MSP Quarterly Survey: Industry Confidence Remains Strong While Overall U.S. Outlook Dips
With concerns over a possible recession, our quarterly survey breaks down how partners feel, versus U.S. business overall.
September 8, 2022
Shutterstock
Mayron Herrera, founder and CEO of MSP Synetek Solutions, thinks that there are a number of factors at play in terms of the uptick of industry health confidence (as shown in the graph above).
“First, I think organizations are trying to finish out the budget they have for the year,” said Herrera. “In business, I don’t think that’s necessarily sustainable, I think it’s just an indication of that time of the year. In terms of the sentiment regarding the economy as a whole, I believe that inflation is scaring MSPs and other businesses alike. In our space, customers are getting tighter, they are demanding higher wages … the margins just keep getting smaller and smaller. There’s also the supply chain issue. We, and the U.S. more broadly, have had to adjust, just sell what’s available and not necessarily stick to our tried-and-true vendors. These issues haven’t necessarily impacted the confidence of the MSP space yet, clearly, but these are speculations for [the fourth quarter] and beyond.”
The other issue is that businesses are taking short-term advantage of financial gains for current projects. But long term, perhaps next quarter or the first quarter of 2023, those projects will dry up.
“I think that reality is really going to hit — especially if things don’t change,” adds Herrera. “We may see that graph go down.”
One of the big things likely driving the confidence of the industry is that customers are looking for stability in the IT space. IT services are now more commonly recognized as a requirement to do business.
“Over the past year companies have become less and less apprehensive about IT spending as it is now required to enable the remote workforce and maintain employee flexibility,” said Juan Fernandez, co founder and CEO of MSP Growth Coalition. “Looking back a bit further, businesses were focused on other areas, and with the new influx of IT interest, I believe that is what’s driving the confidence that the industry will thrive.”
On the flip side, according to Fernandez, the cost of doing business has gone up. With the changes in the economy, the outlook from that perspective does indeed to appear unfavorable.
“The fact remains, that times are changing and those companies investing in technology and adopting the new way of doing business will be the ones that thrive in the coming years,” said Fernandez.
In the midst of the gathering storm, providers must examine what it will take to continue to thrive. Two important aspects to consider are keeping/retaining good talent, and the health of their operations.
The outlook appears to be very good for MSPs (well-run MSPs, being the distinction here) that have both talent and operational sophistication. This industry is first and foremost a people business. The issue that many MSPs will face is the race for quality talent in the marketplace. The end-user community, as well as the larger MSPs, have deeper pockets than many of the smaller MSPs. The simple fact is that these pocketbooks will make things more difficult for smaller MSPs, especially shops that are unable to keep their quality talent.
“When the economic outlook lessens, with the threat of recession looming, there will be more end-user firms looking to outsource,” Neil Medwed, executive director of strategic partnerships at MSP Meriplex, told Channel Futures. “They will be seeking MSPs with not only top-notch talent, but also sophisticated operations. That means that as opportunities increase, so does the need for the talent to keep up with the ‘wins.’ Many smaller MSPs compete mainly on price, whereas the larger ones can normally show greater value-add and compete on price whenever the opportunity is right.”
From an operational perspective, the same fight for talent is there, as well as the demand for their services. For example, every MSP says that they have great cyber talent and capabilities. The issue is that many MSPs cannot afford to employ the talent necessary to back this up (as it were). Sure, they can outsource certain things, but the fact remains that they must be sophisticated internally as well as externally.
“As the economy gets worse, the need for quality MSP outsourcing will grow,” added Medwed. “So, as an industry, the outlook is good. The issue I foresee is that clients will demand quality at any per-seat price. Many MSPs are running at little or no profit, and their outlook going forward is going to be more and more difficult as our economy worsens.”
There are a few things at play here in terms of growth, particularly in terms of cloud and security sales.
“The upticks in cloud solutions, cloud sales and security, is just that they’re so hot right now,” said Herrera. “It has already begun, hence the steady rise, but I think that’s going to continue to climb up. This is largely because, as time goes by, insurance companies are going to put more pressure on businesses to comply. This will include cybersecurity training efforts. In terms of security sales, this is a huge opportunity, and we’ll likely continue to see an uptick here.”
In terms of cloud, there are recent changes in the Microsoft Office 365 model to consider.
