Managed services providers have moved decisively into the cloud, with many forecasting a decline in on-premises server work.
That's one of the takeaways in Datto's "Global State of the MSP Report," released this week. The data protection and MSP software firm, based in Norwalk, Conn., polled more than 1,800 MSPs worldwide in its annual market study. The survey topics range from MSPs' business mix to emerging technologies.
MSPs' push into cloud computing is a key theme in the study. Datto reported 75% of the MSPs polled cited cloud productivity services -- Microsoft 365 and Google's G Suite, for example -- as the top managed services offerings they currently provide. The productivity category ranked third in Datto's 2019 survey.
Looking ahead, MSPs identified cloud-based infrastructure design and management as a top service they plan to offer within the next year. Microsoft Azure topped the list of cloud workload destinations, followed by AWS and Google Cloud. Partners are investing in managed public cloud services as customers turn to third parties to help with tasks such as migration and cloud optimization. A 2019 Accenture survey of 200 senior IT professionals found 87% of the respondents would consider using managed cloud services.
The MSP cloud services trend marks a significant shift. As recently as 2016, cloud services remained a limited element of channel partner portfolios.
While the cloud market grows, most MSPs expect to transfer client workloads from local servers. The Datto survey reveals 38% of MSPs anticipate a moderate decrease in on-premises servers, while 19% expect a significant decrease over the next three years. On the other hand, 43% of the MSP respondents predicted on-premises workloads to stay the same or grow over that time span. That finding is consistent with channel partners who believe server demand will endure among customers running workloads in-house due to factors such as security and data gravity.
Rob Rae, senior vice president of business development at Datto, said the relationship between managing on-premises servers versus managing cloud-based resources is still evolving.
"Today, the evolution is incremental as we break from old tradition and comfort, and a strong argument can be made that on-premises services will be replaced," he said. "The key is that as the services evolve, so will the MSP. This is, however, a slow-moving transition. There is no urgency for now, but a good conversation and a plan should be in place."
The survey also found that 53% of the respondents said more than 50% of their total revenue stems from recurring services. In Datto's 2019 survey, 44% of respondents said they generated most of their revenue from recurring services. The increase in recurring revenue has an important top-line consequence for MSPs: Datto said that "for every 10% increase in the proportion of revenue from managed services, MSPs' annual growth rates increase by 0.25 to 0.75 points."
Datto also cited "business resiliency" as a benefit of deriving a higher percentage of revenue from managed services, noting MSPs can maintain a steady cash flow during economic downturns.
As for emerging technologies, the MSPs Datto polled ranked 5G, AI, IoT and machine learning as the sectors providing the most value. CompTIA's annual ranking of the top 10 emerging technologies, published earlier this month, put AI in the top spot, followed by 5G and IoT. Serverless computing placed fourth in CompTIA's ranking.
Pandemic economy affects MSP growth expectations, M&A
COVID-19 has compelled MSPs to recalibrate their growth projections, but acquisition activity is expected to make a comeback as the economy recovers.
Reports released this week reflect a market coming to grips with the pandemic's immediate economic effects and looking ahead toward recovery. IT Glue, a Kaseya company that focuses on IT documentation, tracked MSPs' market perceptions before and after the COVID-19 outbreak. The company's "Global MSP Benchmark Report" surveyed more than 1,500 MSPs in February 2020 and polled more than 500 MSPs in May.
The May follow-up survey revealed 51% of MSPs encountered monthly revenue drops due to the pandemic economy. Twenty-nine percent of the respondents reported an accounts receivable increase, which IT Glue said reflected an increase in customers unable to meet contractual deadlines for making payments.
Datto's "Global State of the MSP Report," meanwhile, showed how MSP growth projections have shifted. MSPs polled weeks before the pandemic said they expected 17% growth, on average, over the next three years. But nearly 40% of the respondents to a follow-up survey said they expected to decrease their growth projections by between 10% and 20%, according to Datto. Twenty-three percent anticipated remaining on plan or reducing their plan by less than 10%. And 11% believe they will buck the downward revenue trend, expecting to boost revenue beyond their original plans.
IT Glue's study also reflects shift in expectations. The company's pre-pandemic survey listed adequate time to complete work, an inability to find good technical workers, changing technologies and a lack of information sharing as MSPs' top concerns. The follow-up survey, however, listed cybersecurity threats, customer churn, price pressure and the prospect of a second lockdown as the primary MSP worries. As for the latter, 74% of MSPs cited concern regarding the potential for a lockdown in Fall 2020, according to the IT Glue survey.
IT Glue's follow-up survey also showed a marked decline in interest in mergers and acquisitions. In the pre-pandemic survey, 52% of MSPs said they were at least somewhat interested in buying or merging with another service provider. But 37% of MSPs reported considering M&A activity in the follow-up survey.
"Though M&As are likely to slow down as a result of the pandemic, market consolidation will continue -- however, the pace of which remains to be seen," IT Glue noted.
That pace may pick up soon. Martinwolf, an M&A advisory firm in Scottsdale, Ariz., noted in a report released this week that strategic buyers and private equity firms have assessed their current business risk and are "looking ahead to resume previous growth plans and buildup strategies."
Martinwolf expects transaction volume to increase as the industry moves into the third quarter, but added, "everyone is monitoring conditions and the potential for a second wave."
In March, Martinwolf predicted the pandemic economy would temporarily pause MSP acquisitions amid a decline in public companies' multiples. The company's latest report, however, noted "an improvement in median multiples across every category" including IT services.
