Jay McBain Marks Tech Milestone, MSPs Can Cash In
The importance of FinOps in an MSP offerings, the power of “multipliers” to increase revenue, and other insights.
July 28, 2023
![Jay McBain marks tech and telco milestones Jay McBain marks tech and telco milestones](https://eu-images.contentstack.com/v3/assets/blt10e444bce2d36aa8/blt288a7c9db8bf5a1f/6523ec387f33033e2bad1c24/Jay-McBain.jpg?width=700&auto=webp&quality=80&disable=upscale)
Telecommunications services represent $1.4 trillion the worldwide total addressable (TAM) IT market. It may be flat or slightly declining, but it will remain vital and profitable well into the future, Canalys analyst Jay McBain said. He mentioned that the telco service market is seven times larger than the SaaS market, even though most of the headlines go to companies such as Salesforce.com, Netsuite, Marketo and ServiceNow.
“Almost no one that I talk to today would be able to guess if you asked them if telco services were larger than tech services last year. No one would know that telco services were as big and strong as they are. And the fact that they’re slightly smaller (than tech) is still the story.
“The fact of the matter is that our lives are changing quickly. And [those changes] rely on internal and external communication and collaboration, the likes of which you’ve never seen. So guess who wins? Telco. The people who have always understood how humans can come together, both inside and outside the firewall, are the people that have laid copper lines decades ago. That’s why it’s so big, because this piece doesn’t go away.”
What about MSPs? See the next slide to find out.
It’s no secret in today’s cloud-based computing environment that services are the key to a successful MSP practice. What many people might not realize is that hyperscalers such as AWS, Microsoft and Google (which are growing at about 30%, representing among the biggest growth stories in tech) kick off $6.40 of extra software and services for every dollar they sell, McBain said.
In the same way that solution providers created a $500 billion industry helping clients deal with TOC issues in the client-server market for 20 years, MSPs face an even bigger opportunity helping companies deal with the FinOps issues centered around financial accountability and discipline in cloud spend.
MSPs can and should act as a bridge between the client’s CEO and CIO to help them figure out the most efficient and cost-effective ways to process and store workloads. Maybe SaaS clouds are too expensive. Hyperscaler prices are cheaper but they are increasing. Maybe it’s time to dust off those in-house Dell and HP servers? An MSP acting as the trusted technology advisor can provide the best answer and get good money doing it.
“We don’t actually need everything to be in the cloud. We need the result of that processing to be in the cloud. Getting those (servers) back up to 80% or 90% functionality would say that you’re going to save X amount of dollars. It should be the partner going in at a FinOps perspective, the same way we (dealt with) TCO in the client server (market). It’s a call to action here for MSPs who are still thinking about putting a managed service around different layers of cloud,” McBain said. “Managed services is about $1 out of that $6 (in that extra service and software spend mentioned above). Now another dollar of that can be triggered in consulting, then design, then architecture, then implementation, then integration. This entire FinOps piece becomes an opportunity to get sticky with the customer and solve the problem by saving money, making it more predictable and knowing that you’re trusted to drive that business forward.
“The FinOps piece is brand-new to everybody. It started in the enterprise, it’s now coming into midmarket, and it’s coming down into medium business. Even that small flower shop might not be spending their money in the appropriate way for how they’re aligning the technology of their shop,” he added.
There are plenty of money-making opportunities for MSPs in the new computing environment. There’s also a lot of competition fighting for their share. Find out who you’re up against in the next slide.
A Venn diagram sits on the wall of McBain’s office behind his right shoulder. Titled the “New” Global Technology Channel, it maps out the different groups vying for a piece of that $4.7-trillion tech/telco services market. The “influence/retention shadow channels” include more than 4 million influencers, advocates and ambassadors, and another 2 million legal, health care, construction, accounting and transportation specialists. There are more than 1 million “alliance channel” players specializing in XaaS, AI, IoT, automation, blockchain and other technologies.
Finally, the smallest part of the diagram, “the transactional channels,” includes only 82,00 MSPs. Faced with such varied competition, it makes you wonder how MSPs can increase their share of market. The answer, McBain said, is through simple multiplication. Think of how to make $3 or $4 for every $1 sold of Microsoft, AWS, Dell, HP or Lenovo product.