“Because of those changes, there were immediate increases, resulting in revenues shooting up,” said Herrera. “I think that’s one of the reasons for the jump in Q2 ― a lot of MSPs are taking those gains immediately.”
Realized business activity has had a varied and colorful trajectory since the first quarter of 2021. This reflects the fluctuations in technology and what is deemed vital in terms of services.
“This is a positive sign that businesses are coming back,” said Fernandez. “We can see in Q4 [2021] that, as expected, most businesses suffered a bit and had to cut spending. But then we see what the industry is feeling is the surge in new business.
“This is a great sign, with both providers and customers now ramping back up for growth and stability over the remaining portion of the year and into the next.”
In terms of forecasted business activity by quarter, taking a look back over the course set since the first quarter of 2021, it appears that things are remaining steady.
“As services become more mainstage in the MSP space, projects are more routinely coordinated, and the management and hardware become less front and center,” said Juan Fernandez. “Because of this, margins and sales activity will most definitely become more static.”
There is far more profitability in the non-commoditized services, and that’s what’s driving companies to newfound success, according to Fernandez.
“The low value transactional sales that were once a mainstay have stepped aside for more profitable and sustainable services, and most importantly, mutually successful relationships with customers.”
The uptick from the third and fourth quarters of 2021 is quite noticeable here. The main reason? MSPs are starting to feel the pinch.
“As an MSP, we know that dollars are getting tighter,” said Herrera. “So we’re pushing sales harder, maybe harder than we’ve ever done before. This might be the reason why there’s an uptick. Profitability has kind of flattened out because we’re becoming more of a penny business versus a high-profit business. That could be the reason why that profit line is flat versus sales going up. We’re selling more, but we’re making less money on those sales.
“I think the next big thing for us as providers is transitioning into training ― our customers need help with how to improve business processes. It’s crazy how quickly we evolve as MSPs.”
In terms of the 2022 whole-year forecast compared to 2021, it seems that the overall trend in the industry is leaning the same, if not more heavily, toward sales and profit.
“One of the big contributors is that most companies are looking for new IT services that will empower their business,” said Juan Fernandez. “This is leading to a backlog of opportunities for the service providers in the industry. Many, if not all customers, need new technology, whether it be PC/laptop/mobility, cloud and security solutions ― anything that enables the remote workforce.
“This is leading to a huge opportunity for the space, but we also see that hiring trends are limiting service providers from fully taking advantage of the opportunity and in turn tempering growth.”
In terms of the 2022 whole-year forecast compared to 2021, it seems that the overall trend in the industry is leaning the same, if not more heavily, toward sales and profit.
“One of the big contributors is that most companies are looking for new IT services that will empower their business,” said Juan Fernandez. “This is leading to a backlog of opportunities for the service providers in the industry. Many, if not all customers, need new technology, whether it be PC/laptop/mobility, cloud and security solutions ― anything that enables the remote workforce.
“This is leading to a huge opportunity for the space, but we also see that hiring trends are limiting service providers from fully taking advantage of the opportunity and in turn tempering growth.”
Pick up any newspaper – OK, let’s be honest – scroll through Twitter these days, and you’re likely to come across a bevy of headlines screaming about two closely linked things: an impending recession, and the state of the economy.
There has been increasing talk of a recession in the last six months. It’s true, the U.S. economy faces many hurdles and headwinds, all seeming to come together at the same time.
The managed services industry has enjoyed nearly two decades of strong growth, barely dampened by the pandemic, and even bolstered in some cases. So what does this mean in the face of the current economic climate?
Channel Futures’ most recent MSP Quarterly Survey* examines feedback and insights from the second quarter of 2022. The data we gleaned tell a very interesting story of the general economic outlook from both an industry and overall U.S. standpoint. So, what feeds into this?
In the slideshow above, we hear from our experts on the general state of the economy; plus, we examine the disparity between MSP confidence and that of the U.S. overall. We then further break down our other important benchmark survey findings.
*In April 2021, Channel Futures launched its first benchmark survey to get a pulse of the top trends and opportunities in the industry during the first quarter of last year. We wanted to know what market patterns look like, where profit outlooks stand, and the challenges partners face. We have now released a total of six surveys. Each has uncovered unique data reflecting these shifts – the significant and the insignificant – in the industry.
Want to contact the author directly about this story? Have ideas for a follow-up article? Email Allison Francis or connect with her on LinkedIn. |
About the Author(s)
You May Also Like