About That 2019 MSP Boom – Why ‘Buyer Beware’ Needs to Be Your Default

By Adam Stern | VMblog.com

Industry executives and experts share their predictions for 2019.

We’re about to begin a year that will be marked not so much by profound technological disruption as by a notable shift in the cloud computing business – a scramble to monetize, piggyback and, in some cases, obfuscate.  That may sound harsh, but bear with me.

The trend concerns the evolving nature of the MSP (Managed Service Provider) market: who and what is driving it; the ways organizations – especially small and midsize businesses – can make sense of these changes; and how can they avoid being on the receiving end of agendas that have very little to do with what most SMBs need from cloud hosting providers.

MSPs have of course been around quite a while; the term has its roots in (late 20th Century) ASP lore.  But the size and scale of today’s MSP business suggests another animal entirely.  According toResearchandMarkets in Channel Vision Magazine, the managed services market is expected to grow from $152 billion in 2017 to nearly $258 billion by 2022, at a CAGR of more than 11 percent.  IDC estimates that worldwide whole cloud revenues will reach $554 billion by 2021, more than double where they stood in 2016.  The firm pegs spending on managed and professional services around cloud adoption as accounting for more than 30 percent of all cloud-related spending during the period.

I don’t regard this growth as organic.  The pump has been primed, vigorously, by some of the larger, publicly traded players in the business – actually, one in particular.  So while the MSP paradigm certainly isn’t new, here’s what is (and what will accelerate in 2019): Microsoft is driving sales through its partner model in unprecedented ways.  The cost of market entry remains absurdly low, enabling Microsoft to (indirectly) raise armies of mom and pops and other one-offs who hang out a shingle and see mutual benefit in selling Azure – in the absence of the kind of dues-paying, 24x7x365 infrastructure investment that bona fide cloud providers must have.  

Unpacking that last point: small-fry MSPs are opting to get into a business for which they’re neither prepared nor qualified, ostensibly competing against more established players who have made substantial investments over time (e.g., their own data centers) and recognize that this is tough stuff.  As cloud hosting becomes a check-off item for our newbies, local tech support is suddenly MIA. Azure is a complicated product, and just because a garage shop calls itself an MSP doesn’t mean that it’s a hosting provider.  Turns out that it’s all far more difficult than most realize, and the average undercapitalized MSP isn’t up to it.  Suddenly, folks who looked like wizards discover they can’t actually run a business.  Sort of like that guy Oz.    

MSP growth hasn’t been organic only because Microsoft is making garage-based MSPs an offer they can’t refuse.  The M&A community is also keen on bulking up MSPs, albeit for entirely different reasons.  As the marketplace tries to figure out ways to make bigger vendors, enter Wall Street intimating that a hosting company that is also an MSP has a higher valuation.  After all, stickiness sells.  Who can argue with that? 

In the year ahead, look for that echo chamber to fuel the mentality that MSPs are worth more if hosting is attached.  As a recent CloudJumper survey concluded, “ISVs seeking to expand software availability, delivery, and reach are augmenting revenue with service-based business units.”  Of course, just because MSPs have beefed up their portfolios doesn’t mean they know what they’re doing (see previous discussion).  And it’s on SMBs to determine if that’s in fact the case.  Caveat emptor. 

While this is my moment to read some tea leaves, I need to give a nod to Steve Andriole in Forbes for his take on Gartner’s take on the year ahead: 

Every list of annual predictions must include at least a prediction or two about cloud computing.  Add revenue-generating product development to the list: “through 2022, a fast path to digital will be converting internal capabilities to external revenue-generating products using cloud economics and flexibility.” Sure, why not? Is this a prediction or a reason to indict for failing to exploit an existing capability? Business units will exploit every aspect of cloud computing they can.  Obvious and silly. (https://www.forbes.com/sites/steveandriole/2018/10/18/gartners-strategic-predictions-for-2019-the-good-the-silly-and-the-weird/) 

So, as I say, it’s buyer beware time.  2019 is shaping up as the year of living vigilantly.

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