Fear of cyber attack and new European legislation is prompting customers to increasingly seek support through managed services, driving significant growth in the European channel. This is according to a new report by 2112 Group on behalf of Barracuda MSP, a division of Barracuda Networks Inc., entitled The State of European Managed Services.
Some of the top-line findings include:
- 91 percent of solutions providers report revenue from managed services.
- 45 percent already offer some form of managed security services or plan to in the next 12 months. A further 37 percent are exploring security as an expansion option.
- Biggest security services purchase triggers: fear of security breaches (45 percent), suffering a security breach (33 percent), regulatory compliance requirements (33 percent).
- Half (50 percent) claimed managed service margins are increasing, and 60 percent agree managed service prices are increasing.
The report is based on a study of channel organisations in the UK, Ireland, France, Germany, the Netherlands, Belgium, Italy, Luxembourg, Denmark, Sweden, Norway, and Austria. Let’s look at some of the key takeaways and a word to the wise.
Security is the foundation of European managed services
Although fear of cyber attack and concerns around GDPR are prevalent, so is the opportunity to capitalise as managed services now form the basis for the channel’s underlying business model. More than three-quarters (76 percent) of survey respondents said recurring revenue services (managed services) were the top contributor to their growth in 2016.
As everyone knows, a cyber attack could prove fatal for an organisation in terms of damage to an organisation’s reputation and irreparable financial loss. And, according to a separate survey Barracuda conducted in the UK earlier this year, 92 percent of businesses are concerned about ransomware hitting their organisation. So, it’s logical that mounting security threats, increased European Union security regulations, and the on-going skills shortage will alert businesses to turn to managed service providers to close the gap in their IT needs. By some estimates, GDPR alone will cause pan-Europe security spending to increase by as much as 2.8 billion Euros annually.
A full 20 percent of European solution providers offer some form of managed security services. More significantly, another quarter are planning to add security services within the next 12 months, and 37 percent are exploring security as an expansion option. Conversely, less than one in five solution providers have no plans to offer security services.
Could you be doing more to serve customers’ security needs?
The 2112 study found that most providers of managed services with security in their portfolio offer firewall management, data loss prevention (DLP), and endpoint security services. These align to just the basic needs for Europe’s staunch data protection regulations. Few companies are offering more advanced technologies, such as vulnerability management, encryption, and security information and event management (SIEM) services.
In other words, only a small number of service providers are offering comprehensive suites of security technologies. Most appear to provide point solutions that are tangential to their core managed services or product offerings, and they remain largely focused on addressing only immediate needs. Solution providers don’t seem eager to create end-to-end security services that address a multitude of technologies and threat mitigation needs, which could be proving a missed opportunity.
Recurring revenue streams will be king
Although it seems channel partners are split (50 percent) on whether managed services margins are increasing, according to the findings, channel companies that identify as MSPs exhibit the best recurring revenue and profitability performance. The majority (60 percent) of partners also agreed managed service prices are increasing.
Nearly all channel partners (91 percent) are taking advantage of the market conditions, offering some form of managed services and earning at least 10 percent of their revenue from recurring revenue engagements.
The 2112 survey notes that the average channel company growth is reaching up to 20 percent annually. The businesses in this survey grew, on average, 17.5 percent in 2016.