Dave Sobel is 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.
In this video, Sobel digs into three announcements that could change the competition in the IT services market. He discusses why they make sense for customers and what they will mean for IT services providers.
Transcript follows below. Minor edits have been made for brevity and clarity.
Dave Sobel: There is that saying about March coming in like a lion and going out like a lamb. Honestly, I think the lion wanted to wait to roar for April because two pieces of news hit for April that mark significant landmarks for IT services companies. And I started work on this piece before Kaseya bought Datto, which just adds a third to my disruption story.
Let's tell them in order.
3 IT services landmarks
The first. Apple has launched in general availability their Apple Business Essentials and, with the launch, comes final release pricing. The subscription includes IT services, with a rate starting at $2.99 a month, covering one device and tiers up from there. A new business tier is available of AppleCare+ hardware coverage with 24/7 support and the ability to call an Apple-trained tech on-site in as little as four hours.
Enrollment of devices includes software installations, and the portal can be connected to single sign-on systems. Each package consists of the service component, and it comes with two repair credits, which companies can use to get service without the employee or the customer swiping a credit card. Customers can pool these credits as they aren't necessarily associated with the individual account.
Second. Microsoft hosted their new hybrid work solutions in an online event. Among the many announcements included new features for Microsoft Endpoint Manager. Windows Autopatch was announced as general availability in July 2022, coming with Windows Enterprise E3 and E5 licenses. Windows Autopatch includes rollback capabilities and a robust testing and rollout service included. Windows Update for Business deployment service was also announced, including drivers and firmware. The company also announced remote help, a cloud-based solution to provide a secure help desk for user connections.
Third. Kaseya uses private equity cash to buy Datto. The two companies announced they would become one mega IT services-focused software vendor in a deal expected to close in the second half of 2022. The Big Four of MSP become the Big Three.
What do these moves mean for customers?
With the first two big announcements, the OS players signaled their intentions to continue moving up the stack and offer management services. I made bold statements that Microsoft was coming for the RMM [remote management and monitoring] space. I'm declaring victory on this one. Apple just cosigned the declaration of victory for me with a San Francisco font.
I fully admit that, as I was researching this story, I was picking in my head the option that made sense for my business. As a small business owner who runs on a Mac, this had instant appeal.
Thinking like a customer, Apple offering direct service makes a lot of sense for many customers. And, before many of you are dismissive of this, all of those Mac -- and particularly iOS users -- are among the wealthiest cohort of the population.
Who would buy service directly from the vendor? IT services just got commoditized by Apple in the SMB. Argue me all you want, but as a buyer, I'm considering it. And I believe in IT services. I'd still like strategic assistance from a technologist, but buying from the vendor on this makes some profound sense.
Microsoft's pitch is to make Endpoint Manager their single pane of glass and include premium add-ons. Sound like anything you might be familiar with?
The critical element of Autopatch is that it's a service positioned as intelligent management. It's Microsoft managing updates on your behalf. They create groups and policies for you and then include testing in the feature with intelligent rollouts. It includes testing against apps and includes Microsoft engineers in the process.
Apple and Microsoft are coming for your managed service.
What does this mean for managed services?
At the same time, the legacy market is slowing down. I've commented previously on how Datto was a busted IPO [initial public offering] -- well, investors agree with me. One analyst observed:
Take one SaaS company at $60 million ARR [annual recurring revenue], growing 40%, not that great, not enough to IPO. Now, combine it with a second SaaS company at $40 million ARR, growing 50%. Again, not enough to IPO. But what happens when you combine them? Now, you have $100 million ARR, at 45% growth. Enough probably to IPO the next year. By combining two slower-growing SaaS companies into one with good enough growth to IPO or a strong exit, you create financial arbitrage and magic.
Specifically, Datto looked to be barely adding anything beyond growth from existing accounts. And let's observe that this is all financial wizardry, not bringing new value to the market. Don't get me wrong: Both skills are required, but a wizard alone can't create innovation, nor carve away at a market.
The two OS players are starting to slice away at the bottom of the market, and if the Big Three are to survive, they would have to stay ahead of that. Kaseya is now going into six months pre-closing and 12 months of executive chaos. ConnectWise is inevitably positioning for their financial move, and as for N-able, well, let's let the stock market graph speak for that one.
If the SMB technical needs were constant, then the basic premise of the Big Three wouldn't be threatened. But I don't think that's the case.
If you go towards a heavy cloud environment for a modern new business and everything is in the cloud and you've just got some devices on prem, I don't think you need to worry so much about printers and network switches and all that kind of stuff. In fact, 38% of small businesses don't have infrastructure. With virtual working, coworking, lack of office space, so much of the core infrastructure just isn't required or isn't supplied or won't be supplied by the business itself.
