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With IT spending among small to medium-sized enterprises (SMEs) predicted to enjoy a significant increase, the role of managed service providers (MSPs) is becoming increasingly important as
smaller businesses seek to adopt more managed services.
Cloud, virtualisation and automation have created a delivery platform that makes the provision of managed services to smaller businesses much more cost-effective and efficient. But what can MSPs do to ensure they make the most of the SME opportunity, and how prepared are they to support SMEs as they shift spending to managed services?
One attractive option for MSPs has been to link up with cloud service providers (CSPs) and effectively act as resellers in a cloud brokerage model. But this model is questioned in a report
commissioned by Asigra from Enterprise Strategy Group (ESG), entitled Trends in creating MSP value – a 2020 view.
The report acknowledges that the CSP cloud brokerage model has made steady gains in the partner community because it makes the transformation from reselling products to a services-led model easier for VARs. “Many partners have embraced this option as a way to begin their transformation,” it says.
ESG channel acceleration practice director Kevin Rhone warns that by adopting the CSP approach, MSPs surrender “control over very important considerations, such as creating differentiation around technical, market and application specialisations; cultivating, expanding and protecting the customer base around this differentiation; setting the branding, terms and levels of unique as-a service offerings”.
Asigra executive vice-president Eran Farajun claims MSPs are beginning to rethink their vendor relationships as they discover the financial and control pitfalls of the cloud brokerage model. “The problems start with recurring revenue declines and end with customer depletion,” he says.
According to IDC, the compound annual growth rate for IT spend by SMEs in Europe, the Middle East and Africa (EMEA) between 2018 and 2023 is expected to be 3.8%, compared with 2.7% for the market overall. The IDC definition for SMEs covers businesses with fewer than 500 employees – these accounted for 35.8% of IT spending in EMEA in 2019. The rise in IT spend by SMEs is expected to give a boost to managed service providers, especially as smaller businesses move to the cloud, automate services and explore advanced digital technologies.
Naima Camara, senior research analyst at IDC, says SMEs face a technology trade-off between high prices, complexity and more customised functionality as they become more inclined to opt for value-based managed services. This creates a growing opportunity for MSPs, she says, as SMEs create and maintain system infrastructure because many are not able to develop those capabilities in-house.
SMEs are also more at risk of cyber crime than enterprises, face significant budget constraints and need to maintain compliance and data protection laws, says Camara, adding that MSPs can play a part in filling the skills gap experienced by SMEs and facilitating innovation and adoption of advanced digital technologies.
Nevertheless, the scale of the SME opportunity for MSPs was illustrated in a Datto survey of small businesses in the UK, Netherlands, Germany, France and Australia, which found only three in 10 SMEs were outsourcing some or all of their IT needs. That suggests there’s an awful lot of untapped potential out there.
But Mark Simon, Datto’s EMEA managing director, says MSPs can’t take that “massive opportunity” for granted. If they want to avoid missing out, MSPs need to differentiate themselves,
One way of achieving this would be to provide a unique service or support their clients in a way their competitors are not. It’s important MSPs don’t lose sight of the impact going the extra mile for a client can have – in the same survey, UK SMEs reported quality of service as the number one motivator when choosing an IT provider,” says Simon.
Jacey Moore, chief marketing officer (CMO) at cloud services provider Giacom, agrees that MSPs need to stand out from their competition if they want to make the most of the SME market.
“To do this, it’s important MSPs understand what makes them unique – what are their USPs [unique selling points] and specialisms? With industry knowledge and the ability to offer expert
advice and additional training, MSPs can meet, as well as surpass, the growing needs of SMEs,” says Moore.
Whatever Asigra might say about the cloud brokerage model, Moore is keen to talk up the role of cloud service providers in helping MSPs make the most of the SME opportunity. “This relationship should be collaborative,” she comments, “with the CSP supporting MSPs in every step of the process, from the technical expertise to the commitment to building a market and closing a deal.”
SMEs represent a significant market opportunity, but MSPs must remain competitive when it comes to cost. “SMEs don’t want to overpay for a service, as they have much tighter budgets than
enterprises,” she argues. “By offering a flexible pricing model or free trials and discounts, MSPs can build a transparent and honest relationship with SME customers from the beginning that will
provide the foundations for ongoing valuable business opportunities.”
MSPs can also break down their subscription-as-a-service model into “easy and manageable chunks” so customers don’t find themselves overloaded by their monthly subscriptions.
“MSPs should work with their CSP to deliver a bill that’s easy to understand and a billing process that is seamless from beginning to end. The SME opportunity is huge – and this is why you need to take advantage sooner rather than later,” says Moore.
Kaseya’s chief customer officer, Mike Puglia, says MSPs “need to have a winning combination of stellar customer service and leading-edge service offerings to differentiate themselves and meet the evolving needs of the SME market”.
He believes automation is key. If they use technologies that allow them to automate tasks, MSPs “can better scale their business to take on more clients while simultaneously enabling their
technicians to perform for higher-function, higher-value services that generate greater revenue for the business”.
Puglia highlights the need to invest in growth areas such as the General Data Protection Regulation (GDPR), ransomware, data breaches, backup and security for MSPs to be better positioned to meet the critical yet varied needs of SMEs, and open new doors to expand their business.
“By investing in new revenue-generating services, MSPs can provide more services to existing customers and attract new clients whose IT needs match the portfolio of services the MSPs can
offer,” he says.
