Cautious but Continued Optimism for MSPs in Channel Futures’ Exclusive Quarterly Survey

Konica Minolta’s Jeremy McBean

This past spring we launched our first benchmark quarterly survey to get a pulse of the top trends and opportunities in the industry during the first quarter of 2021. At the time, MSPs were just beginning to stick their noses out of their metaphorical 2020 bunkers. We just closed our second quarterly survey. This one focused on Q2 2021 and showcased a definite change in the tides. 

We surveyed over 200 organizations. To qualify for the quarterly survey, respondents needed to be an MSP, an MSSP, have a managed service business or have managed services as part of their portfolio. 

2020 was overwhelming as businesses struggled to keep their ships afloat. Now that we’re midway through the third quarter in 2021, we see that the world is experiencing an economic wakeup. The channel is also starting to see bounce-backs in many ways, but it’s a mixed bag. 

Second Quarter 2021 Recurring Revenue Compared with Second Quarter 2020

“A lot of people have accumulated a bunch of technical debt over the last year and a half, and now they’re paying it off,” says Jeremy MacBean, director of marketing communications, Konica Minolta Business Solutions Canada. “Everyone initially had this knee-jerk reaction with spending to get the basics in place for hybrid and remote work. Years of technology acceleration and spending was condensed into months during the height of the pandemic. That created this technical debt. And now, all the interdependencies with the things that providers bought are coming home to roost. Now that there’s this sort of exhale moment, people are starting to plan and fully realize the scope and implications of the decisions they made.”

We asked how recurring revenue in the second quarter of 2021 compared to the year-ago quarter. The results showed that it went up rather sharply in Q2 from Q1 of this year. About 18% of respondents to the quarterly survey said their recurring revenue increased more than 20% in the second quarter — up from 12% in the first. Additionally, 24% said recurring revenue was up by at least 11% to 20%, compared to 15% in the first quarter. This indicates that a good portion of the community is having a successful year. It also corresponds to the fact that there is more strategic and long-term decision-making happening

‘Great Migration to Managed Services’

ImageNet’s Juan Fernandez

“This is primarily due to what I call the “great migration to managed services,” says Juan Fernandez, vice president of managed IT services at ImageNet. He said this is predicated based on a few factors:

According to Fernandez, long gone are the days of a call for service and “poof,” a technician physically appears. Modern businesses are decentralizing, embracing remote work and abandoning the office. This is spawning the need for a different type of comprehensive IT support. 

“The beauty of these stats are they show that the seat at the table is being realized by not only the MSPs,” Fernandez continues. “More importantly, customers are also recognizing the value of the MSP and they are coming to the table with dollars in hand.”   

Quarterly Realized Business Activity

The data we gleaned from the quarterly survey shows a steeper slope for recurring revenues compared to the increase for security solutions sales and the slight decrease for cloud sales. Why these shifts?

In terms of elements that are long-term in scope (annual forecasting 2021 compared to 2020) and overall economic outlook (confidence in the U.S.’ economy and confidence in the industry), we really didn’t see any change from the Q1 2021 survey to Q2. This makes sense when it comes to revenue forecasting, since we are discussing a full year. We wanted to know if there was anything that jumped out at our respondents in terms of economic outlook confidence and industry confidence.

TruMethod’s Gary Pica

“We track results for 200 MSPs in our peer groups,” says Gary Pica, president, TruMethods. 

“This data lines up with what we are seeing. Recurring revenue, for example, is up for several reasons. Seat prices are higher because of security enhancements, and new client acquisition is up because of all of the technology changes related to security and hybrid work environments. These same factors are driving top…

…providers to be optimistic for this year as well. We expect record sales and profits for the top 15% of the industry.”

To some degree, the uptick in recurring revenue is to be expected, as Q2 2021 was the busiest time for MSPs in the past decade. 

Figures Impacted by Delays

“For many, sales weren’t as top of mind as they were in Q2 2021,” says Fernandez. “I attribute some of the growth and continued growth to things like a delay or lapse in billing, a delayed sales cycle and delayed onboarding.”