A perfect example is where I see Apple's first beachhead: point of sale. I think that Apple's lead here is around the idea of displacing Square, also known as Block, and displacing payment processing and point-of-sale stations. And I think that they're going hardcore in this. The reason I think that is I'm combining that with reporting around making all Apple devices into payment terminals without even the dongle. They've now included that in all iOS. Well, now, here's the services side of making point of sale. I think this is a significant and important market for them.
They're going to move in there on financial services end to end. If you look at your typical point of sale-style implementation going into any little store using a Square set of terminals -- iPads with bolted-on stuff -- Apple can now just swipe that all up. That's a pretty big business. All the point-of-sale terminals across the globe, that's a big deal. And they need to be moving into these more advanced services. And I see this sort of fintech point-of-sale space as significant. This is a pretty great offering for it.
Don't be dismissive of a second market of microbusinesses that Apple and Microsoft's plays might make an awful lot of sense for. My statement around iOS users being wealthy people is because that is legitimately where the marketplace is. These are people that are paying a premium for those devices. If they're the business owners and they've gone all-in with Apple, it makes perfect sense.
Now, say you're in a heterogeneous environment, Microsoft's play makes so much sense here. Bolt the infrastructure plays onto their E3 and E5 licensing, and boom, now, it's included. The Microsoft story extends their Microsoft 365 story in general: services delivered out of the cloud. Why not? The toolkit to manage the network, too, and the business owner can still hire a technologist to pull the levers.
IT services providers must keep ahead of Apple and Microsoft
I hear a chorus from traditional MSPs all the time about how their customers don't know technology, aren't interested in it, blah blah blah. OK, boomer.
How many millennial and Gen X/Gen Z owners are you considering in this analysis? The digital-native owners are both coming and already here. And, while you have your eyes on the past, I'm skating towards the puck of the future. They come with a different level of expertise and expectation.
Apple, in particular, has a certain cachet in its customer base. Small business owners who identify with the brand at the high end may just happily sign up for an Apple plan, particularly when their other needs aren't being served.
Let me observe again using myself as a small business example. I run a very small business. I'm all Mac. I would write a check to Apple for the occasion to be included and for all those services calls that I might occasionally need, and they're available to me, and they'll show up. I'll write a check for that. And I'll probably do that in addition to working with a technologist. I'll bemoan, by the way, as somebody who is entirely cloud-centric, all my business systems live in the cloud except the work stuff that I need to do on my own. No managed services provider can sell to me. There's nothing that makes sense for me to buy. Everyone wants to focus on basic patch management and not deliver the technology consulting services around my cloud systems that I actually want and like. This checks the checkboxes of what I need from an infrastructure perspective, and it does it at a really incredibly attractive price.
Couple of bucks a month? Yeah, I'll totally pay Apple to be available on the occasional time I might need them because something broke on my Mac. Yeah, a four-hour response to fix my Mac? I'll pay for that because it's useful.
On Microsoft, the story rhymes. It's similar.
Now, I hear the screams from so many in this space that these aren't real RMMs, that they aren't enough, that they don't cover heterogeneous environments, blah blah blah.
If you're really doing fully managed services, with a total comprehensive solution where the customer really does everything you say, then it is likely a true statement that these are not competitors for you. And look, I'm not one of those doomsayers that say you're all going out of business. You aren't. Those who aren't adapting simply will feel new pressures.
Roughly one in four solution providers are running break-even or losing money. One in four. Microsoft and Apple can gobble up a chunk of this market that isn't even necessarily competitive with what the advanced providers are doing. It simply will wipe out a portion of the market that might have been wiped out on its own.
I would be remiss if I didn't mention that pressure will be coming in and will be pushing on you. There is a price now in the market where services can come right from the vendor.
Here's the situation then. There are new pressures on the market at the low end, brought to bear by two massive players in Big Tech, Apple and Microsoft, who can patiently swipe away at the pieces they want. Remember, there's always been a business in keeping ahead of Microsoft. But it requires keeping ahead of Microsoft, not standing still. The expectation bar is moving up. Strong providers have a head start, but that doesn't mean they can stand still.
And let's bring back the Big Three. While the slow Zamboni moves across the ice coming for them, what are they doing to prepare for the new realities I've outlined? If SMBs have left stuff, how are they filling in the backlog? They're telling a great growth story to the investors, but what is the story they tell to their customers? And are their customers just happy to cling to the story of the past because disruption is hard?
Now, many of you may think I'm wrong. And, if you do your own thing, make more money and own the market, I will celebrate that. I offer my opinion as precisely that. Based on my informed expertise, I'm looking at the market and determining where it's going. You are welcome to ignore me and make your profit. I encourage it.
The one thing you can't do is put your head in the sand and assume the world will stay the same. Because this April has already proved it is not the same.
About the author
Dave Sobel is 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.