MSPs outperform the market next year

Druva Senior Vice President, Worldwide Partners and Alliances. Robert Brower has been looking at his Tarot cards and reached the conclusion that managed service provider growth will outperform the market next year.

He thinks that in 2022, service provider (SP) growth will be more aligned to helping customers achieve business outcomes at the same spend versus customers looking to SPs to reduce spend.

“A few factors play here: traditional value-added resellers (VARs) are pivoting to managed services, as customers are outsourcing more app and data services to software-as-a-service (SaaS) providers”, Brower said.

This forced VARs to realign to services that follow the market (identity, security, cloud management). Additionally, hyper scale and tier-one SPs have redefined economies of scale and can no longer grow based on price-in-market, so they grow by acquisition.

The result was that customers were forced to continue to pivot to third parties for service delivery. And, customers optimizing their OPEX/CAPEX as capital need to work differently post COVID, and shifting to high value, data-intensive IT and security work will mean moving low value run and operating costs to third parties.

Managed service provider (MSP) growth in 2022 is expected to outperform the market by almost 2x (MSP growth at eight percent, enterprise IT spend growth at four percent).

“MSPs should be on aligning to where the market is spending money (i.e. build your own service set and enterprise software) as buying and maintaining infrastructure is a losing game for MSPs because hyperscalers can do the same at lower costs and greater scale”, Brower said.

MSPs that partner with independent software providers (ISVs) that have the necessary certifications around security, auditability, and solutions and service delivery models that tie to the MSP’s GTM and consumption models will have the ability to achieve profit, safety and efficiency. Profit can be gained by aligning revenues with spend.

Safety can be achieved by working with ISVs that have market maturity and whose solutions have been demonstrated to be safe and secure at scale through use as opposed to marketing features that have yet to be tested in the real world. Efficiency can come in the form of working with an ISV that is incentivized to sell with the MSP rather than against them.

Brower thinks that VARs will shift more to managed services as the historic raised-floor business continues to become a smaller, more intensely competitive sales motion, investments in new services overlay on security (identity/authentication, ransomware recovery, breach) that replace legacy IMAC-based services are growth cohorts in the channel.

“There will be continued consolidation in the channel market for the following reasons: VARs without the skill or scale to shift to SaaS-aligned services will be acquired or shut their doors. Additionally, the VMware spin off opens re-acceleration of acquisition round(s) by ISVs given capital infusion to VMware and their position to become the Switzerland of the cloud”, he said.

Brower said that Channel partners should not expect good profits next year. Instead they should be modernising and security their business for the future.

“Consider the practical realities of the current macro state: supply chains will take years to recover from where they are now given COVID disruptions, the backlogs created, and the shifts in capital to resume moving goods (what used to cost $4000 a day to do currently costs $80K regarding freight movement); VARs with the traditional raised-floor business model for each customer will continue to be impacted by unpredictable fulfilment timelines, which decouples bookings from revenue and cash and makes business that much harder”, he said.

Customers impacted by COVID are exiting data centre ownership in flight to SaaS, hyperscale’s and MSPs, which is further impacting the traditional data centre VAR business model. The era of “sell servers and an array and software to the same customer every three years” is over, Bower said.