As far back as 2009, industry media (in articles like this one) were announcing the factors that were already triggering a critical move from the reseller model to the MSP model.
Customers’ reduction in staff and IT budget, hardware end of life, and the rise in remote and virtual working were foremost amongst them.
None of these things have gone away. So if you’re still a traditional reseller, how do you break out of break-fix and into this thriving MSP market? What are the benefits? And is your business really suited to doing it anyway?
From reseller to MSP: the benefits
Let’s start with the upside, distilled from these points, previously identified by IT channel analyst Paul Myerson (with some caveats!):
- Recurring revenue – The MSP model is based around an established monthly income that can increase as more users are brought on board, whilst keeping the costs of that onboarding extremely low. Result: more predictable budgetary planning, but also keener margins!
- Add-on sales – The delivery of MSP solutions, particularly in a cloud context, is much easier to “build out” than in a traditional reseller scenario. The MSP can bundle additional products and services during the term, which enables them to extend the contract.
- Brand trust or marketing muscle? – Many major vendors now sell solutions that were designed from the ground up for the MSP and cloud market, so there is a strong baseline of credibility in these offerings.
But if you choose to white-label your service (and many MSPs now do) you lose much of this brand association, so you need to hook up with a vendor that helps you to plug the credibility gap by giving you ready-made end-user marketing campaigns and content.
These help position you as a knowledgeable, trusted advisor. And, as Myerson notes, “The trusted advisor can charge more…”
- Customer penetration – The MSP model is often seen as a “hands-off” approach, but the fact that an MSP can quickly spin up and remotely support new services is a catalyst to further customer demand. The MSP model doesn’t eliminate customer touch-point - it gives the ones that remain the potential to be much more lucrative!
In addition, as we’ve noted in a previous post, as the MSP model essentially allows you to move from owning reseller licences (capital expenditure) to subscribing to a service (operational expenditure), it avoids those big upfront licensing hits to your bottom line.
But is the MSP model right for my business?
All that said, the MSP model is not a panacea for all resellers’ ills. As this excellent piece in SearchITChannel explains, you might struggle if you have issues with:
- Technical and support expertise – You can buy this expertise in from the vendor if you can’t front it yourself, but if you’re sourcing the solutions from a distributor then relying on the vendor adds an extra dependency into your service capability. Look for a distributor with their own in-house technical and support expertise.
- Complexity of service delivery – Acccording to research from Markets and Markets2, the annual growth of the SMB managed services market will exceed 20% by 2020. So even if you don’t focus on enterprise clients, as an MSP you would likely be delivering more services and managing more customers and users than you ever were in the reseller regime.
If your reseller business can’t shift, technically and culturally, to using more automated methods to accommodate this, such as the RMM (Remote Monitoring and Management) tools that we explored in an earlier post, it’s heading for meltdown.
As one RMM vendor opined in this piece, “…a new MSP must be careful not to over-commit themselves; doing so may put them at risk of losing money very quickly”.
But if they can avoid this by being “proactive” and automating “some of the routine IT support responses”, they can “offer far more value to their customers.”
- Change and evolution – Lack of MSP market knowledge and skills can be a serious hindrance, but many partners have been reluctant to embrace MSP and cloud learnings, even though they are capable of boosting their business.
Market researcher ESG, for example, cited in this piece in MSPMentor, found that “most partners remain dependent on traditional product resale and express discomfort when it comes to the financial risk of change.”
Again, this is a strong argument for working with distributors who have extensive MSP market knowledge and can help influence internal stakeholders by “hand-holding” them - from validating prospects to providing support when the service is up and running
But it’s also a strong argument for going for the low-hanging fruit first. According to this piece in MSP Alliance, for example, “Even the least skilled MSPs can deploy an effective cloud backup solution… Backup can be a very lucrative business line for MSPs… it does have the potential to be a big part of any MSP's service catalog.”
And that data backup is just one part of a much wider cloud security opportunity; one that, according to the same publication, is “set to experience double-digit growth” from 2014 to 2017, with “everything from email security to identity and access management heading to the cloud.”
Focus here first, then, perhaps?
Conclusion: MSP is not without its challenges
But the MSP market’s not all fat margins and cake for everybody. In fact, as this recent article argues, it’s becoming something of a bear pit.
Companies that previously had no MSP aspirations or skills at all – office equipment dealers, print companies, and so on – have all “thrown their hats into the ring as managed service companies.”
On the one hand, perhaps if they’ve made the leap to MSP, you can. But unless you can differentiate yourself in a crowded market – through vendors, solutions and distributors that give your services some kind of distinctive edge – you could find the going rough.