Techaisle Blog

A Techaisle SMB and Midmarket adoption trends study of over 5100 SMBs and midmarket firms found that managed services are a priority for 79% of SMBs and 97% of upper midmarket firms. Worldwide spending on managed services by SMBs and midmarket firms is estimated to reach US$104B in 2024. Data from the last five years also shows an increasing overlap between managed and cloud consulting services, with a growing need for cloud cost optimization, security and compliance, and cloud and storage optimization. In the final analysis, Techaisle expects strong growth for managed services as it directly supports critical business and IT needs.

The adoption of managed services is driven by several key factors. These include improving IT security and management processes, proactively identifying and fixing problems, reducing IT and business risks, and enhancing disaster recovery and business continuity readiness. However, the focus of demand for managed services is shifting from infrastructure management to areas such as core security and application management, business process automation, cloud management, analytics, AI, edge and observability management.

Techaisle’s survey of 2115 partners shows that while many VARs offer managed services to their customers, only a small percentage successfully achieve consistent growth and profitability. In contrast, MSPs have been more successful in their managed services business model and have also begun to achieve success in the cloud. MSPs are well aligned with the business requirements associated with cloud sales. They can act as a logical extension to partner activities by providing discrete services that can be delivered efficiently. However, unique business requirements and partnering practices associated with cloud suppliers have proved challenging for MSPs.

Techaisle data shows that 65% of VARs offer managed services to their customers. Still, only 50%, less than one-third of all VARs, successfully achieve consistent growth and profitability within managed services. The data is similar to 2018. Conversely, 71% of MSPs have succeeded in their managed services business model, and 29% are still striving to achieve profitability and success. Unlike the last several years, MSPs have begun to achieve success in the cloud. 89% of MSPs currently offer cloud, and 72% have achieved cloud success. It is two-thirds of all MSPs, up from less than half in 2018.

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.

1. Connected business will be everyone’s problem.

The key focus of business investment will be more about the “work”: the ways that an increasingly-connected business can support pursuit of previously-unattainable objectives. The most important SMB & Midmarket technology-related adoption in 2020 will be this focus on connectedness – cloud, platforms, edge, devices, applications, security, collaboration, workspaces and insights. With the connective fabric rapidly becoming ubiquitous, businesses of all types and sizes will move beyond just the network access, and concentrate instead on using technologies to drive progress across the four pillars of digital transformation: operational effi-ciency, customer intimacy, employee empowerment and product innovation.

2. Momentum building for consumption-based IT acquisition.

Increasingly within SMBs and midmarket firms discrete sales of individual products or integrated systems will be replaced by agreements to provide IT capacity and business functionality “as-a-Service”. In 2020, the trend will be more midmarket driven than small businesses. 20% of midmarket firms will move towards OPEX-based agreements where these firms will look for flexibility and will prefer to acquire technology based on usage – namely IT consumption model – driven primarily because of current IT asset under-utilization.

3. Customer intimacy will take a whole new meaning.

Every SMBs’ survival is dependent upon customers and 2020 will see a ground-breaking year when customer intimacy (acquisition, retention, experience & satisfaction) will drive IT adoption and business process evolution. By the end of 2020, for 45% of SMBs, need for customer intimacy will drive IT adoption and 76% of new SaaS adoption will be customer focused. As a result, 15% of small businesses and 24% of midmarket firms will have “Top Notch” customer facing digital presence.

4. Need for Embedded Collaboration will be clear and present.

Anywhere, anytime also means any type of collaboration. Collaboration solutions cannot be deployed on stand-alone platforms – they need to be viewed as a framework for integrating multiple capabilities, native to multiple applications. By the end of 2020, 80% of SMBs will benefit from embedded collaboration and for high-growth, innovative businesses, effective, e¬fficient collaboration will be in their organizational DNA to deliver decision agility, business agility and innovation agility.

5. Regardless of the question, analytics will provide an answer.

In 2020, SMBs will see a new attitude and culture that will value and use data as a meaningful way to gauge overall performance and specific areas of interest at a glance will become prevalent. SMBs will demand Key Performance Indicators (KPIs) as a standard part of application architectures as well as a meta-directory of KPIs that all applications can access. It may finally become possible for SMBs and Midmarket firms measure and optimize for elusive objectives like Return on Marketing Investment, Optimal Pricing, Cost of Acquisition and Lifetime Customer Value. By the end of 2020, 15% of SMBs will be highly data driven and 30% will be using cloud-based prescriptive analytics and 50% of midmarket firms will demand AI-driven analytical platforms to proactively prescribe actions that will mitigate risk / increase opportunity within the predicted future.