Kaseya CEO Voccola: MSPs Deserve Better Margins

MSP SUMMIT — Kaseya CEO Fred Voccola says managed service providers are right when they say their businesses are being commoditized, but it’s not necessarily a problem.

In an interview on stage with Robert DeMarzo, VP of content, channel events, at Informa Tech Channels' MSP Summit on Tuesday, Voccola said the bigger issue for MSPs is low margins compared to other commoditized businesses. Kaseya sells exclusively through MSPs. Voccola also said Kaseya will add to its suite of MSP tools by unveiling an acquisition during DattoCon next month. Kaseya acquired backup vendor Datto for $6.2 billion two years ago.

When DeMarzo asked Voccola if competition among Kaseya, ConnectWise and other MSP vendors was commoditizing MSP services, Voccola said “100% yes.” But he said services such as legal and accounting were also commoditized, and those businesses had much greater margins than MSPs.

“Is it good or bad?” he asked of commoditization. “No comment. But is it happening? 100% yes. In every industry it happens. It’s such a large market — MSPs for small and medium businesses, IT security management. Every serious money player – private equity investment, institutional money – they want to get into it because it’s so damn big. We’ll see pricing pressure and the perception of commoditization. But’s that’s OK. You can still make a ton of money if your business is commoditized.

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“Here’s the challenge for Kaseya: Software is commoditized," he continued. "Every RMM does the same thing — backup, it’s the same thing. The difference is how well they integrate so you can build automation and how much you pay for that software. If your business is getting commoditized, that’s really bad for the MSP space in the short term because unit economics of the MSP space are bad. The average MSP has a 10% profit margin.”

He said legal and CPA services are also commoditized, but have 35% profit margins.

“MSPs’ profit margins are one-third of the others,” Voccola said. “It’s not fair. Managed services are so much harder and so much more important. Lawyers take a month off, so what? You take a month off, your customers are in a lot of trouble.”

Voccola said Kaseya research into MSPs shows that the more successful ones are the MSPs that are better a business, not technology.

“There are a couple of stages of evolutions of an MSP,” he said. “It’s not small, medium, large and super large. It’s more about the level of maturity. Maturity as we define it, is profitability and organic growth rate. The MSPs at the highest level treat their MSPs like an actual business. They’re business people first; they’re technology people second.”

He added the most successful MSPs can upsell their customers, but that is getting tougher to do because of strong competition.

“About 80% of MSPs at renewal time of their contracts with customers are in competition. In 2015 that number was less than 10%,” Voccola said.

Voccola also said he had great respect for MSPs’ business acumen.

“I’ve never been an MSP,” he said. “I would suck at most of your guys’ jobs.”