The MSP landscape

Martin Saunders, Product Director at Highlight examines the MSP landscape in the UK, their business models, and the changing needs of their customers. 

MSPs have a really important role, particularly in the area of technology adoption. As technology becomes increasingly complex, MSPs can keep on top of everything, simplify what is on offer and take the role of an expert.

Most businesses have difficulty deciphering the technical ‘hype washing’ presented by vendors that hook the latest buzzwords into their existing portfolios. Providers can identify the vendors that have a coherent and tangible offer in the market. These MSPs are vendor agnostic and can show their value by using the best technology in the market rather than the vendor with the biggest name or marketing budget.

Once the fakers versus the players have been separated, MSPs can demonstrate their knowledge and experience in using the technology. These MSPs will invest in training their staff to get fully qualified and certified. They can also show the practical application of the technology by demonstrating successful case studies.

Most importantly, there is nothing in the title of ‘managed service provider’ that is about technology. A managed service is separate from the technology. The MSP is selling a service and it is all about making it simple for the end customer, who then doesn’t have to train up personnel to use the technology.

The challenges facing MSPs

Financial uncertainty is a big issue. When businesses go through financial difficulties, it has a knock-on effect for MSPs.  If a customer with a long-term contract suddenly closes, the MSP is still responsible for the underlying services that cannot be cancelled. The revenue vanishes but the costs remain.

Highlight is designed for service providers. As a pure SAAS provider, MSPs can add or remove Highlight services at any time, without penalty.  So as usage goes up or down, so does the monthly invoice.

Remote working presents another challenge. Businesses that relied on their office space, now have staff working from home. This poses a commercial challenge. Potential long-term contracts that were very lucrative are being cancelled and replaced with more residential broadband connections.  Whilst this is a challenge, it is also a big opportunity. As part of this switch, MSPs can capture some of that reduction in office-space spend and channel it into the technology and infrastructure that facilitates a better home working environment.

How are MSPs changing their businesses?

For most MSPs, the big change is from one-off sales to recurring revenues. Everyone in the industry is in some phase of this transition. Some are close, others are still getting revenues from single contracts and maintenance deals. The switch to a recurring revenue model requires MSPs to build a new organisational structure with account managers that look after and service customers and ensure everything is performing.

The finance department is also having to adapt. To move to a recurring income, MSPs need billing systems that can keep track of costs alongside recurring incomes. One of the biggest mistakes for new players is that they go out of sync with what services they buy compared to what a customer is paying for. The MSP ends up paying for services that are no longer being billed to the customer. We know of service providers that have got into significant financial difficulties because they’ve not kept control of their recurring cost base.

Vendor relationships

MSPs that used to sell boxes are now selling subscription models. And vendors need to change the way they support this new type of MSP business.

Most technology vendors do not understand the MSP industry. Many think the MSP is like an enterprise with little recognition of the customers beyond. This is very dangerous, as the vendor’s products and services will be designed with enterprises in mind and won’t cater for multi-tenancy and the flexibility required by service providers.

Or the vendor thinks of the MSP as a simple reseller. Here they think the end customer is their customer which can result in channel conflict if they make a direct approach to end customer.

MSPs are a very special animal and vendors need to be totally focused on how they work. For the last 20 years, Highlight has been designed for our MSP partners and their specific needs, helping them to excel in customer service, as well as ensuring a positive reputation in the marketplace.

The next generation of MSPs

The new MSPs emerging are 100 per cent recurring revenue-based and service orientated.  They are typically asset-light. They do not have lots of equipment and they do not build data centres or networks. They avoid heavy assets because they drag these types of businesses down. This makes them more agile from a technology point of view.

The new MSPs are also very service orientated. They focus on solving customer problems and creating outcomes for the customer. They often focus on solving problems in specific vertical sectors such as retail, recruitment, or manufacturing. As experts in their area, their portfolio of services is narrow but deep.

In contrast, the more established MSPs have a wide but thin portfolio, selling everything but are masters of none.

This new breed of MSP often become an acquisition target for traditional MSPs. They buy them and then leave them alone to become an incubator within the business.

Highlight is the platform of choice for MSPs that want to deliver a superior customer experience and a fully managed service for networks.