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How Many MSPs Are There? (Or: Why Your Market Size Forecast Is Wrong)

A few times a week, sources ask me about the overall MSP market size — here in North America as well as worldwide. From 2008 to 2014, I provided steady answers to that question. Then I took some time off. Then I returned to the market in September 2015 — and started answering the question again.

But now I’m done. Why? Because the question is no longer relevant. Each time a vendor or private equity firm asks me, “How big is the MSP market?” my standard answer is now this, “Plenty big. And you’re asking the wrong question.”

Here’s why:

1. Yesterday’s MSP Isn’t Today’s MSP: The line between VAR and MSP is gone. Most VARs are adding some sort of managed services component to their business. Heck, even ISVs are becoming MSPs — managing SaaS applications in the cloud for customers.

2. Most MSPs Fly Below the Radar: The size of MSP remains a very relevant discussion. Private Equity firms typically want to buy MSPs with $20 million or more in annual recurring revenues (ARR), with EBITDA profit margins of 20 percent or more. But for the most part those MSPs don’t exist. Based on my own market research since about 2008 to present, I suspect there are fewer than 500 MSPs worldwide that generate those types of revenues. And in many cases, they’re hosting, colocation, cloud or SaaS companies that extended into managed services. They’re not your home-grown MSP.

3. Sure,  You Could Do “Some” Math: Simply add up all the MSPs running platforms like SolarWinds MSP (20,000 across N-able and LogicNow), ConnectWise (over 10,000 but I need an update), Autotask (9,000) Continuum (5,800) and the list goes on. You could get some “rough” numbers from those firms and other SMB-oriented companies that work with MSPs. But what about midmarket and enterprise MSPs that are running FinancialForce, LogicMonitor, ServiceNow and dozens of additional options? The point is, you can make the true market numbers as big or as small as you want — depending on the segment you’re truly targeting.

4. You’re Truly Asking the Wrong Question: Instead of asking, “How big is the MSP market?” vendors and private equity firms should ask, “Do I really have the stomach to target this market?” A range of PSA (professional services automation) and RMM (remote monitoring and management) companies help to pioneer this industry. Software giants — names like Symantec, McAfee and even Microsoft — have jumped in and out of this market multiple times over the past decade. They often didn’t have the stomach, financial model and support model to engage, onboard, train and retain MSPs.

5. I Typically Don’t Believe Third-party Market Research: Plenty of third-party market research will give you multi-billion-dollar forecasts for the MSP market. The problem? Many of those forecasts include traditional hardware and software sales into managed data centers. Others include telcos offering managed services. And still others lean heavily on massive global integrators (Accenture, Atos, CSC, etc.) that offer managed services. Instead of looking at the whole pie, it’s far wiser to zero in on the segment you want to reach. And I’m confident to say the small business, midmarket and enterprise segments each are plenty big enough to support more vendors.

Everything You Need to Know About MSP Market Size

So, the bottom line:

  • Generally speaking, the MSP market is big enough to support your [insert product name] launch.
  • Certain segments are really crowded with competition, so you better know how to differentiate.
  • Your board of directors and C-suite should carefully consider how much time, money and staffing it will requite to truly build an MSP partner program. Then, take your early cost estimates and double or triple them.

If you’re still game, the MSP market awaits you. Only, it’s no longer just the MSP market. Instead, managed services are starting to blanket the entire channel… Because monthly recurring revenues trump everything.

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7 Comments

Comments

    Brendan Cosgrove:

    Spot on!

      Joe Panettieri:

      Hey Brendan: Thanks for the vote of confidence in our carefully analyzed numbers and figures. Kidding aside, thanks for the ongoing readership. And for the role you played in helping to inspire ChannelE2E’s launch.
      -jp

    Jay McBain:

    I get your point Joe, but one of my frustrations is that the more experienced a person you ask a question to, the more the answer is “it depends”. Just listen to any expert panel in any industry.

    Why not answer: we have about 500,000 global IT solution providers (of all types) with about 30,000 of them delivering over 50% of their business as recurring managed services. Now let’s break down the numbers to make it relevant for you…

      Joe Panettieri:

      Hey Jay: You’re framing the the question/conversation in the “right” way for the “right” reasons. I guess my point is this: A lot of people ask the MSP market size question simply because they want a “green light” to enter the market. But they don’t necessarily do the right research to make sure they’re committed to succeeding in the market.

      -jp

    Ted Hulsy:

    I don’t know what all this debate is about. Here is the answer: http://channelcheck.squarespace.com/journal/2012/2/3/msps-i-counted-every-last-one-of-them.html

    Ted Hulsy:

    In all seriousness, I have a new data point from the folks who sell data and targeting for a living. The folks at LinkedIn have further micro-segmented many industry sub-verticals, most of which are high value verticals (read rich in ad dollars). They claim there are 39,000 MSPs in the US and UK markets combined. One more opinion on the facts. 🙂

    Joe Panettieri:

    Hey Ted: Thanks for the link and multiple data points. Good food for thought for all readers.
    -jp

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