MSPmentor

Anecdotal evidence suggests the managed services market remains healthy. But for the second time in 12 months, I believe MSPs are reaching a major inflection point. There’s no cause for panic. But the rules for managed services seem to be changing — yet again. Here’s why.

First, a little background: I’ve spent recent weeks at such conferences as Avnet-IBM Partner Conference, McAfee Global Partner Day, N-able Partner Summit, Rackspace Partner Leadership Summit and SMB Nation. And within two weeks, more than 1,000 MSPs will converge at the ConnectWise IT Nation conference in Orlando, Fla. Based on what I’ve heard — and what I expect to hear — it’s clear that the rules for managed services are changing. Again.

History Lesson…

The most recent inflection point was sometime in late 2009. At the time, former N-able veteran Rob Bissett mentioned to me that first mover advantage was over in the managed services market. (Bissett has since joined 6fusion.)

Simply put, Bissett was saying the MSP market had gained a critical mass of companies that offer basic remote monitoring and patch management. Every MSP in your back yard could offer similar base services — or bedrock services, as MSP Services Network CEO Gerard Kane calls them. Surely, you need to build additional services on top of those bedrock services.

2010 So Far…

Now, we’re nearing another inflection point thanks to several key trends this year. They include:

1. Freemium software efforts, promoted by such companies as N-able. In the months ahead, we’ll hear more freemium news from such players as Doyenz, the grapevine says.
2. Consolidation, including dozens of merger and acquisition deals. Just last week, CoreConnex CEO Frank Coker mentioned to me in passing that he expects the M&A activity to accelerate dramatically over the next few months.
3. Entrepreneurial Fatigue: I can’t recall who shared that term with me; perhaps Michael Drake from Master IT? The term Entrepreneurial Fatigue describes MSPs who launched their businesses about five years ago and figured they’d be rich by now. But they’re not. So some of those MSPs may ultimately punt on the market in the next few months.
4. The Cloud: I know, we’re all tired of cloud talk. But you ain’t heard nothing yet. During the N-able Partner Summit, ETG CEO Mike Jones was the one guy in the room who had the nerve to ask Microsoft’s cloud channel chief why MSPs should trust the software giant with customer names and contact information. When the session was over, several MSPs privately told me they had the same question on their minds.
5. Coopetition: Maturing software markets always generate so-called coopetition — cooperation and competition between industry leaders. Examples include IBM, Microsoft, Oracle and SAP, which cooperate on some fronts but compete on others. That trend, as expected, is repeating itself in the MSP software market. Examples include the ConnectWise cooperating with a range of RMM (remote monitoring and management) software companies, even as ConnectWise Capital invests in RMM provider Labtech Software.
6. Sometimes, Monitoring Isn’t Enough: Plenty of RMM tools can now managed cloud services. That’s good news. But remote monitoring certainly didn’t help much when Microsoft’s BPOS cloud went dark multiple times in recent weeks. Simply put, remote monitoring isn’t enough of a value add when the MSP has no real power to keep a vendor’s cloud online.

Where We’re Going in 2011

Based on the trends above, it’s getting a bit easier to see where MSPs are heading for 2011. A few educate guesses:

1. Free (With Time Limits): Already, several MSP software providers apparently are looking to partner up and offer customers free subscriptions that fully function but expire after a certain time period. The offer will require one piece of paid software, and one piece of free subscription software. Anyone willing to go on the record? I’m all ears…
2. MSPs Choose Sides: As Microsoft transforms BPOS into Office 365, MSPs will choose sides. Some folks truly are sold on BPOS. But some MSPs say Microsoft’s BPOS and Office 365 billing strategy remains a non-starter for them. Sometimes I wonder if the media is sensationalizing the situation. But when I listened to MSPs’ BPOS billing concerns at N-able Partner Summit, I realize the fears are real. And I sense that hosted Microsoft partners like Intermedia and Rackspace may pick up thousands of Microsoft partners. Already, Intermedia claims to have the largest third-party installed base of Hosted Exchange licenses, and Rackpace claims to have 2 million paying SaaS email users.
3. The Best MSPs Will Succeed: Perhaps I’m guilty of drinking the managed services Kool-Aid. But I sincerely believe the best MSPs will succeed in the cloud age, because MSPs already understand recurring revenue business models. And a few vertical market MSPs will pull far, far ahead of the pack. Potential examples include HEIT (financial services) and ETG (health care).
4. Giants Engage MSPs: Microsoft is preparing Windows Intune (a SaaS-based remote management platform for Windows PCs); I hear Cisco is preparing an SMB management platform for unified communications; Hewlett-Packard Channel Chief Stephen DiFranco is mulling some managed services efforts; and Rackspace Channel Chief Robert Fuller is hanging out at MSP conferences. The giants are coming, the giants are coming.
5. Pricing Models: Small MSPs seem to be embracing per-user pricing models in order to have blanket prices for users who leverage multiple devices (PCs, notebooks, netbooks, smart phones, iPads). Large MSPs, however, seem to be embracing per-device pricing within data centers and other infrastructure-heavy settings. I’m over-simplifying the situation (but that’s what I do every day…).
6. MSPs Look Back to Get Ahead: During N-able Partner Summit, several MSPs mentioned that they’re starting to sell VoIP desktop phones and multi-function printers. The reason: IP phones and MFP printers deliver product revenues while setting the stage for recurring revenues like hosted VoIP and managed print services.

Keeping Score

I gotta admit: I’m looking forward to ConnectWise CEO Arnie Bellini’s keynote at the upcoming IT Nation conference. During the 2009 conference, Bellini described how MSPs and VARs needed to protect the last mile of business as big IT companies increasingly offered cloud services. It was one of the clearest presentations outlining the threats — and opportunities — ahead.

Fast forward to the present day. I’m hearing from quite a few MSPs that are wildly successful. But I also hear from scores of MSPs that aren’t quite firing on all cylinders. The big question: Will those MSPs adjust their business models just enough to thrive in 2011, or will they exit through M&A? The inflection point starts now.

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