA and RMM bring. Your customers are looking for this level of automation inside their own businesses.”