A disconnect between MSPs and cloud: The cloud opportunity

MSPs are missing a profitable opportunity by offering cloud services beyond just email to SMBs that are struggling to get cloud offerings elsewhere.

Dave Sobel is the host of the podcast "The Business of Tech" and co-host of the podcast "Killing IT." In addition, he wrote Virtualization: Defined. Sobel is regarded as a leading expert in the delivery of technology services, with broad experience in both technology and business.

This week, Sobel discusses why most MSPs aren't really in the cloud like they believe, especially if all they offer is email. There are three levels of cloud that providers can offer and there is an opportunity there for MSPs.

Transcript follows below

The cloud has dominated the conversation for ages. This video is not another "why the cloud is important" conversation, because if you don't buy it at this point, there's likely nothing I can do for you.

I'm also not referring to the idea of simple cloud services, such as putting your email in the cloud or forklifting a server into a virtual machine. I'm thinking about the classic definition, focused on on-demand availability without direct active management by the user, and includes an elastic nature, where you can provision as required. This is not a server in a data center.

In a recent video, I modeled what I would do if I was launching an MSP today. The exercise is useful to understand even what a theoretical competitor looks like. In that, I also outlined that for my toolkit, I would use anything that wasn't cloud -- and I specifically said fully cloud native.

As a loose general principle, those non-cloud systems would be the inverse of cloud computing -- and thus involve as a critical element administration of the infrastructure by the user (or the user's proxy, the system administrator). As such, you have a model of tools that assume things like hardware access, or complete system access or operating system access. In the enterprise they look a lot like tools from Nagios, SolarWinds or ManageEngine. There are multi-tenancy focused tools that tech providers use to roll up that offering for multiple SMBs, and that's typically the managed services provider space.

The basic building blocks are servers, operating systems and network infrastructure. Which, notably, aren't in the cloud. As that has all been abstracted away, the general model doesn't work. It's why those tools don't naturally fit into a cloud world. Additionally, you have a different set of problems. With the cloud, configuration and policy management are the model, rather than individual pieces of hardware. The complexity is so much larger. The number of combinations and scenarios and capabilities is simply staggering.

I break cloud offerings typically into three layers

First, the really basic services. The easy one is email. This is super foundational, but it's only the beginning, and often providers stop here. They make sure cloud email works, maybe some cloud file sharing, and then they move right along, making the cloud just their Microsoft Small Business Server circa 2008 and nothing more.

The second level of value is moving into actually making these systems useful. It's one thing to put Teams on someone's desk -- it's another to build out integrated workflows, making automation work across departments, to ensure that data flows correctly and then ensure it's always being securely managed. Building team collaborative workspaces where users are really working on documents in real time is actually a lot harder than just putting the application on someone's desktop.

Finally, the third level is true business process automation, which in SMB is often the implementation -- and integration -- of those additional line-of-business applications into those core systems. Here is where my core premise of building a fresh provider started.

If you've only done the first, let me say -- you're not really in the cloud. There's way more to this, and this alone is not the cloud. This is actually the worst parts of the cloud -- this is the lowest margin delivery, and the lowest margin services.

Let's understand where the disconnect happens

With this understanding of the three levels, we can actually understand where the disconnect happens.

All three of these levels are generally not served by any of the skills nor technologies that a typical technology provider focused on the SMB can leverage. That RMM? AV? Next gen security? Backup system? All essentially irrelevant in all three of these levels. Take your long list of typical providers that have helped build the very typical MSP . . . and they aren't taking you any of these places.

This is where the disconnect really begins. Every vendor out there will wrap themselves in a cloud blanket, and most of them really don't help you here.

When you look at the enterprise -- and please don't think I think they are the answer, just a place to look -- you can see entire clusters of vendors that have offerings that look nothing like what I see serving the small customer. Datadog, DivvyCloud, Splunk, New Relic and a long list of companies look entirely different. They don't even use the same lingo.

