The global MSP industry was valued at more than 161 billion USD in 2021 and is expected to reach over 300 billion by 2027 (Research and Markets). With a compound annual growth rate (CAGR) of more than 12 percent, the opportunity is unquestionable.
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Industry experts agree a new generation of managed service providers (MSPs) is emerging at an unprecedented rate. But how can MSP companies keep up? Where should they be setting their sights so they don’t miss out on this next big wave?
In this article, we hear from Vendasta’s own Andrew Down, Director of Sales, IT Channel, on the biggest trends and opportunities in the MSP industry in 2022.
MSP companies are expanding their offering by adding digital
In a survey shared at Channel Futures MSP Summit in April, managed service providers identified the single greatest challenge they faced in 2021: expanding their customer base.
According to Down, MSPs often lack the confidence and knowledge they need to not only market their own offering to prospective clients, but to branch out and offer an expanded tech stack of digital solutions. These products are ones that small and medium business (SMB) clients are already asking for.
At the recent MSP Summit, so many leaders were speaking about this theme of convergence of the channel. I believe in the next three to five years, every MSP will offer digital, and every agency will have an IT service or MSP component. I think the companies that win will truly be a technical resource for their SMBs.
It’s a trend that CEO and Co-Founder of the MSP Growth Coalition Juan Fernandez feels is a direct result of the pandemic and the trusted relationship SMBs have with their IT providers.
“Managed service providers or technology solution providers were the foundation for small businesses in the quicksand of the pandemic. The pivot to enable the remote workforce and learn about appealing to the modern buyer are conduits to guide us toward these new offerings. That's really where I see a lot of convergence happening,” says Fernandez.
Combatting MSP industry retention
Retention has been identified as another top challenge in recent months. The MSP industry as a whole has been battling to hold on to both customers and staff.
“The uncertainty of the pandemic has definitely impacted many SMBs across North America. I think the biggest reason you're losing business is because you don't have a customer-centric offering,” says Down.
Retaining the customer
By offering more to their local business clients, MSPs are making that relationship much “stickier” or stronger than if they were to only offer a single-point solution. A Vendasta study analyzing data from more than 200,000 SMBs showed experts providing four or more products to their clients were 80 percent more likely to retain that business year over year.
“The beauty of Software as a Service (SaaS) is not only the recurring monthly revenue, but those subscriptions make it much harder for a small business to leave. The more you can offer, the more you diversify, the better. MSPs are already tending to a business’s technical and security needs, why not host their website, provide digital expertise, and more? It really will make MSPs the core pillar of a local business,” says Down.
MSPs, as a whole, aren’t just replacing hardware anymore; they are the trusted experts solving a problem for the businesses they serve. According to Fernandez, it’s a very interesting time. He says MSPs have the opportunity, right now, to mold what they want their companies to become in the future.
“Instead of an MSP providing a customer with a new server, a firewall, and a laptop, we’re evolving. I see a lot of MSPs finding their niche offering advisory services to their clients on the best way to do business and set up operations in a new remote world,” says Fernandez.
How MSP companies should adjust for challenges with employee retention
With job resignations in the US still up 23 percent above prepandemic levels, both Down and Fernandez agree that automation will be one of the biggest ways MSPs can combat the labor shortage (CNBC). The recommendation is to automate as many processes as possible, leaving staff to manage the person-to-person interaction needed in sales and build relationships with clients.
“Another way to tackle the shortage is through outsourcing where it makes sense. Digital can be a stretch for some MSPs, but rather than worrying about launching a new division or hiring, you can outsource fulfillment of marketing services like website development. It’s a very low-risk tangential revenue add-on to your IT services. You don't have to hire anyone, and you don't really pay until you sell that service and need it,” says Down.
Robotic process automation and the MSP industry
Employees spend more than 25 percent of their time searching for the information they need to do their jobs (The Economic Times). Not only does robotic process automation (RPA) cut down on the amount of manual labor you need to run your business, but, by automating, you’re creating a working environment where the toils of manual tasks are eliminated. This allows staff members to focus more time on their areas of strength.
“Every time a client purchases a product or service, you might have a lot of folks who have to get involved after that. Everything from delivery, to billing, to invoicing and manual paperwork. You can automate all of that today. From our perspective, that's why we've built our automations platform at Vendasta,” says Vendasta CEO Brendan King.
Not only can RPA cut down on operational inefficiencies, but there may be an opportunity for MSPs to leverage the technology for the benefit of their clients as well.
“The same way a local business might set up their point-of-sale system, or their delivery system, or their alarm system, or their internet, local businesses can lean on a trusted expert to come in and set it up for them. By automating the process you can help make the business work better,” King says.
Selling to the millennial market
As millennials continue to carve out their career paths in the business world, they come with their own set of expectations and preferences. MSPs will want to keep those preferences top of mind as millennial professionals make their way into decision-maker roles more and more.
This generation wants point, click, and touch as they emerge into leadership. You're starting to see the requirement. If you're not pivoting toward those buying markets and those mechanisms, you're not gaining traction with the new types of buyers. As you start to think about who the modern buyer is and position your program or product around it, you have to be cognizant of what and how they want to buy.
According to Down, MSPs will need to lean into Workspace and other Google products in order to appeal to a younger buyer and survive long term.
“A generation of millennials and younger people are becoming the business owners of today, and they've been raised on Google,” says Down.
Fernandez agrees, backing up this important turning of the tides in the MSP industry: “Younger buyers who learned on these types of products are now emerging into the workplace, and they're wanting what's comfortable to them. That's why I think we're seeing a lot of that adoption, and I anticipate that it's going to be even more so in the near future.”
Cloud marketplaces at the top of the managed services trends shortlist
Eighty percent of B2B sales interactions between suppliers and buyers will occur in digital channels by 2025, making cloud marketplaces a must (Gartner).
“If you remove friction points from your solution or offering, you make it a more pleasant experience and clients know what to expect,” says Fernandez.
More and more frequently, Down says he’s coming across IT organizations that have ecommerce built into their website and are offering software through a cloud marketplace. Vendasta’s Marketplace gives MSPs the ability to launch a brandable client-facing store, integrate their own products and services, and pair them with a curated tech stack from more than 250 trusted solutions.
“We're bringing in more vendors every day that speak to the challenges and business problems that MSPs are solving, it’s definitely an exciting time,” says Down.
The MSP industry is evolving
According to Down, more and more MSPs are coming forward with digital offerings and add-ons, and more agencies are also branching out to offer some IT services.
“I really think in a couple of years, we won't be able to tell the difference. Our partners will evolve to all become technical companies providing IT solutions that include digital, hardware, and software to local businesses that need them,” says Down.