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MSPs are Dead. Long Live MSPs

ChannelE2E has been online for two months now. And we just wrapped up our coverage of IT Nation 2015. So what’s different in 2015 vs. our previous visit to IT Nation in 2013 (ahem, our team and a certain $10 jacket were on hiatus in late 2014). The short answer is this: Some folks are doing well. But others are dead and they don’t even know it.

From where I sit, the MSP and IT channel landscapes look a lot like the U.S. economy. In other words:

  • The top players are pulling away from the pack. Faster. Better. Faster. Better. Upper-class MSPs are seizing the moment — and their unfair share of the money. They’re in peer groups. They’re at the top channel events. And they’re at events involving incubators, accelerators, big data and more.
  • The middle-class players — including middle-class MSPs — are falling farther and farther behind. And they don’t even know it.
  • The lower-class players are still attending all the same events and taking all the same notes they took two years ago. And then they’re failing to execute on all those conference notes and sound bites.

After PSA, RMM, BDR and Office 365

A large portion of the channel is just discovering PSA (professional services automation), RMM (remote monitoring and management), BDR (backup and disaster recovery) and Office 365 management tools.

Better late than never, I guess. If you’re new to those discussions you’ve been lapped (a few times) by the leaders. Avoid a standalone mentality. Embrace an end-to-end mindset immediately. In my mind…

Some emerging end-to-end trends I mentioned back in 2013 are accelerating now. A few examples: ConnectWise recently reorganized in an attempt to deliver that type of end-to-end capability; Autotask is preparing deeper software integrationsContinuum is doubling down on its outsourced IT services for MSPs; and LogicNow is extending into areas like big data tools.

Ask a Different Question

Bottom line: Step away from the individual tool discussion. Those days are absolutely done. They were done in 2013 or earlier. If you’re asking “What PSA should I run?” then you’re asking the wrong question.

Think about how you want to run every piece of your business. Consider what you’ll need to automate as much as possible. Think about how you’ll keep your finger on the pulse of your customers. If you were to build something from scratch to meet all of those needs… what would it look like? Then, apply that hypothetical picture to the solutions out in the market.

You may not find the perfect fit. But as Service Leadership CEO Paul Dippell and TruMethods CEO Gary Pica would tell you: It isn’t about the one tool you choose. It’s about your total commitment to total automation.

What Are the Best MSPs Doing?

The best MSPs, meanwhile, are doing well.

George Mach

George Mach

An example: Apex IT Group has some of the highest profit margins in the MSP industry (yes, ChannelE2E has seen the financials). Led by CEO George Mach, the company focuses like crazy on culture and front-end automation to vastly reduce the resulting number of help desk tickets it needs to manage. By the way, TruMethods CEO Gary Pica and CTO Bob Penland are financial partners in Apex.

Meanwhile, an MSP in the Minnesota area is quietly buying up peers in a bid to grow each business unit from a $2 million base (rough figure) to a $10 million goal.

The potential result: 10 individual MSPs (total revenue: about $20 million) could become one big MSP with $100 million in annual recurring revenues over the next several years. Admittedly, all the pieces still need to fall in place. As does plenty of execution. I’ll share more details when the CEO is ready to talk on the record with ChannelE2E.

Shael Risman

Shael Risman

Another example: Pace Technical Services in Toronto, which is focused on talent, talent, talent acquisition even as giants like All Covered buy their way into the local market with the IT Weapons acquisition (congrats again, Ted Garner). Pace CEO Shael Risman budgets for headhunter services to make sure he always has a great pipeline of recruits lined up…

Data, Applications and Peer Groups in a Post-Server World

michael drake

J. Michael Drake

The best MSPs have the right data at their fingertips — and they know their numbers. As masterIT CEO J. Michael Drake has told me for years, “We measure everything. Then we strive to beat those baselines.”

The best MSPs continue to huddle in peer groups. Names like HTG Peer Groups, TruProfits, Service Leadership Inc. and Ingram’s TrustXAlliance (formerly VTN) come to mind.

But here’s the thing. Even some MSPs in peer groups are falling behind. They are so busy trying to get the basics right that they can’t make any giant leaps forward. And the opportunities to make a leap are emerging daily.

Here’s an example: Some MSPs are just now waking up to Office 365 cloud management. Memo: You’re about two years late to the game. Get going and figure out how to monetize across both Office 365 and Microsoft Azure.