Looking at the DevOps space is much the same -- Buddy, Jenkins, PagerDuty, Docker, another whole list of technologies that solve core needs that are needed, particularly in that third level, and they remain out of reach. If you don't know any of these tools, don't worry -- my point isn't to have you go run and feel you need to buy those. It's to tell you that there are entire solution spaces that, while not ready for the SMB, are still addressing needs that you have.

The tool providers are so focused on security they aren't moving anywhere near this. One of the dirty little secrets -- if you move to a full cloud stack, that stuff is all so much less relevant. Secure your business in the cloud and you don't have to worry about this. MSPs, they need you distracted. It's better for them. It doesn't hurt its far easier to just integrate traditional endpoint security products than focus on real cloud management.

So, I'd be remiss if I didn't observe for vendors listening . . . this is a huge opportunity. There are needs in the SMB, and it's not being met.

What do MSPs need to jump aboard the cloud?

Now, to those providers who aren't able to start fresh. What do you need to think about? To start, I want you to look at your profit and loss and break down how much you actually spend on tools as a proportion of your revenue. What is it? 4%? 5%? It's way less than you think it is.

Why do we care? Because it's so much a disproportionate amount of your attention versus your revenue. Particularly because there isn't a tool to solve this problem, you need to put it into relative importance. Sure, this would be better with a tool, and maybe there will be one, but we can't wait for that to solve this problem.

You're going to have to devote some labor to this, and that's more expensive. The way you can reduce that cost is being hyper focused on process. The good news is that you're good at process, and additionally, process means you'll be ready for a tool when it comes along.

Also good news: This problem needs a process, not a tool. The reason that the tools I mentioned for enterprise exist is to help automate process, but those processes have to exist to be automated.

Even more good news is that the investment in this process is actually the beginnings of your secret sauce. Being able to do this over and over repeatedly is how you can stand out, and how later jobs will become quite profitable, as you're still going to charge a premium for this. This is all complicated stuff and of super high value, so its value won't diminish.

Let me also break you of a habit. You'll want this to be recurring revenue. You'll want to package this up as a service to start. Don't. It's not that. This is project work. Sorry, but it is. Project work doesn't have to be a bad thing, and trust me, it's ongoing. Once you are knee deep in someone's business process, they are going to want you there. Just understand that this isn't something you will immediately package up and sell on a monthly subscription.

And that's ok. Really. You're not abandoning recurring revenue, and you're not giving up on those ideas. You're also not abandoning those service lines, because you need those to do this work as a solid foundation.

You're just not starting that way.

Cloud provides a real business opportunity for MSPs

Let me also observe that there is real money in this. This is transformative stuff, and so the lack of commoditization that makes a perfect monthly recurring revenue package is exactly what makes this valuable and much higher margins. I'll that higher margin work -- it's really good work. It's far more profitable than on-premises work. Your ability to replicate and standardize is so much clearer and the ability to really automate here is also very powerful. Assuming no automation, you can still easily standardize due to the lack of physical configuration alone -- much less the ability to save states and create templates.

If you need help, two obvious ways to get it. First, call your distributor. They have whole services wings that are able to help you here. Second, partner. There are other providers doing business consulting like this, and you can work with them to develop this capability.

Let's recap. The disconnect is real -- it's because of the distinctly different tools needed. Your current vendors are not solving this problem for you. Email in the cloud is not enough. And this is a big deal -- this is huge opportunity.

About the author
Dave Sobel is the host of the podcast "The Business of Tech," co-host of the podcast "Killing IT" and authored the book Virtualization: Defined. Sobel is regarded as a leading expert in the delivery of technology services, with broad experience in both technology and business. He owned and operated an IT solution provider and MSP for more than a decade, and has worked for vendors such as Level Platforms, GFI, LOGICnow and SolarWinds, leading community, event, marketing, and product strategies, as well as M&A activities. Sobel has received multiple industry recognitions, including CRN Channel Chief, CRN UK A-List, Channel Futures Circle of Excellence winner, Channel Pro's 20/20 Visionaries and MSPmentor 250.

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