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Security rises to the top of the MSP agenda

Research from Datto and IT Glue provides a snapshot of how managed service players are reacting to the coronavirus

The impact of the coronavirus pandemic has not only hit managed service provider (MSP) growth expectations for this year but shifted the focus for many squarely on security.

A couple of pieces of industry research have revealed how Covid-19 has affected the MSP world and revealed that, although life has become tougher, there are signs that digital transformation is accelerating, and more users are looking to move their apps to a hosted environment.

Datto has issued its fourth annual Global state of the MSP report, and found that the pandemic has caused many to re-evaluate their growth expectations for the year. Prior to the crisis, the report found that, on average, MSPs were looking for 17% growth in 2020, but after the virus kicked in, 40% cut their projections by at least 10%.

In the short term, revenues might be threatened by coronavirus, but the longer-term changes introduced by the crisis should benefit MSPs. Datto’s report found that 57% of MSPs expect the use of on-premise servers for critical applications to decline over the next three years.

The report found that the top concerns for MSPs, after economic issues, were cyber security, work-life balance, sales and marketing, and hiring.

Cyber security concerns have shot up the agenda since the lockdown started because of the need for employers to protect staff who are working remotely at home. But that has also created opportunities for those able to deliver solutions in that area.

The Datto report also uncovered growing excitement across the MSP community for 5G technology, which should shake up the status quo with faster wireless speeds.

“While economic uncertainty is troubling for MSPs, it’s still a good time to be in the industry. Nearly 40% of MSPs reported annual revenue of $2.5m, demonstrating health and opportunity in the market. MSPs remain the cornerstone of our economy as they serve small businesses through the pandemic and beyond,” said Rob Rae, senior vice-president of business development at Datto.

Datto will be hosting its first virtual MSP Technology Day on Thursday 25 June, giving the channel a chance to get an even more up-to-date take on what’s happening from Bob Petrocelli, the firm’s chief technology officer (CTO).

Meanwhile, IT Glue, a Kaseya-owned IT documentation specialist, released its third annual Global MSP benchmark report, adding further insights into the current landscape.

The firm surveyed MSPs in February, but given what’s happened since, it returned last month to get a firmer grip on the current expectations.

One of the main concerns, shared by almost three-quarters of respondents, was that a second wave of Covid-19 would hit in the autumn and trigger a second damaging lockdown. There were also worries about customer churn, both during and after the pandemic.

The top concerns echoed the Datto findings, with security at the top, followed by customer churn, price pressure and fears of a second lockdown.

On the financial front, the virus has had an impact on revenues, with 51% reporting monthly declines and 29% finding that accounts receivable had increased, indicating more customers could not meet contractual deadlines to pay for services.

Covid-19 has also reduced the appetite for merger and acquisition activity, with the number of those considering acquisitions dropping from 52% in February to 37% in May.

“The pandemic has created an unprecedented landscape for all businesses,” said Nadir Merchant, general manager of IT Glue. “Our initial Global MSP benchmark survey in February provided an overview of sentiment among MSP professionals, but once the world changed almost overnight, MSPs needed data-driven guidance on how to adapt.”

Getting through the coronavirus crisis

The IT Glue report found that there were a few things that MSPs could do to navigate through the current situation:

  • A resilient workforce: MSPs have much lower rates of staff turnover, which is a positive given the pressure to attract and retain skilled staff.
  • Strategic customer retention: Customer churn is a concern, indicating that MSPs need to demonstrate the value and credibility of the managed services model through expanded service offerings that deliver tangible results for their customers.
  • Diversified verticals: In 2020, MSPs that focused on a specific industry experienced slightly higher revenue than more general MSPs (79% versus 75%). MSPs that targeted the following four industries in particular were more likely to report profits of 20% or more: legal (43%), government (40%), finance (39%) and professional services (38%).

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