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MSP, SMB Technology Market Stabilizes, Regains Some Momentum

The MSP technology market — and IT service providers that support SMB customers — are showing resilience amid the coronavirus pandemic and associated economic fallout. Through background interviews with a dozen technology vendors and MSPs, ChannelE2E has pieced together these 10 MSP market updates…

1. Service Desk Trouble Tickets Subside: MSPs scrambled in late March 2020 to address customer trouble tickets — mostly involving urgent Work From Home (WFH) requests. Other than charging for laptops and other gear, most MSPs did not charge IT project fees for the WFH technology deployments. Essentially, MSPs gave away time/labor in order to keep customers happy and retain monthly recurring revenues (MRR). The bulk of that service desk noise has now quieted down.

2. MSP Requests for Help Subside: MSPs in late March flooded technology vendors with requests for discounts and payment flexibility. Generally speaking, the technology vendors dealt with the calls and requests on a case-by-case basis. In retrospect, many of the calls were “dial first, think later” requests from MSPs that simply wanted to be proactive. Take a closer look, and many of those MSPs were not in financial crisis mode, multiple sources say. Also, requests for help have slowed to a trickle.

3. MSP Consumption & MRR Stabilize or Increase: I’ve heard good things on both fronts. After a weak March and early April, MSPs began to consume more and more RMM, PSA, BDR and cybersecurity services in the second half of April. And May is off to a strong start. Also, MSP monthly recurring revenues are holding up well right now — although project work is weak.

4. MSP Valuations Hold Steady: Good news. MSP valuations are holding up well — according to sellers and even buyers. But there’s one big shift: Deal terms increasingly involve less cash up front, and more earn-out variables with one, two and even three-year terms.

5. Private Equity and Venture Capital Activity Evolves: Yes, PE firms are looking to snap up discounted assets. But poke around and you’ll also see VC firms preparing to invest in MSP-focused software companies. I’d expect details to emerge in late May or early June…

6. Cybersecurity – Some Challenges, Continued Opportunity:¬†We’ve seen some targeted layoffs in the cybersecurity sector — including cuts at software and MSSP companies. But we’ve also heard about growing momentum in multiple ecosystems. Winners include MSSPs that work with Fortinet in the SMB sector. And MSP-led deployments of SentinelOne endpoint security.

7. Lending – Bridges the Gap: The Small Business Administration’s first round of PPP (Paycheck Protection Program) loans triggered mass confusion and some big companies taking the money. The second round of PPP loans flowed a bit more smoothly — though fraud investigations involving some recipients have started. PPP chatter within the MSP community has growing increasingly positive, as quite a few IT service providers have received money to help cover near-term payroll. Plus, quite a few PPP alternatives have surfaced for channel partners.

8. MSP Conferences – Still on Hold: Yup, DattoCon20 Atlanta was just postponed. And hundreds of additional 2020 conferences have been put on ice. Some industry events have been rescheduled for August 2020 and beyond. Others won’t reappear until 2021. But the hard truth may look something like this: Roughly 50 percent of face-to-face technology events may not resume until 2022. Yes, 2022. I’ll share the background on that figure in the days ahead.

9. Remaining Problem Areas: No doubt, MSPs in certain vertical markets (retail, hospitality, food and beverage, restaurants) are hurting. And they will need to pivot hard into new service areas. Another big problem area: Office equipment dealers that offer managed print services (MPS) in commercial settings. The consumer printer market simply isn’t strong enough to offset the office slowdown, ChannelE2E believes.

10. Channel Research: If you’re looking for some hard data about the IT channel’s evolution amid COVID-19, check out The 2112 Group‘s latest research report — titled “Evolving Impact Of COVID-19 On Vendor Channel Programs.”

Bottom Line: I never want to describe the MSP market’s health as “all good” or “all bad.” The truth is always somewhere in between. Admittedly, I was concerned when some folks positioned MSPs as “recession proof” during the early days of the pandemic. Such statements simply aren’t true. But I was also optimistic about the overall ability of MSPs to weather the storm. Yes, there will be some business catastrophes. But most MSP houses will be left standing once the storm finally ends. And the best-built houses may ultimately grow into regional or national empires.

Stay healthy. Stay focused. And thanks for ongoing updates about your entrepreneur-to-exit journey.

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