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IT services industry tweaks business models amid pandemic

MSPs and IT consultants have developed new services, emphasized cloud offerings and boosted cybersecurity capabilities to address COVID-19 and its effects on customers.

IT services industry executives agree the COVID-19 pandemic has altered their business models, but the adjustments they have made follow no single pattern.

The pandemic, formally declared in March 2020, caused rapid economic contraction, putting enormous pressure on organizations to cut costs, boost efficiency, protect employees and conduct business digitally. The associated work-from-home movement vastly expanded the cyberattack surface. As companies became increasingly dependent on IT, their reliance on partners soared in tandem. Customers now call on partners to accelerate digital transformation projects, optimize business processes and bolster security.

The situation places new demands on MSPs, consultancies and solutions providers. Those demands, in turn, have caused partners to offer new services and expand others. Pandemic economics, meanwhile, have affected a partner's business mix and introduced different forms of customer engagement.

"More has changed in the past year than in the past 25 years," said Gary Pica, president at TruMethods, an MSP training, peer group and software firm based in Moorestown, N.J. Trends already underway, such as the importance of cybersecurity and the transition to cloud computing, have accelerated during the pandemic, he noted.

Gary PicaGary Pica

The pandemic has also boosted the contribution of monthly recurring revenue (MRR) to service providers' top lines. MRR from core offerings and newer sources such as cloud reselling are both on the rise, Pica noted.

The shift in market dynamics makes for a challenging environment. Here's how some service providers have responded to pandemic-era changes.

Investing in benchmarking

IT partners have positioned themselves as trusted advisors for years. When a crisis like the coronavirus pandemic strikes, that status becomes even more central to a service provider's mission.

Ingo PirothIngo Piroth

Trianz, a global digital transformation consulting and technology services firm based in Santa Clara, Calif., recognized clients' need for guidance and "invested heavily in data-driven solutions such as benchmarking," said Ingo Piroth, the company's senior vice president and U.S. chief revenue officer.

"Baselining our clients along multiple business transformation and technology dimensions allows them to prioritize their highest value action items with a pragmatic approach," Piroth said.

With benchmarking, Trianz compares a client's digital business positioning with peer companies. The data for comparison comes from surveys and interviews conducted by Trasers, a digital transformation data company that Trianz Founder and CEO Sri Manchala launched in 2019. Trasers obtained responses from more than 9,000 IT and business decision-makers in 16 functional roles and 18 industries.

Piroth said benchmarking provides the "conduit for removing the guesswork and instilling confidence in the roadmap of the future." Customers can purchase Trianz benchmarking as a standalone service or bundle benchmarking with other services, such as analytics, digital transformation strategy, cloud strategy or cloud migration.

Supplementing in-house skills

Nfinit, a hybrid cloud solutions provider based in San Diego, launched a talent timeshare in response to the pandemic and clients' concerns regarding the availability of in-house IT teams.

Jeremy FitzpatrickJeremy Fitzpatrick

With the talent timeshare offering, clients can purchase blocks of points they can use to obtain different types of professional services skills such as AWS engineers or Network Operations Center specialists, noted Jeremy Fitzpatrick, vice president of sales and marketing at Nfinit, which also offers connectivity and colocation services. A specific technical skill set might cost a client three points per hour, for example.

Nfinit refreshes clients' points quarterly, and the client pays a recurring monthly fee, which Fitzpatrick described as a flexible retainer for various skill sets. Alternatively, customers can purchase a one-time package of points that expires after 12 months.

Customers can tap the talent timeshare to supplement the core service offerings Nfinit provides or use the offering independently, Fitzpatrick said.

Shifting to cloud communications

Fortuitous timing helped one service provider create a business model that would prove resilient during the pandemic. NWN Corp., an MSP based in Waltham, Mass., rolled out a new services portfolio in September 2019, a few months before COVID-19 and its economic fallout emerged. The revised lineup included communications as a service, cloud-based contact center technology, device as a service and security.

Jim SullivanJim Sullivan

"Those kinds of offerings became a very important part of the new working model," said NWN President and CEO Jim Sullivan.

As customers adopted work-from-home strategies, NWN's solutions-as-a-service portfolio helped the company grow its top-line revenue 20% in 2020. In addition, recurring revenue as a percentage of overall revenue increased from around 60% to about 75%, Sullivan said. The company's unified communications and contact center business, which is shifting more quickly to the cloud, primarily generates recurring revenue, he added.

Boosting cybersecurity offerings

The work-from-home shift has raised cybersecurity's profile during the pandemic, with attackers targeting highly distributed employees operating beyond the boundaries of conventional corporate security measures.

"The attack surface is much greater, and the quantity and quality of attacks have changed," TruMethods' Pica noted, citing the rise of state-based attacks.

As a result, service providers have attempted to upgrade their offerings and persuade customers to agree to higher fees.

The MSP business model, however, isn't necessarily suited to those changes, he added. Service providers need more security tools, processes and skills -- all of which require significant investment. "They have to figure out how to change their business model and get their prospects and customers to pay them more," Pica said.

The MSPs with more business acumen have successfully raised their prices, Pica said. Their average seat price increased in the past year, he added, citing TruMethods' benchmarking data. But other service providers struggle in the current environment.

"The gap between the top performers and the bottom 50% is widening," Pica said. "It has been widening and it is widening now at a more accelerated rate."

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