Now that managed service providers (MSPs) have weathered the initial economic storm brought on by the downturn in the global economy caused by COVID-19, many MSP leaders are wondering what’s next.
There’s no doubt in the first half of the year the rapid shift to working from home bolstered demand for managed services. At the same time, the rate at which application workloads are moving into the cloud is increasing and digital business transformation initiatives are accelerating.
However, it’s not clear to what impact ongoing economic uncertainties will have on end customers. A global survey of 937 IT professionals published by Netwrix, a provider of tools for securing sensitive data, finds only 24 percent of organizations in the U.S. plan to focus on cloud migration projects, while only 28 percent will prioritize digital transformation initiatives. More than three quarters of respondents said network and data security is their top priority through 2020.
MSPs will follow where their clients go
A survey of 346 MSP executives conducted by Enterprise Strategy Group (ESG) on behalf of BitTitan, a provider of tools for migrating email inboxes and documents into the cloud, finds on average 44 percent of their employees will be working on managed services that will be delivered via the cloud two years from now, up from 36 percent from today.
That transition, obviously, is not happening overnight, but it is inevitable. The challenge for MSPs is determining to what degree they will want to resell a cloud service provided by a vendor versus rolling their own. The ESG survey finds that even though upfront investment costs may be higher, more MSPs are generating higher margins when they roll their own cloud service.
The top three challenges cited by MSPs are determining the right pricing for different managed cloud services; the poor margins they currently receive on those services; and developing the sales and marketing campaigns required to sell those services.
The survey finds the primary reasons for providing managed cloud services in the first place is to remain a trusted advisors to clients (63 percent); shift business model to recurring revenue ( 50 percent); minimizing risks to the business (50 percent) and customer demand (49 percent). By and large, MSPs can’t afford to not deliver managed cloud services. The issue is how to do so profitably at a time when for every customer accelerating their investments in the cloud, there might be three others pulling in their horns.
American MSPs should not expect clarity from customers any time soon
It’s not clear to what degree the U.S. government will continue to prop up the economy. It’s also a presidential election year so many business leaders may be inclined to sit pat when it comes to making IT investments until at least November.
Given all that uncertainty, savvy MSPs will place their bets wisely. Many of the application workloads moving to the cloud may not arrive there until 2021. In the meantime, it appears IT teams are focusing on security and network fundamentals. MSPs may need to maneuver into a better position to provide cloud services, but it’s also apparent that networking and security services may be what keeps the proverbial lights on for MSPs long enough to take full advantage of the cloud services opportunity at a future date. As is usually the case, slow but steady will win the race.
MSPs as a rule, of course, are generally prudent. However, going into the second half of 2020 it would appear now is the time for MSPs to exercise even more caution, at least until a critical mass of clients start to send some clearer signals.
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