MSP Business Models: Current State vs Desired State

Author: IT Glue’s Joshua Oakes
Author: IT Glue's Joshua Oakes

How much value do you provide for your managed services clients? If you’re selling commodity services, you will probably end up in a race to the bottom -- a counterproductive exercise where you willingly squeeze your own margins, and perpetually struggle to maintain profitability as a result. There is another way, and it starts with identifying opportunities to provide additional value.

Providing added value helps you switch the conversation away from comparing yourself against competitors on price, to comparing against competitors on service. When service is the area where you have clear, demonstrable superiority, you’ll get the attention of key decision-makers, the ones who know nothing about tech but understand how much downtime costs them. Let’s consider the current state of the business:

Current State

The current state reflects the philosophy of competing for business on the basis of price. The oft-repeated mantra of MSPs not being good at sales is reflected here. With an empty marketing pipeline, you want to convert on every opportunity, so you do whatever it takes to get the sale. Often, that means trying to counter price objections by lowering the price. The problem with that is now you have to figure out how to deliver service at a price where you can still be profitable.

The current state, unfortunately, does not align with the changes we are seeing in the industry today. Business-grade apps are moving to the cloud, which changes a few things, such as the need for more sophisticated password and identity management.

At the same time, there is also a heavy shift towards end user autonomy. A lot of users are simply working around the IT department, and enrolling in their own subscriptions, or loading apps onto mobile devices without IT knowing about it. The creates a challenge for any IT department or MSP that has poor visibility into security throughout the company. Anything you can’t secure is a massive vulnerability.

The current state isn’t great for the end user, who will now have an inconvenient authentication situation, trying to use dozens web-based apps, many on multiple devices. Without a true, smooth single sign-on process where this can be frustrating. As we all know, security is secondary to convenience, which is why we see poor password hygiene, or people not turning on MFA even when it is available. It’s not good for the MSP, either, with issues ranging from poor visibility into security practices to a neverending stream of password reset requests.

Desired State

The desired state sees the MSP provide increased expertise and value as service brokers. The MSP is no longer a middleman, and instead should seek to build deeper partnerships with their customers. Some of the best-performing MSPs that we talk to have taken exactly this approach -- they learn the business of their customers inside and out, and proactively find and deliver the right solutions.

By providing multi-layered services with a much higher degree of deployment and use, the MSP plays the role of trusted IT advisor. What we see happening is that MSPs with this approach get a better response to security implementation as well, because they’ve fostered a higher level of trust with the customer. That way, when the MSP asks for the customer to turn on MFA, for example, the customer is more likely to do so because the MSP has established itself as a trusted security advisor. And that really is where SSO fits in - by providing anytime, anywhere access for people, the conversation around IT changes, and IT is then seen an enabler of good things.

So where does all this lead? First, increased cloud deployment means that MSPs are evolving more towards a cloud services brokerage model. But they are also increasing the degree to which they are seen as strategic partners by their clients, more of a CIO-type role. Being viewed as a strategic partner makes your service a lot stickier, and moves you well away from that commodity, race-to-the-bottom business model. When you get to the point where you are actually helping technology to be a profit center rather than a cost center by making processes more efficient and your customers more productive.

When you reach the desired state, you’re providing a valuable service that is difficult to replace, and for which you can charge a premium, substantially enhancing your profitability.

Joshua Oakes is a content writer at IT Glue, which develops documentation software for MSPs. Read all IT Glue blogs here.