Hyperscalers Continue to Consolidate: What MSPs Must Know

By Rahul Bhavsar

Rahul Bhavsar

The big three hyperscalers today, Amazon AWS, Google GCP and Microsoft Azure, loom large over the cloud market. Already with a combined market share of 64%, they collectively continue to expand their presence by about one percentage point per quarter.

The trend has become clear: these public cloud providers continue to pursue a consolidation strategy, seeking to acquire smaller cloud providers and independent software vendors (ISVs) to expand their platforms. In doing so, they will further increase their revenue share in the $89 billion cloud infrastructure industry, a market expected to double in the next three years.

As hyperscalers continue to expand their market influence and sell their services directly to customers, it’s fair to consider whether their growth could take business away from MSPs. Recognizing this possibility, it’s worth asking how MSPs can best adapt to these market shifts?

Expanding Cloud Market Challenges

Let’s look at the three biggest challenges and opportunities the expanding cloud market holds for MSPs.

Finding the next niche: There’s increasing competition among the three large hyperscalers over control of the retail market. As each attempted to expand their market gain through single-cloud retail collaborations with Walmart, retailer ASOS and PayPal, these tensions also indicated a change in their consolidation strategy. The big three will now target entirely new industries. They will also increasingly focus on improving their direct-to-consumer (D2C) marketplaces to make their services more attractive for the big brands they want on board.

To stay competitive in this new environment, MSPs will need to figure out how to leverage industry-specific knowledge. Savvy MSPs must remember that hyperscalers are excellent infrastructure providers capable of landing retail giants like Walmart and Walgreens. At the same time, however, they’re too big to waste their time looking for small and medium-sized businesses (SMBs) in the $50 million range. As most MSPs can serve companies of this size comfortably, they should find ways to deepen their expertise and carve out deeper niches.

For instance, an insurance provider in the health care market will initially be interested in connecting with specific MSPs that serve that health care segment. These providers know how insurance companies operate, are familiar with common applications and regularly work with connectivity providers that serve this market segment. This synergy between niche industries and MSPs is a unique competitive advantage they have over hyperscalers. The ability to deploy, integrate and educate the end customer on infrastructure-as-a-service (IaaS) offerings that fit their industry must become part of the new value proposition of MSPs.

MSPs must switch their revenue mindset: Today’s MSPs evolved out of value-added resellers (VARs), who made their profits from reselling technology products. However, the days of wholesaling computer monitors and LAN networks are long gone. Over the past decade, VARs have evolved into managed service providers (MSPs) by offering IT services, including the integration, management and support for IT products. This has allowed them to generate recurring revenue beyond the margins from reselling hardware or technology alone. But with the ongoing market shifts, it’s time for the next stage of MSP development.

Cloud infrastructure marketplaces have emerged, and the big three also invest in a direct-to-consumer sales strategy. As a result, MSPs need to change their mindset from focusing on reseller margins to …

… leveraging the multipliers that the big three cloud providers offer. But how can they gain a greater share of that business?

Jay McBain of Canalys describes how MSPs might share in that business when he notes major vendors such as Microsoft, Google Cloud and Salesforce talked in 2020 about the economic value created for every dollar of their revenue, their ecosystem value, rather than spending time discussing front- and back-end reseller margin opportunities. “Between $4.65 and $9.00 per dollar sold are the opportunities to package additional hardware, software and services around cloud projects where partners can most effectively grow their revenue and profits,” McBain said.

Now is the time for MSPs to put on their consultant hats and find ways to add value to their customers beyond reselling technology.

Forrester suggests that MSPs can help their customers develop a direct-to-consumer (D2C) mentality by showing them ways to offer subscription services through cloud platforms. As data is becoming indispensable for growth, they should also focus on leveraging predictive analytics, automation and machine learning to help their customers gain better insights into their business and potential future trajectories.

Get certified or get left behind: COVID-19 shifted the business into the cloud, and the future of IT managed services will remain in the cloud. TechTarget predicts that the need to digitize operations rapidly will impact customer projects well into 2022. However, as cloud services infrastructure is increasingly consolidated by the big three, MSPs will need to invest in upskilling their team members and getting them certified.

An interesting trend has emerged over the past year: The three major cloud providers have used their certification programs to filter out the MSPs they are most interested in working with. Each certification represents a commitment to building knowledge that leads to greater skills and a better understanding of the cloud infrastructure these hyperscalers offer.

The channel partner programs help MSPs hone their skills within their own IaaS frameworks – in a way that incentivizes top performers to pursue certifications. Only channel partners with higher certifications access the cloud hyperscalers’ large customer base.

With this in mind, MSPs looking to acquire new certifications should research which certificates are right for them. This also means they need to spend their time and resources getting certified in the technologies their customers are asking for before adding credentials that include upselling opportunities for customers to their expertise.

Bottom Line

The bottom line is: MSPs should recognize they’re an essential part of the ecosystem. This means they should focus on what they excel at, which is building closer customer relationships and offering a range of cloud and other technologies tailored to the needs of specific industries.

Instead of mistaking the public cloud providers as competitors, MSPs must recognize that they can leverage their technologies and bundle them with an additional portfolio of IT services to serve their customers’ needs even better.

Rahul Bhavsar is the global platform strategy leader for CloudBlue, where he helps to define the vision and the go-to-market strategy for its digital supply chain platforms. He has more than 20 years of experience in developing and scaling self-sustainable SaaS and technology services companies across India, the Middle East and Africa. You may follow him on LinkedIn or @ThisisCloudBlue on Twitter.