“During the pandemic, many businesses needed help to keep the doors open, so many MSPs lowered rates or didn’t charge customers for services. Conversely, many new customers coming in just needed help, and there was a lag in onboarding and billing. Saturation hit about November of 2020, and that is when the biggest influx of customers came running to managed service companies. The numbers show that we are just now seeing those businesses being onboarded, billed and reestablishing themselves and stabilizing financially, thus illustrating the positive outlook. The Q2 growth I believe is also indicative of what’s to come and that is more customers looking to managed services as the new way to buy technology and services.”

The Human-Centric Approach

Indeed, the general economic outlook is favorable. Partners are wiser and have a better idea of what’s out there. And, as MacBean points out, they seem to be operating in a more empathetic and human-centric fashion. 

“We’re all a lot more sensitive than we were in thinking through the impact of workflow, work balance and collaboration using technology tools,” he says. “These are the things that are going to guide purchasing decision-making for how technology plays a role in the work ecosystem. And it sort of bubbled up into the discourse. Empathy is driving way more technology decisions than it was two years ago. It is now less about the economy and more about the character of the people that we’re selling to. I think things are changing to become much more human-centric. This all speaks to that longer-term decision-making we see reflected in this data.”

Fluctuations Between Q1 and Q2 in Terms of Biggest Challenges

We also wanted to know what challenges managed service providers are seeing in Q2 compared to Q1. While expanding customer bases and hiring remained fairly level, marketing jumped a whopping 10%, from 6% in Q1 to 16% in Q2. Why the sharp uptick? Why the overall lack of movement from the other challenges?

Many MSP’s are now getting their feet under them from a chaos standpoint. Ironically, as we get back to business, now we have a new set of problems.

“There are a couple of things I see in the ecosystem that are contributors to these stats,” says Fernandez. “Our competition got better, buyers are shopping online for the best fit and the employment market is HOT for remote workers. MSPs grew like weeds during the pandemic and we hired like crazy. But now, MSP’s are feeling the pains of ‘how do I keep everyone busy?’ That is where many are looking to try and increase marketing and sales capabilities.”

The flip side of the coin, according to Fernandez, is the hiring problem. Many IT professionals have left their day jobs for the remote work opportunities that many MSPs are offering. 

“The problem lies in how you differentiate yourself from other MSPs. It’s an employee market right now. Good support professionals and engineers can name their price, which is becoming a bit of a thorn in the side of the smaller MSP.”

‘Fear of the Unknown’

Marketing is becoming more competitive as the MSP ecosystem advances. Many are experiencing an identity crisis, and are unsure of which way to go. Cybersecurity, managed services, managed security (oh my) and the cherry on top, social selling, are all being mixed together. 

“Social selling is a thread that many MSPs are afraid to pull, and they are looking for help,” adds Fernandez. “We know we need to do it, but it’s not clear what will happen next. Fear of the unknown is the reason we are seeing the stat grow and that will continue to grow as the…

…need for marketing to a new savvy buyer and potentially employee is difficult. It feels like the MSP is on a whirlwind ride of opportunity, but those paying attention are setting their sights on skating to where the puck is going. That is where the customers and employees are, and it’s on social media. So the time is now to chuck the fear, apprehension and resistance and run toward the modern customers that are awaiting.”

The Changing Narrative

MacBean emphasizes the overall shift in approach for the marketing spike.

“This all goes back to the fact that the narrative is changing,” he says. “Our go-to-market messaging now needs to correspond to what people care about and how they talk about technology. And so it’s changing our approach. We have to go to market, so the job of the marketing team is to give sales and the clients things to read and things to watch that speak to what they give a damn about. Business outcomes must be driven by empathy rather than feature sets. There’s a change in perspective. It’s the same amount of work, but we have to rethink our approach in the messaging. We have to speak to this new kind of buyer and what they care about now, given the washing machine we’ve all been rolling around in for the last year and a half.”

Continued, but Cautious, Optimism

The digital transformation that the industry underwent has caused growth in a lot of areas. But, as our quarterly survey shows, MSPs are still being cautious and are forecasting cautiously as a result. Many shops are poised to increase strategic spending. However, they will likely pull back on the reins a bit and proceed with caution as the uncertainties regarding the COVID-19 variants play out. Whatever the case it will certainly be interesting to see what our next quarterly survey numbers look like.