Meet Microsoft. Again

Azure is the next big platform wave for MSPs. Why? Because Microsoft has CIO relationships… while Amazon generally does not. And those CIOs want to push beyond SaaS (i.e., Office 365) to move workloads onto Azure. At some point, SMBs will embrace similar thinking — if you educate those SMB customers starting now.

mj-shoer

MJ Shoer

And as I discussed last week with Jenaly Technology Group‘s MJ Shoer, at some point Microsoft will offer the channel bundles across Office 365, Azure… and Microsoft Surface. Some MSPs — like Arterian — are ahead of the managed Azure trend.

A few other technologies to watch closely:

  • Docker, which just announced a new monitoring dashboard (Unified Control Plane) for Docker containers.
  • LogicMonitor, which has an infrastructure monitoring platform for midmarket MSPs.
  • New Relic, a monitoring platform that can pinpoint cloud application issues — right down to one bad line of code that’s screwing up your customers app performance. The company is growing like a weed and just announced a New Relic partner program.
  • Cisco’s Cloud and Virtualization Group today confirmed plans to offer Moogsoft’s Incident.MOOG service quality and productivity improvement software to MSPs, telco service providers, and cloud-driven enterprises. As part of the move, watch for Cisco and Moogsoft to promote so-called Virtual Managed Services.

Application Performance Management and DevOps

Oh, and I don’t think MSPs are becoming cloud service providers (CSPs). Instead, I still think cloud is a subset of the MSP discussion. After all, cloud is only one piece of your service delivery catalog. But it’s time to refresh that catalog…

If there’s one managed service I’d bet on for the next five years it’s this: Application Performance Management (APM) in the post-server world. And I’m not referring to Office 365 or Google Apps.

Instead, I am referring to applications running atop IaaS from Microsoft Azure, AWS, IBM SoftLayer and perhaps Google Cloud Platform. Or on-premises, where CA Technologies points to the emerging application economy. MSPs that understand customers’ DevOps needs — the continual delivery of software innovation — will seize the APM and application economy opportunity.

The natural temptation is to pursue one tool — a magic bullet solution — that helps you to monetize APM. Stop chasing standalone tools. Take a step back from your business and look at your overall approach and goals. It’s time to decide if you want to lead, follow or get out of the way.

Time to Ante Up

I think we’re moving to a winner-take-all IT channel. Where the MSPs and VARs that lead — about 20 percent of them — will run away with 80 percent of the profits. Those that follow will get the scraps and fall further and further behind. Those that get out of the way will go dark.

If you’re not willing to ante up it’s time to get out of the game. MSPs and VARs holding tight to point solutions and 2010 business practices are dead. Long live MSPs and VARs focused on end-to-end solutions and services, with a heavy dose of application performance management entering the picture now.

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4 Comments

Comments

    Vince Timnirello:

    Great article Joe. You always scare me just enough to keep me focused. I’m hoping we’re in that 20% of leading MSPs! Kept passing you in the hall at ITN and I gave our friend JE some grief for letting me dine alone at the seafood restaurant bar while you, Shael and Gary were yucking it up in the dining room! Thanks again for a great article.

    Michael Proper:

    Reminds me of our conversations around the inevitable transition from the dying MSP model to the new HSP model. Here is the profit margin slide we discussed. https://www.clearos.com/images/hsp-margins.png

    Fun times! 🙂

    M~

    Jay McBain:

    Joe, you have a special gift of condensing dozens (hundreds?) of conversations into one very powerful (and well researched) message. This article needs to be required reading for every MSP and MSP vendor.

    Keep up the great work.

    – Jay

    Joe Panettieri:

    Hey Michael: Always great to hear from you. Thanks for all the briefings over the years. I don’t think the MSP model is dying. I just think the services portfolio needs a refresh.

    Readers: Before his current company, Michael led a top-ranked MSP around 2008. I tracked his work pretty closely at the time and really learned from the conversations.

    Hey Vince: A healthy paranoia is good for any industry (MSPs… even media, where digital has been changing the game since the birth of the web browser). Long live the paranoid. And thank you for reading ChannelE2E. Sorry if I didn’t take a moment to say hi at IT Nation. You can always ping me at work: Joe@AfterNines.com. Would love to catch up and hear about your business journey.

    Hi Jay: I was going to attempt to write a long, insightful reply. Then I remembered advice I heard from a teacher decades ago… “Just learn how to take a compliment.” With that in mind: Thanks so much for your note. -jp

    Best,
    -jp

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