The market for managed services in IT is growing fast. According to analyst, Markets and Markets, the global market for managed services will have grown from $107.17 billion in 2014 to $193.34 billion by 2019, at a compound annual growth rate (CAGR) of 12.5%.
Research by Kaseya confirms this trend. Of the 900 managed service providers (MSPs) from 50-plus countries who took part, more than a quarter (26%) reported that their average annual Monthly Recurring Revenue has shot up by more than 15% over the last three years.
Yet the results demonstrate how, within the MSP market, growth is not uniform. Some MSPs are boosting revenues by considerably greater percentages than their rivals. The question is: what is behind their greater success and what can the rest of the market learn?
A key finding is that the high flyers are consistently offering more services, from basic support to high-end network monitoring. Some have been affected by mergers and acquisitions, but mainly it’s because they have seized opportunities to diversify and add to their portfolios – particularly those surrounding the move to the cloud.
It’s also clear that MSPs offering comprehensive product suites can charge premium rates. Those still offering little more than the bread and butter – back up and disaster recovery (DR) – are lagging behind.
But even this is open to closer examination. The research uncovered the fact that high-growth MSPs more frequently offer a choice of different backs ups – namely cloud-to-cloud, onsite-to-onsite, cloud-to-onsite and onsite-to-cloud. Interestingly, high growth MSPs are 43% more likely to offer cloud-to-cloud backup. The secret of success in backup and DR then, is to look to the cloud and have plenty of options to offer.
High-growth MSPs offer more options around security too. Of ten different services covered in the research, the more successful MSPs offered each more frequently than the lower-earning set. When the mean number of security-related services on offer were examined, the picture becomes even better defined. It is the MSPs with larger revenues who are offering more.
When MSPs were asked what was the most important problem for their clients in 2017, ‘meeting security risks’ came out on top. But looking deeper into the results, it’s apparent that cloud and security are intertwined as concerns. As such, the top MSPs will be sensitive to these issues, and will proactively look to address customer anxieties.
So far we have found that wider service offerings bring higher rewards. It’s not so much of a surprise
then when this pattern is repeated when it comes to network and infrastructure monitoring. Or that high-growth MSPs are scoring plenty of hits with network operating centres (NOCs), another emerging service category. For example, 47% of high-growth MSPs report that they are offering NOC services around the clock, compared with just 27% of those with lower growth.
It’s worth pointing out here that we shouldn’t confuse growth with size. Our research shows that high growth can be achieved by small companies with only a handful of employees, so smaller operators are not being shut out from achieving prolonged growth, nor is rapid expansion purely the province of new ventures starting from scratch.
So from this survey we can surmise that what higher growth MSPs are getting right is giving the market what it wants. If the SMB sector is moving towards cloud applications and services, these MSPs have responded by developing cloud monitoring expertise. Similarly, if 24-hour NOC operations are required, small MSPs can use an outsourcing option to ensure they fulfil client demand.
Aim high, price fair
Targeting larger clients to achieve higher revenues may seem obvious. Only 40% of higher-growth MSPs in the research have a majority of clients with 25 or fewer employees, compared with 55% of those building revenues more slowly. Yet a small MSP can successfully serve larger clients through hardware standardisation, the development of remote monitoring and the addition of some smart automation.
Lower growth MSPs may also need to learn lessons from the high flyers about receiving fair recompense for their services, particularly in relation to the cloud. For example, 10% of the more upwardly mobile MSPs in the research are charging in excess of $2,000 per month for cloud monitoring services covering 25 devices and 2,500 metrics. The comparable figure for their lower-growth counterparts is only 4%. A similar picture is found across a range of service delivery indicators.
High-growth MSPs are also more likely to have increased prices in the last year. Fifty percent said they had done so for 16 out of 20 possible services, compared with lower-growth MSPs that only reported increasing prices for two of the offerings. When it comes to increasing prices in the year ahead, higher-growth MSPs said they were likely to do so in relation to a far greater range of services.
It’s a lesson that emerges loud and clear from our research. There will always be some businesses that are better positioned to take full advantage of a positive market than others. But our high-flyers are clearly more confident, taking the lead in offering a comprehensive range of high-value services and being bold but fair about the price. They show that they deserve the high rewards by going the extra mile for their clients.
By Mike Puglia, Chief Product Officer, Kaseya