A 1.0 MSP, according to TSIA, offers predominantly customized solutions, tends to embrace some complexity and employs a more resourceintensive delivery model. Their engagements are supported by labor-intensive, manual operations. The 2.0 MSP, meanwhile, focuses on standardized offerings, standard delivery operations models and employs software-driven, digital delivery capabilities, the researcher firm continued. TISA’s 1.0 MSP represents the profile of the more traditional MSP model, whereby a proprietary solution might be customized for a customer or specific vertical, and a significant chunk of revenue still comes from non-recurring fees such as product sales, consulting fees or one-off projects. The 2.0 MSP, meanwhile, embraces where MSPs are and should be evolving toward. A lot comes down to the matter of scale, and its importance in driving growth and profitability. “Managed services providers that have overly complex and custom solutions have created self-inflicted wounds, inhibiting scale,” said TSIA researchers. “Lack of scale ultimately inhibits growth and profitability.” According to TSIA researchers, managed services providers that employed even basic levels of automation in delivery operations experienced as much as a 75 percent increase in profitability. “With over 75 percent of the headcount in a managed services organization coming from delivery resources, it’s no surprise that using software to eat away at manual operations delivered such a strong improvement to profitability in the organization,” said TSIA. Benchmark data for managed services also showed how MSPs that take advantage of a standard service catalog experience higher growth, higher revenue retention and higher profitability. “Since the start of managed services, all the way through 2010 … services have been resource-intensive and highly custom in nature. Custom is the enemy of scale,” said TSIA analysts. “The enemy of scale is the enemy of profit. Digital managed services are not custom, resource-intensive managed services.” The Softer Sell As of early 2022, roughly 40 percent of channel companies surveyed by CompTIA identified as offering managed services to some degree. Of that group, 37 percent call themselves pure-play MSPs, meaning they derive more than three-quarters of their sales from recurring revenue activities. The remaining majority consider themselves as hybrid MSPs, which CompTIA describes as businesses versed and dependent on managed services but still waist-deep in traditional, non-recurring revenue streams of work (think project and product sales). CompTIA surveys suggest MSPs fully understand that cloud is likely to be an essential element of their operations, offerings and business models moving forward, and by and large they are embracing it. Six in 10 MSPs believe cloud adoption has and will continue to increase the relevance of managed services in general, while only 17 percent believe cloud diminishes managed services’ standing in the market. A full 75 percent say cloud as a ubiquitous technology platform has had a positive impact on revenues. At the same time, cloud computing “is a change agent,” CompTIA researchDrivers for Changing MSP Business Model Already driving change Will drive change w/in 12 months Not applicable Customer experience expectations 54% 41% 5% Sophistication of cybersecurity 47% 46% 8% Change in customer procurement 46% 50% 5% Outside economic forces 45% 47% 8% Industry shift to cloud computing 44% 51% 5% Commoditization of managed svs 44% 46% 11% Demand for business consulting 44% 46% 10% PSA/RMM software 35% 51% 14% Source: CompTIA Source: TSIA s? Effects of Having a Standard Service Catalog Source: CompTIA Steps MSPs Have aken to Embrace Cloud Computing 59% 49% 50% 53% NO 20% Yes 80% 19% 15% 94% 6% Yes No 10% 88% Standard Service Catalog? New Rev Growth Operating Income Revenue Retention Invested in ongoing customer experience Elevated cloud management capabilites Created a cloud cybersecurity practice Shifted to business consulting Shifted vendor line card Changed our pricing structure Partnering with ISVs to resell SaaS 43% 42% 39% 36% 34% 32% 25% 6% 12% Accounts Emails & Passwords 32 CHANNELV ISION | SEPTEMBER - OCTOBER 2022
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