Along with differentiation, MSPs have also been advised to steer clear of a one-size-fits-all approach to the SME market.
“One of the main challenges for MSPs is not to view SMEs as a monolith,” Camara warns. “There are significant differences between the demands faced by this segment depending on digital
maturity, particularly when it comes to cloud adoption, region and industry. A one-size-fits-all approach would not be sufficient in taking into consideration the differences between startups, scaleups and SMEs.”
It’s a point echoed by Jon Lucas, co-director at Hyve Managed Hosting, who says MSPs should provide solutions that fit best with their business objectives, as a one-size-fits-all policy will not
work. “While services such as cloud, virtualisation and automation must be cost-effective and efficient, it is up to MSPs to make certain they support SMEs as they shift spending to managed
services,” he says.
Mav Turner, vice-president of product management at SolarWinds, agrees that MSPs have to avoid a one-size-fits-all approach because they need to understand where SMEs are in their business
lifecycle and where they want to go.
“MSPs should help manage the pace of technological change for customers, especially since many of them won’t have the in-house resources such as skilled IT staff to support this,” says Turner.
When it comes to cloud services, for example, MSPs should help SMEs to consider the risks associated with each solution.
“SMEs might not understand some of the potential cloud security risks and MSPs need to prepare them with the appropriate technologies and processes to be successful,” he says. “This presents an enormous opportunity for MSPs to sell security as a differentiating factor.”
Security is an important consideration for MSPs. “In the realm of cyber security, SMEs will seek to partner with MSPs to ensure they get security right as the demands on their organisations increase in complexity,” says Camara.
Turner suggests that to be effective for SMEs, security solutions need to be easy to use and manage. “If it is too complex, users may be reluctant to use it, or worse, it might put their data and business at risk. Usability needs to be factored into the trial process to ensure the solution has the impact the SME expects and is used appropriately,” he says.
Jason Howells, director of international MSP business at Barracuda MSP, believes the need from SMEs for more sophisticated security will be a large driver in a shift to utilising MSPs. “MSPs are in a position of strength when it comes to addressing and supporting the security requirements of SME clients,” he says.
When it comes to offering security as a managed service, Howells says MSPs should take the time to understand what is needed. “A multilayer email security solution should contain user security awareness training, fraud protection, email resiliency and a gateway defence,” he says. “MSPs need to think about implementing policy management and automated patching to support and enhance their users’ security posture.”
But, adds Howells, it’s important to ensure that they cost their security services so customers see enough value in these to pay for them. With a shortage of security expertise, “outsourcing to a
trusted MSP is increasingly becoming the logical option”.
Datto’s Simon says MSPs have to prove their own credentials if they want customers to entrust their security to them. “To ensure preparedness in supporting SMEs, it’s crucial MSPs first
prioritise protecting their own systems and infrastructure,” he argues.
“In an environment of increasing complexity, cyber security is top of mind for businesses of all sizes, and it’s surely going to be a priority for an SME seeking an MSP’s support. Show your
clients and prospects that security is a priority for you and your business and how you’re protected – and thus, how they’ll be protected.”
Andrew Lashley, chief client officer at EACS, concurs, pointing out that providing effective security services enables SMEs to concentrate on their business with confidence.
“The most successful of MSPs will be those that drive service excellence as a given, but at the same time focus on security assurance, to enable the SME to focus on growing its own top line business,” he says. “The biggest risk for any SME at the moment comes from the cyber threat, and only MSPs that really understand how to manage this ongoing and developing threat can really help SMEs in their next phase of development.”
Service is another important consideration. “The key thing for MSPs to consider is that working with SMEs can’t just be a sales-driven process. It does not happen by throwing an account manager at them and expecting it to just work – it needs true relationship management and good old fashioned demonstrable customer service,” says Lashley.
Datto’s Simon warns that SMEs don’t want to feel like they’re just another source of income to their providers. “Get to know the nuances of your clients’ businesses and be mindful to use those to mould your approach. This will make the client feel seen, heard and supported,” he says.
Part of that is for MSPs to make sure they have the right offerings, processes and talent in place, notes Kaseya’s Puglia. “Before MSPs can begin to go out and acquire new customers, they need to assess their own capabilities to match their service offerings and business model with the right clients,” he says.
If there is a skills gap or lack of a service offering that is in demand, “owners should take a moment to assess how they can possibly address this deficit so they don’t miss out capturing more market share”, he adds.
MSPs also need to market their abilities through the relevant channels to reach target customers. Even though SMEs are looking for help from MSPs, says Puglia, there’s a lot of clutter to break
through for a prospect to discover your business. MSPs need to actively market their business to get the attention of SMEs.
“Once the prospect is ready to sit down and talk, have an honest conversation,” he says. “Ask questions that will help you understand the SME’s challenges and pain points, as well as their
priorities and budget. Then you can create a strategy that gives the customer options with clearly defined goals and metrics for success.”
Matthew Brouker, general manager for infrastructure and security at Six Degrees, agrees that MSPs need to adopt a consultancy-led approach to every SME engagement. He argues it’s the job of
MSPs to deliver the leadership and guidance that enables SMEs to get technology working for their businesses – not the other way around. “By dedicating ourselves to working collaboratively and retaining a thorough understanding of the verticals in which we operate, we will be able to demonstrate the credibility, trust and track record to make the most of the SME market opportunity,” he says.
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