Managed service providers in Jay Dixon’s corporate peer group recently banished a member. The charge: it was not a true MSP.
The company, a large telecom aggregator with a network operations center, protested that it was signing managed services contracts and handling tickets just like any MSP. The rest of the peer group countered that if the company didn’t manage the local area network, it wasn’t worthy.
“They basically kicked them out of the group,” Dixon, founder of Criterion Consulting, told Channel Dive.
The anecdote reflects the growing territorial scuffles in the broader IT partner landscape as more and more companies identify as managed service providers. The drivers are myriad; OEMs are abandoning capex models and bringing resellers along, investors are rewarding recurring revenue and customers are looking to place their IT, network and security estates under a single outsourced provider.
Swimlanes are blurring as providers from diverse backgrounds seek to expand managed services revenue. MSPs are moving upmarket and adding security practices that threaten pure-play managed security service providers. Formerly telecom-focused firms are bolstering their help desk practices and positioning to acquire their way into the LAN. Value-added resellers continue to pivot into managed services and are using Microsoft licensing as a Trojan horse to move downmarket.
The definition of an MSP is set to evolve in the next year as consolidation continues to shape the industry and MSP models develop around AI management, Telarus VP of Cloud Chad Muckenfuss said.
“I think everybody wants to have the name or the title of managed service provider. What that means is kind of up for debate,” Muckenfuss said.
It’s a crowded field. Channel Dive sister company Omdia estimates that 46,500 “pure-play” MSPs — deriving 50% or more revenue from managed services — exist. The number doubles to 96,000 when the threshold is lowered to 30%.
Making 50% the cutoff for defining an MSP is useful in determining whether companies view managed services as core or an add-on, Omdia Principal Analyst Jessica Davis told Channel Dive, but it’s hardly a shibboleth.
“The market is not that neat anymore. More types of partners are moving into managed services, including VARs, systems integrators, telcos, service providers and consultancies,” Davis said. “The attraction is clear: managed services create predictable recurring revenue, which can help smooth out the ups and downs that come with project work or product resale.”
In the midmarket and lower enterprises, CIOs are looking for ways to consolidate their partnerships. Currently, many of them work with a traditional MSP, an MSSP and a managed network service provider for different parts of their business.
But as technology consolidates — secure access service edge bringing security and network together, for example — the same may happen for partners.
“You kind of go through the bundling and unbundling phases of technology buying,” Eclipse CTO Kirk Armstrong said. “For a while it was, ‘Let's bundle everything together.’ You had this one big, beautiful haystack that just got thrown all over the field. And now clients are saying, 'Well, I don't really want to manage all these things.”
The availability of cybersecurity tools for MSPs is also driving the convergence, Ntiva Director of Product Management Ted Brown said. It’s now table stakes for a mature MSP to manage the customer’s security.
For Eclipse, a consultancy that matches customers with different MSPs, it’s important to understand just how different the MSPs are.
“MSP is such a widely used term that you have to just really be honest and say, 'What does MSP really mean and what is the core practice area of this MSP?’” he said. “... We're all having to learn what's outsourcing versus what's MSP versus in-between?”
Telecom and the MSP
Partners see a distinction between born-in-LAN and born-in-WAN MSPs.
Spectrotel, which recently merged with Airespring, is a born-in-WAN company aggressively pushing the MSP label, as it automates its networking ticketing platform and resells Microsoft. Many of its sales partners continue to call it a telecom aggregator, but Spectrotel CEO Ross Artale disagrees. That’s because, as he sees it, the LAN has effectively been gobbled up by the WAN.
“Everything is now controlled from the cloud. The managed services of the network and the connectivity are now synonymous,” Artale told Channel Dive in March. “They're one thing now. The enterprises are saying, 'We want to source this from one provider.’”
Muckenfuss said Spectrotel and its born-in-telecom peers still have further to go in managing desktops and other core MSP product areas. If they have such ambitions, they’ll probably need to buy the core MSP practice.
“To try and build it from the ground up is extremely costly. You're going to have to hire layers and layers and layers of people. Yes, they have the help desk, but it's not a traditionally IT-based help desk, so it's a whole different mindset of product knowledge, of ability, of troubleshooting, etc,” Muckenfuss said.
On the flip side, the telecom aggregators have a strong presence in the midmarket, where many traditional MSPs aspire to rise but fail to reach.
They also have a defensible foothold in the network. Dixon said most MSPs don’t have the ambition or resources to move into telecom. Those who do choose to broker telecom services as technology advisors, if they don’t want to actually manage telco.
“Most of the middle-of-the-ground MSPs, though, understand that it's distracting, and they shouldn't get into that segment,” Dixon said.
VARs becoming MSPs
VARs have long tried to pivot into MSP models; not all of them have been successful.
It’s partly because those VARs still hold on to their VAR roots and remain focused on large one-time hardware deals.
“We can go chase this $2 million bid for a bunch of laptops. It's only a 3% margin, but it's a big old deal, rather than chasing a $4,000 a month recurring services contract,” said Dixon, who previously worked with a born-as-a-VAR MSP. “Their focus gets split, and they don't have full commitment to it.”
Other VARs knew they couldn’t do it on their own.
“They really didn't have the aptitude to re-transition their entire organization,” said Xtium Executive Vice Chairman Frank Scanga, whose company acquired multiple VARs. “Now it's our job to go in and transition to how their customers are consuming technology. Instead of buying that project infrastructure, they would look at a managed network services solution.”
The other challenge of a VAR-turned-MSP is its dependence on specific vendors, be they Cisco, HPE or another large OEM. Armstrong said he and his customers are looking for MSPs that are vendor-agnostic enough to pivot.
“I don't want my vendor to be in conflict when I need to go from edge to cloud,” Armstrong said. “I want them to be aligned with my business as I say, ‘Hey, my use cases are this today; they're going to be this in three years.”
The advantage that VARs and systems integrators have over MSPs lies in their project work. MSPs are increasingly looking at those types of companies as acquisition targets as customers ask for consulting and integration around AI solutions. Much of the AI work will start as one-time projects before turning into managed services.
“So the bigger question may not be who gets to call themselves an MSP,” Davis said. “The better question is which partners can help customers across the full lifecycle: assess, design, implement, secure, govern and then manage the environment over time.”
