The global coronavirus crisis is creating new challenges for businesses around the world. In April, the Office for Budget Responsibility (OBR) warned the economy could shrink by as much as 35%, with two million job losses. This is a stark outlook indeed, with many small businesses already taking a bit.
The economic effects of this unprecedented situation will be felt throughout the IT channel, but perhaps post-pandemic, there may be some silver linings and opportunities for managed service providers (MSPs) to bounce back with a vengeance. The truth is that many of them are currently doing a very essential job in helping their clients stay online and businesses to remain open, but the value of the services MSPs provide is often under-appreciated. This may change.
Let’s face it, at any other point in history the industry would not have been prepared for the vast number of small and medium-sized businesses (SMBs) to transition to remote working – neither from a technology nor from a service delivery perspective. Without the support of their trusted MSPs, who knows how many companies would be out of business right now?
This is a time when MSPs really deserve a pat on the back. And when we finally come out of the pandemic, we may look back and see that the channel actually proved to be more resilient than ever before.
Recurring revenue models have strengthened the channel
For a start, MSPs are in a much better position now than they were during the 2008 recession. Then, the MSP model was still coming to fruition. There was a lot of hesitation about whether this was the true evolution of the SMB channel. MSP technologies such as remote monitoring and management (RMM) and professional services automation (PSA) were still maturing.
But, as the recession hit, the MSP model finally made sense. Converting from a project-based, break-fix model to a monthly recurring revenue model brought a steadier and more predictable income stream for MSPs. For SMBs, it translated into a more digestible IT investment with smaller, monthly invoices rather than larger lump sums payable for distinct projects.
As a result of this shift to recurring revenue contracts, today the channel is in a much healthier position. Those MSPs who have evolved should be better equipped to charter these unsteady and trying times: In fact, research shows that while MSPs are adjusting growth expectations as a result of the COVID-19 crisis, they largely expect to weather the storm and even to find new opportunities.
Ongoing security and new remote working needs
Despite lockdown shifting priorities, and affecting various areas in different ways, security is one area where standstill is not an option. The pandemic has brought with it its very own wave of ransomware, phishing and other malware-related attacks. Cybercriminals are targeting organisations of all types, using the crisis to prey on businesses when – and where – they are most vulnerable. MSPs will continue to play a vital role in protecting businesses from these threats using technologies like SaaS protection and business continuity and disaster recovery (BCDR) to ensure their clients can operate without interruption.
Of course, social distancing has made it more challenging for MSPs to complete certain types of work and make on-site visits to clients. Some projects have been delayed due to changing priorities and frozen spending, while others, such as new client PC rollouts and cloud migrations, have accelerated.
MSPs with a more diversified client base may fare better as losses due to some clients’ financial instabilities are partially offset by spending increases from other clients. Growing demand for remote access solutions and cloud migrations, for example, is creating additional opportunities.
And after an initial wave of setting up secure remote access and work-from-home solutions for their clients in the first few weeks of the pandemic, some MSPs are now beginning to see new ways to provide value to their clients. VoIP, business continuity, Azure migrations, hardware sales and business resilience solutions are all areas likely to drive revenue. Some projects previously on the back burner have suddenly become a priority overnight.
A shifting market
While conscious that business may ultimately slow down, MSPs also suggested, according to research, that they see an opportunity to improve their internal processes and systems. Doing so should provide a better foundation for growth when normal business resumes. MSPs with a solid balance sheet and cash flow even expect to acquire both new employees and new clients, due primarily to smaller or leveraged MSPs going out of business or missing SLAs.
Just weeks ago, MSPs were having a very hard time finding good tech talent. While there will be staffing reductions in some firms, the flipside is that this may also present an opportunity for many MSPs to bring in more tech talent and strengthen their ranks.
The uncertain situation today may also accelerate further shifts in the market. In recent years, we’ve seen a trend of MSPs acquiring and merging with other providers. Those businesses looking to grow may now be able to offer a lifeline to struggling MSPs through such mergers and acquisitions.
We are still in the early days of this pandemic and no one knows how and when we will come out on the other side. Nevertheless, it can be helpful to find the brighter side of bad news. It is largely thanks to MSPs that companies are equipped with the technology and expertise to deploy their workforce remotely. Because of this key role in ensuring businesses can keep operating, governments have acknowledged that MSPs provide essential services to communities – a recognition they deserve. Eventually, out of this difficult situation, we may see the channel emerge stronger.
Mark Simon is EMEA managing director at Datto