SADA expands board of directors
Teena Piccione has joined the board of directors at SADA, a business and technology consultancy based in Los Angeles.
Piccione is the third woman to join the company's board this year, the others being Lusiné Yeghiazaryan, vice president internal audit, chief audit executive at GoPro, and Nutanix CIO Wendy Pfeiffer. Piccione is executive vice president and CIO at RTI International, a nonprofit research institute in Research Triangle Park, N.C. She was previously senior vice president of enterprise technology at Fidelity Investments and associate vice president of big data, AI and cybersecurity at AT&T.
SADA CEO Tony Safoian said Piccione provides expertise to the board that it previously lacked. He cited her experience in the financial services and telecommunications, media and entertainment sectors. Geographic diversity is another plus, he added. Piccione is based in North Carolina, while the other recent board additions live in the San Francisco Bay Area.
The three board members appointed this year bring a "voice of the customer" perspective to SADA, Safoian said. That point of view is important for SADA as it moves up market, he explained, noting that SADA five years ago wasn't as involved as it is now with Fortune 100 and Fortune 200 clients.
HYCU launches cloud partner program
HYCU Inc., a multi-cloud data management software company, rolled out a partner program for cloud services providers (CSPs).
The program is built around the company's HYCU Protégé data management offering. HYCU provides a dedicated service to each customer. Partners can provision that dedicated service as a co-branded service providing data migration, data protection and disaster recovery (DR) as a service.
HYCU CEO Simon Taylor said the Cloud Services Provider Program offers partners the ability to differentiate themselves. CSPs get a co-branded management console that spans all their customers.
"When a CSP joins our program, we customize a SaaS interface for them," he said.
HYCU also aims to help partners streamline operations, Taylor said. He said HYCU, by default, automates application-aware data protection, data migration and DR.
"Most partners want to integrate these services into their broader ITaaS orchestration and automation," Taylor said. "HYCU provides Intentful REST APIs for its services that we help the partner integrate into their provisioning and management workflows. In addition, CSPs can also allow their end users to manage their own data with self-service administration."
HYCU works with about 100 CSPs.
Chef cites integration opportunity
Partners have an opportunity to ride the growth of the DevSecOps tools market and help clients integrate disparate vendor offerings.
Vikram Ghosh, vice president of business development at Chef Software, a DevSecOps and enterprise automation tool vendor based in Seattle, said partners have a "ton of opportunity to ... bring together difference pieces of the tool chain for our customers. It is often a systems integration partner that comes in and ties all these pieces together."
Chef noted the partners' role in digital transformation during its annual ChefConf event, held earlier this month.
Damith Karunaratne, vice president of DevOps at Indellient, an IT services company based in Toronto, noted the need for tool integration among customers. Indellient, a Chef principal partner, was named Chef partner of the year for 2020.
Integration "definitely continues to be a challenge for organizations," Karunaratne said. He said Indellient has been focusing on the integration of the tool chain and how it aligns to an organization's business processes.
- Perficient Inc., a digital consultancy based in St. Louis, acquired Productora de Software S.A.S., a nearshore software development company based in Medellin, Colombia. The acquired company has $33 million in annual revenue and adds more than 600 professionals to Perficient.
- Ingram Micro Cloud added Salesforce Essentials to its Cloud Marketplace. The small business offering will be available to the distributor's reseller partners.
- Lack of collaboration among critical business functions hinders companies from getting the most out of their industrial digital transformation investments, according to an Accenture study. According to the consulting firm, 75% of executives said their departments compete against each other on digitization.
- D&H Distributing, a distributor based in Harrisburg, Pa., added cloud offerings from Cisco to its Cloud Marketplace. The agreement covers Cisco's Webex collaboration platform, Umbrella security offerings, and Stealthwatch network visibility and threat detection offerings.
- Cameyo, a Cary, N.C., company that provides a virtual application delivery platform, is partnering with ASG Africa, an IT solutions and services provider. The arrangement makes Cameyo's offerings available on Microsoft Azure to organizations in Africa and the Middle East. Cameyo earlier this year launched a product for MSPs.
- Pulseway, a remote monitoring and management (RMM) vendor, introduced a standalone patch management product, Pulseway Patch. The product is included in Pulseway's RMM system. Pulseway Patch starts from $0.90 per endpoint, per month.
- Threat intelligence vendor IntSights launched the IntSights Global Partner Program. Partners can offer the IntSights External Threat Protection platform through the program, the company said. The program features three tiers that offer different support based on partners' sales focus and market coverage.
- Distributor Telecom Brokerage Inc. added YourSix, a physical security-as-a-service provider, to its portfolio. YourSix's offerings combine video surveillance, access control, audio technologies and video monitoring.
- NiceLabel, a developer of label design software and label management systems based in Wauwatosa, Wis., released a cloud-based offering for channel partners. NiceLabel's Label Cloud is a multi-tenant labeling SaaS offering.
- Pythian Services Inc., a cloud, data and analytics services company based in Ottawa, has appointed Keith Angell as CEO. The company also completed an executive reorganization following its acquisition earlier this year of Agosto.
- Ensono, a hybrid IT services provider based in Downers Grove, Ill., appointed Paola Doebel as senior vice president and managing director of North America.
- Green House Data, a data center services provider and MSP based in Cheyenne, Wyo., has appointed Drew Mellen as vice president of Microsoft cloud enablement.
Market Share is a news roundup published every Friday.
Additional reporting by Spencer Smith.