The State of the MSP Market

Study Specifics

Survey respondents were evenly divided between a small-medium enterprise and enterprise-customer focus. The survey showed that most are horizontally focused, and almost half market their organizations on an annual budget of $100,000 or less. That is an important finding; it means marketing success comes from vertically focused programs, such as industry-specific seminars or vertically focused direct marketing and ads. General-awareness advertising and branding, which includes radio, broadcast television and most general-business advertising, is neither successful nor cost-effective. Rather, success comes from pragmatic efforts such as telemarketing, referral marketing and pilot programs with customers. Industry-specific or IT-focused public relations and outreach programs are key.

The survey also revealed the top three sales techniques of effective MSPs, in priority order, are customer references, solution demonstrations and ROI tools. Based on this feedback, the GMN recently developed and released an MSP-specific ROI toolkit. Since its December completion, members have already reported the toolkit's benefit in several significant contracts and sales.

The most notable finding in our research is,as industry observers have long suspected,the majority of today's MSPs were formerly systems integrators or VARs. Fewer than one-third of the MSPs we spoke with actually started their current organizations with a pure-play MSP focus in mind.

Additionally, GMN respondents are finding that profit margins in the MSP model provide them with a beneficial economy of scale. Margins are better when MSPs can leverage the services of a central-operations center. Monitoring software and automated management can provide clients with much of their billable maintenance and support. As conventional VARs grow, they quickly discover the finite limits of being paid an hour's billing for an hour of service, especially with limited personnel on hand. To that point, our research shows that MSPs still tend to have fairly small staffs, with more than 80 percent of respondents reporting 99 or fewer employees.

Finally, the GMN's research shows the MSP model giving participants a much greater level of financial stability than their traditional counterparts. As the economy struggles, established MSPs continue to enjoy the annuity revenue coming in from customers who have contracted for services for as long as one to three years. A contractual obligation is hard to change or ignore.

Market Up For Grabs

In summary, our research and my personal experience suggest that most of the MSP story is yet to be told. The majority of the MSP market is still up for grabs. While some MSPs have carved out their niches and are having success, there's still a lot of opportunity for one or more emerging 800-pound gorillas to step in and succeed.

It is my strong belief there will be a handful of pure-play MSPs who will be very successful. However, the bulk of the revenue will continue to go to the existing VARs who are able to quickly evolve. Those are the people who already own the customer relationships today. The outlook for nimble participants has never been brighter. But the new opportunity will be lost if they can't provide the levels of service today's market demands. And if they can't, new contenders will start taking their business away. In short: Your future as a channel participant is all up to you. n

Oli Thordarson ([email protected]) is president of Alvaka Networks and currently serves as chairman of the Global MSP Network.