“What’s the multiplier? What skills do I need? What competencies do I need to build? What business practices do we have to build out? MSPs did this successfully with security. And they have to be going deeper than that because security is only one of seven layers of the tech stack,” McBain said. “There’s obviously the data layer, the snowflakes of the world, and GenAI is becoming so big. There’s an opportunity there. You’re looking at the compliance layers and continuity layers. It’s about understanding the seven layers and building those skills.
“Look at a customer in that same frame,” he added “It’s not ‘How do make X (dollars) per customer; like how do I resell and make 20% of the deal, and then how do I wrap some managed services around it?’ It’s the other way around. You’re buying $100,000 worth of stuff from multicloud, hybrid cloud, to the edge. How do I charge $200,000 or $300,000? If I can get that on a monthly recurring, even better, divide by 36, and lock them in. But even if I can’t, those are rich, high-margin — like 75% margin — services that can be executed in a project. And until that customer agrees to start paying monthly for that project and never turn it off, I can just work on very profitable change orders. Let’s not get too caught up on trying to become 100% managed services, because it’s only one-fifth of the opportunity of my client.”
In many ways, vendors can use similar strategies to succeed in the new hybrid environment. Go to the next slide to learn how.
With services driving two-thirds of the IT market, software and hardware vendors need to have solid resell, co-sell, co-marketing, co-retention, co-development and co-innovation strategies with their channel partners to succeed, McBain said. He points to Microsoft’s partner point system as a good example of that model. Many MSPs hate Microsoft’s new certification requirements and dealing with the company’s marketplace, but those and other elements of the company’s new partner programs makes proven financial sense for the vendor, McBain said, adding that it has outgrown AWS 17 straight quarters and is now the second most valuable company in the world, behind Apple.
“Microsoft recognizes how important those partners are in getting the customer to the dance. They recognize that, in the old days, 90% of their business was resold, and today Azure is like 20-30%. In a marketplace, 24% of the [Microsoft] deals are partners clicking ‘buy’ on behalf the customer. They’re not the reseller, but that’s worthy economics because they literally have their finger on the trigger. There’s economic value in a point system, to recognize a partner that clicks buy in a marketplace, that walks the deal into Microsoft direct.
“If there’s one bad September for Apple, Microsoft will be the most valuable company,” he added. “And it’s because of their financials and how they’ve invested their program dollars.”
We’ve heard McBain’s thoughts on the growing tech/telco services markets. How do channel partners feel about their growth opportunities in the third quarter? Find out on the next slide.
The graphic above shows what channel partners think of their revenue growth prospects in the third quarter.
The graphic above shows what channel partners think of their revenue growth prospects in the third quarter.
For the first time ever, corporate and government spending on technology services will surpass spending on telecommunication services, a milestone that marks a significant opportunity for MSPs, other technology service providers and vendors. So says Jay McBain, chief analyst at Canalys, and the author of a report he recently posted on LinkedIn. With the right service models and partner programs, savvy tech providers can cash in by increasing their revenue, profits and customers.
That doesn’t mean telco now plays second fiddle. Telecommunications services still represent a huge and profitable business that won’t go away anytime soon.
“Telco services are $1.5 trillion. This isn’t just the old school copper lines and PBX and voicemail systems,” McBain said. “People have to communicate and collaborate across these ecosystems.”
But that ecosystem would not be complete without the technology needed to support today’s global industry, enterprise and SMB. Together, global tech and telco spending will hit $4.7 trillion, with 75%, or $3.5 trillion, sold through channel partners, according McBain’s report. Managed services accounts for $500 billion of that market, with 82% of end-user customers outsourcing some or all their IT, McBain wrote. MSPs represent about one-third of the IT services market.
Jay McBain: Massive Opportunity for MSPs, Other Partners
Canalys’ Jay McBain
“There’s a huge piece of the pie here (for MSPs and other IT service providers) which is two-thirds of $5 trillion in an industry that’s doubling,” he said. “That two-thirds is going to double as well. That $3 trillion in service opportunity today will be $6 trillion by the end of the decade.”
What follows are Jay McBain’s insights on how MSPs, tech service providers and vendors can make more money by adjusting their models to offer end-user clients and channel partners (in the case of vendors) the services and support they need to succeed in the evolving hybrid cloud computing environment. He also talks about the importance of FinOps as an MSP offering, the power of “multipliers” to increase revenue, the financial sense of Microsoft’s partner point system, and other tech and telco opportunities being fueled by the tremendous momentum in those dynamic industries.
See the slideshow above to get started.
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