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Techaisle Blog

Insightful research, flexible data, and deep analysis by a global SMB IT Market Research and Industry Analyst organization dedicated to tracking the Future of SMBs and Channels.

Top 10 Channel Predictions for 2022

techaisle channel partner 2022

The predictions rely on an extensive research initiative conducted throughout 2021 – the year in which the impact of the pandemic on economic activity and IT consumption was becoming more apparent. Leveraging a panel of over 250K partners, Techaisle surveys more than 5000 partners and has qualitative conversations with hundreds of partners. Techaisle's 2022 in Focus research series illuminates issues and requirements in the vast and complex partner ecosystem.

1. Cloud economics and cost optimization consulting will challenge channel
Cloud cost optimization and economics will be the top cloud consulting service demanded by customers, challenging partners (and their vendors) to provide transparency into cloud costs and ensure that customers receive the best available Ts& Cs. To deliver value to the customer, both partners and suppliers will need to define the current state of workloads and a forecast for the future state, adding value through the development and deployment of processes to support cost optimization and compliance/risk management.

2. MSPs will expand their portfolio to include cloud managed services
Cloud technology velocity will open new services opportunities. For example, as businesses will increase their reliance on cloud-managed services to align IT with business strategies, deep-pocketed, progressive MSPs will increase investment in staff training to grow their professional services revenue. As a result, the MSPs will focus on containers (Kubernetes), microservices, open-source, agile development, API management, hybrid cloud workload management, and security and compliance management.

3. The gap between the cloud "haves" and "have nots" will increase
Cloud vendors will invest in cloud channel leaders rather than in the channel as a whole which will accelerate the gap between leaders and laggards and stress the viability of channel firms left behind. As a result, the year will see a separation between channel partners that have the expertise to combine transformative and traditional business models and those that do not.

4. Vendor and partner equilibrium will be unstable
Vendors have been mitigating channel conflicts through "double bubble" compensation models, creating clear guidelines around where the vendor will sell direct and reducing competition between dissimilar channels. However, the complexity associated with cloud consulting and digital transformation adoption acceleration will have vendors questioning the role of partners. Channel partners will be present in several accounts coveted by direct sales teams – increasing vendor/channel conflict. Vendors will manage conflicts and will not eliminate them.

5. The cloud marketplace will be lots of smoke, but the fire is nearer
ISVs and channel partners will have a tough time finding each other and ultimately finding the end customer. Despite low barriers to entry, few will find immediate profitability. Both partners and marketplace operators will need to build and manage relationships, plug into sales and marketing programs, drive investment in the implementation and support for end-users, and fund all of this on a fraction of the monthly fee associated with each service sold. A high percent of end-users will be marketplace curious and not committed customers. It is not how enterprise customers purchase, as yet. Marketplaces will not kill the channel; instead, channel partners will be a vital link in the buyer's journey.

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COVID-19 Impact - Time to revisit pure-play MSP recurring revenue model

Consider these statistics from Techaisle’s recent worldwide channel sizing and channel trends studies. 62% of MSPs have less than 25 employees, 92% of MSPs have less than US$5 million in annual revenue. A large majority of these MSPs sell to smaller SMBs who are currently experiencing gut-wrenching disruptions to their businesses. MSPs are not immune to the COVID-19 crisis. 15% of MSPs either want to sell their business or wind down and 52% of MSPs need external capital to grow and remain viable or are seeking M&A opportunities. While MSP business model success is predicated on recurring revenue, profitable MSPs drive more than 40% of revenue from non-recurring sources. Pursuit of recurring revenue is not a bad idea as it provides a foundation for future revenue and it is important to business valuations. But data shows that recurring revenue is not the sole indicator of business success.

Recurring revenue can predict earnings thereby reducing risk, however, selling licenses or seats alone does not create a high margin business. MSPs who have moved to predominantly recurring revenue model are more likely to run out of operating capital than they are to reap the benefit of enhanced business valuations or the ability to manage cash flows during an episodic global crisis. Techaisle’s survey data clearly shows that channels with high percent of recurring revenues have been consistently unsuccessful in managing uncertainties in business climate. MSPs that lack margin also lack the ability to invest in improving their capacity to innovate and compete in the long-term and for weathering business interruptions. MSPs that do have meaningful margins, on the other hand, have the ability to invest in capabilities that enable them to expand into new market areas or overcome periods of economic crisis.

A typical pure-play MSP’s 84% to 90% of recurring revenue is spent on human capital, RMM/PSA solutions and other overheads, leaving between 10% to 16% for margins.

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Cloud continuing to challenge SMB MSPs and frustrating VARs but helping CSPs

In a word, the most significant potential disruption factor for the managed services market and channel partners is still cloud. Techaisle data shows that 68% of VARs are offering managed services to their SMB customers but only 46%, that is, less than one-third (31%) of all SMB-focused VARs have been very successful in achieving consistent growth and profitability within managed services. On the flip-side, 83% SMB-focused MSPs have become very successful in their managed services business model. But the MSPs have not achieved the same success in cloud. Only 63% of MSPs are currently offering cloud and although 72% of them have achieved cloud success, it is still, only 45% of all SMB-focused MSPs, slightly less than half of the managed services success. In fact, when extended, data shows that VARs are still caught in a spaghetti junction, they are neither achieving great success in cloud nor in managed services. In the case of MSPs, the overwhelming vendor forces are proverbially narrowing the banks of the river with over capacity.

The success in SMB mobility-focused business model is even lower than cloud and managed services.

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The connection between managed services and SMB business and IT challenges

The subject of “IT/business alignment” has been a hot topic of debate for many years. Yet despite this interest, business and IT interests and objectives frequently diverge. To some extent, this is inevitable: the business is concerned with issues that extend beyond IT, and IT needs to manage issues that are (at least, as long as they are working) beneath the notice of most business professionals. However, today’s business environment is increasingly dependent on IT support, and IT products and services that improve productivity and efficiency or which expand market reach and potential. IT initiatives that can be linked meaningfully to broader business objectives are best positioned to attract corporate support – meaning that products and services that address key business priorities have the greatest potential for growth.

The Techaisle SMB survey, which captured the perspectives of both business decision makers (BDMs) and IT decision makers (ITDMs) in US SMBs ranging from 1-999 employees, looked at key business issues and in particular IT challenges. The list of the most important IT challenges faced by SMBs such as budget constraints and the need to control IT costs and improve justification for new IT investments are both tied to the goal of reducing operational cost, and effective maintenance of current IT infrastructure contributes to reduction in operational uncertainty, and thereby get linked to managed services.

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