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The MSP landscape: growth in MSP revenue is attracting new competitors to the market

Tom Rebbeck Research Director, Operator business services and IoT

"Fragmentation means that few MSPs will have the scale to develop services alone; support from partners is essential."

The managed service provider (MSP) market is worth almost USD170 billion, and strong further growth is expected. This, combined with a slowdown in revenue growth in related sectors (for example, IT hardware and telecoms), means that many different types of player want a bigger role in the MSP market, either by becoming an MSP or by supporting existing MSPs (Figure 1). This article provides further information about these players. For more on the role of MSPs and the services offered see our other article.

Figure 1: Players in the MSP market

Type of player Examples Acting as MSP? Selling to MSPs? Strengths Weaknesses
MSP ConvergeOne and Iomart; most MSPs are small 🗸 🗴 (though some may resell through channel partners) Existing customer base Size (most are small)
MSP-focused vendors Continuum, ConnectWise and SolarWinds 🗴 🗸
  • Focus on MSPs
  • Existing relationships
Size and scale
Telecoms operators Incumbent operators in high-income countries (KPN, Telia and Telstra) 🗴 (some may explore this opportunity) 🗸
  • Scale
  • Financial resources
  • Technology shifts
  • Limited MSP portfolio
  • Unclear positioning
  • Customer satisfaction is often low
Telecoms and network vendors Amdocs, Cisco, Juniper and Netcracker 🗴 🗸 (directly or through partners, such as operators)
  • Brand
  • Size and scale
  • Technology shifts
  • Some have a strong VAR channel, and therefore understand the MSP market
  • Those without a strong VAR channel may have a limited understanding of the MSP market
  • Existing portfolio only covers some MSP needs
Enterprise hardware vendors EMC, HPE, IBM, Sharp and Toshiba  ? 🗸
  • Brand
  • Financial position
  • Existing channel
Limited portfolio

Source: Analysys Mason, 2019


MSPs1

Scale is a key challenge for MSPs. Most of the thousands of existing MSPs are small (with less than 10 employees), which leaves them unable to meet the full range of customer requirements (such as 24/7 support) and limits their expertise. In response to this challenge, MSPs are consolidating (our tracker captures more than 60 recent deals) and making greater use of suppliers of supporting services.

The nature of the MSP business favours local or regional players; few have a national footprint. MSPs can handle an increasing share of problems remotely, but face-to-face interaction is needed in the initial sales process and to fix certain problems. This requirement of being able to meet the customer in person means that it is difficult for national or global players (such as telecom operators or vendors) to compete directly with MSPs; they will instead need to incorporate these smaller MSPs into their channel ecosystems.

MSP-focused vendors

MSP-focused vendors include companies such as ConnectWise, Continuum, Datto, Kaseya and SolarWinds. Each of these vendors provides MSPs with tools and services including security, back-up, remote monitoring and management and professional services automation. The vendors either provide their own products or resell those from partners. Their ultimate aim is to provide a full suite of solutions to MSPs and benefit from a platform business model, thereby increasing the number of end customers, which in turn attracts more suppliers (and vice versa). Having a single supplier could simplify matters for MSPs, but would make them reliant on a single partner; this could make it difficult to differentiate and could increase their vulnerability to supplier price increases.

MSP-focused vendors tend to be relatively small compared to other technology companies (most have less than 2000 employees). As a result, they may lack the scale or resources of the bigger global technology firms, such as Cisco and Huawei.

Telecoms operators

Telecoms operators are being faced with limited core revenue growth and as such, are considering the MSP opportunity. The challenge is to find a role in this market. Operators are unlikely become MSPs; the core proposition (that is, providing managed IT services to local businesses) will be difficult for them to offer. Many operators do not even sell their own products directly to the core target market for MSPs (organisations with 20–250 employees). Instead, they rely on channel partners for some (often all) sales and support. Becoming an MSP would require them to transform their core business, and is therefore unlikely.

A more attractive role is to develop new solutions consisting of those services described above (for example, security and back-up) and package them with connectivity in a way that is attractive to MSPs. KPN has implemented a version of this model through its acquisition of RoutIT.

Technology trends go some way to supporting this model. SD-WAN offered on universal CPE (for example, x86-based standard servers) and combined with a variety of other functions (such as firewalls, managed LANs and Wi-Fi) may become a typical offer for operators. For this to be successful, operators (through their reseller partners) will need to know the details of the uCPE and the functions in order to provide support and resolve issues. This is challenging, but it will enable operators to provide something akin to an MSP offering.

Network vendors

Network vendors (including telecoms vendors) such as Cisco, Huawei and Nokia are also exploring how to expand their services to capture a broader customer base. The same trends relating to SD-WAN as described above for telecoms operators could help these vendors.

Netcracker is looking to offer this sort of model with its Business Cloud. The Business Cloud is being deployed both through telecoms operators (Telefónica Mexico is a customer) and directly to enterprises. The same service could also be sold through other partners, such as MSPs.

Enterprise hardware vendors

Hardware vendors such as Sharp and Toshiba are considering offering services beyond maintenance. Commoditisation in the core business is leading to low margins and is therefore driving the need to explore new areas. Sharp has already made moves in this direction; it bought ZLan Partners, an IT services company in Chicago, in March 2018. Hardware vendors have the funds to invest in new areas, and the existing channel relationship. However, it may be challenging for these vendors to become MSPs for the same reasons as for telecoms operators (that is, a lack of local resources); they would also need to add to their existing portfolios.

Fragmentation is likely to remain in the MSP market, even with consolidation. This fragmentation means that few MSPs will have the scale to develop services alone; support from partners will be essential. The existing players in this space are well-placed, but others, often with bigger budgets, have a strong desire to enter this growing market.

Analysys Mason recently launched a new programme, Managed Service Provider Strategies, which explores the trends in this market, the strategies of MSPs and the companies that are supporting them. It also contains forecasts and the results of a survey of 950 MSPs from around the world. More about this programme can be found here.


See here for more on the role of an MSP.