After COVID, an opportunity for managed service providers

MSPs get their digital houses in order to succeed in a fast-growing market

Like many companies in early 2020, managed service providers scaled back revenue forecasts in response to the pandemic. Many slashed growth targets—expected to be 17% for the industry as a whole—by half, according to Datto, a software provider to MSPs.

These fears were misplaced. Companies worldwide hired MSPs to help transition their operations to remote working. As a result, those 2020 growth projections are back up to around 17%.

Not all MSPs will profit equally. The biggest winners will be those that help clients make major shifts to the cloud, not by moving over a few applications but rather by creating highly integrated, cloud-based platforms that give employees access to everything they need in a more intuitive, responsive, cost-effective way.

In 2020, revenues for MSPs that provide public cloud service are expected to increase 38% from 2019, according to ChannelE2E, an industry publication.

Many companies see these trends as an opportunity to spend less of their technology budgets on daily operations and more on innovations that can drive business results. MSP leaders such as Accenture, Deloitte, and KPMG are working with technology companies, including ServiceNow, to deliver improved employee experiences, including the ability to access any app through a single sign-on.

Unisys, for example, runs many citizen services for the State of Georgia on an outsourced infrastructure with a modern security architecture that allows the state to respond quickly to threats. The platform also includes “cloud broker” technology that continually negotiates optimal pricing from AWS, Azure, and other cloud platforms. That’s important given the fluctuating cost of public cloud services.

The pandemic fueled many of these efforts, as companies began moving their legacy apps (such as massive, mission-critical database and ERP applications) to the cloud. But most businesses still have a long way to go.

To succeed in this fast-growing market, many MSPs will first need to get their own digital houses in order. For example, most of Accenture’s 506,000 employees log on to an interface that gives them access to hundreds of applications that run on ServiceNow’s Now Platform. That helps them deliver the same innovations to clients.

To understand more about the opportunities and challenges facing MSPs in the year ahead, we chatted with John Spencer, senior director of MSP product strategy at ServiceNow.

How has the pandemic impacted the MSP market?

Spencer: COVID has accelerated everything to do with the cloud. For many companies, shifting to the cloud is a heavy lift that involves many migrations, getting used to new kinds of infrastructure, and developing a new set of skills to manage it.

For many large applications, there are lots of people who know how to run it in a company-owned data center. But not many know how to run it in AWS or Azure. That’s not a capability you can just go out and buy.

What are customers asking for?

Spencer: They want mobile-first, employee-driven experiences, where all of their applications are integrated behind a common front-end, such as a collaboration tool like Microsoft Teams. But it has to be mobile-first and simple to use, and it needs to work with everything.

Do MSP clients see this as an opportunity to outsource more of their IT operations?

Spencer: Absolutely. Anything to do with managing employees’ laptops or mobile devices or anything physical, they want to be out of that business.

You’re describing a long-term change in how the industry will work. What do you see happening right now?

Spencer: When you’re moving mission-critical workloads like SAP, most enterprises aren’t doing it on their own. So the first cycle has centered on the biggest MSPs who have the biggest practices for these workloads.

But we’re also seeing MSPs wanting to move beyond providing advisory services. They want to stay around and run these systems for the client. One of the major ones came to us and said that in five years, they wanted their main source of revenues to be recurring services. If that’s true, they can’t rely on one-off engagements as much. That’s why every one of the big advisory firms is investing so much to operate managed services.

This is a fundamental change in how MSPs need to interact with their clients. Today, 85% of ServiceNow customers run their own instance of ServiceNow. Only 15% of customers have their instances run for them by an MSP. But that’s going to change.

What will distinguish the MSPs that will benefit most if growth projections for the industry pan out?

Spencer: A lot will depend on what they were focusing on before the pandemic. The companies who are still dependent on selling face-to-face, one client at a time, are going to be under severe pressure. If you haven’t been productizing your expertise and thinking like a product company, you may be in for trouble.