Discussing The Future of Managed Service Providers

Paul Bates is director of sales for EMEA at OpsRamp, and has 20 years experience in the carrier and managed service provider (MSP) space, including VP of Managed Services for a large, multinational systems integrator and MSP. We spoke with Paul about recent changes in the MSP sector.

OpsRamp: The managed service provider (MSP) sector has been going through big changes over the past few years, just like other areas of tech. Can you break it down?

PB: If we look at the real driving change, it is public cloud and the innovation it has brought to market. Public cloud pricing is incredibly transparent. It’s simple for an enterprise to look at the cost of the base platform and compare it with a comparable service offered by an MSP. The public cloud providers have also made it very easy (some may say too easy) to consume. If you look back several years, many MSPs were making significant profit from IaaS services. I have seen examples of businesses running 10% to well over 50% in profit before tax. But now, MSPs have to compete on two fronts: lower unit costs and the ability to offer shorter term contracts. The net impact is lower profits.

OpsRamp: How should MSPs pivot then to increase margins and become CSPs?

PB: Enterprise customers have a lot of choice and they are now looking at which platform (on premises, hosted, public, SaaS) is the most suitable for each workload/application. If MSPs are to truly meet customer and marketplace needs, they must shift from being a service provider delivering in-house services into a hybrid cloud service provider (CSP) which can offer flexible options that are still competitive on price.

Alongside the adoption of public cloud, SaaS applications and cloud-native technologies, MSPs will need to make some big bets. Do they move up the stack and invest in development practices and the creation of IP? Do they become industry experts with a clear focus on a single or specific set of vertical markets? There is no right answer, but failing to adopt an IP or specialist stance is very likely to result in a decline in competitiveness and profitability.

New Ways to Measure Profitability as an MSP

The modern MSP, which now both complements and competes against large CSPs such as AWS, GCP and Azure, needs new profitability strategies, such as:

  • How do I increase revenue faster than I add staff to operate contracts, given the cost of acquiring new skills?
  • How do I innovate client contracts to offer a better service and increase the profitability during the contract?

MSPs should focus on these profitability metrics:

  • Company profit: operating cost of delivering services will be key
  • Profit per contract: the measure of profitability for each contract
  • Profit per service line

OpsRamp: What technical expertise is imperative for MSPs / CSPs?

PB: Moving from a focus on in-house services to a hybrid and multi-public cloud model is a challenge in its own right: hiring, training and retaining these skills will be costly and challenging [see the OpsRamp Cloud Skills Report]. The second impact of multiple clouds is multiple toolsets. Managing these tools is one challenge. Managing the interdependencies and integrations of these tools and offering business context to clients is a much greater challenge. MSPs need to use technology to drive efficiency—be that fewer tools or using the tools to drive positive service and business outcomes.

OpsRamp: How can MSPs tailor services to business stakeholders?

PB: Partnering is critical. As the complexity of client platforms and business objectives increases, MSPs will have to create ecosystems and work alongside partners with specialized and complementary capabilities. Enterprise customers are looking to capture business outcomes, which entails moving from SLA or performance and availability metrics to the measurements of a service or application. Business context and transparency is becoming a must-have quality for service providers.

OpsRamp: How is Covid-19 affecting MSP strategies?

PB: Covid-19 will likely affect the services which customers demand and the operating model of the MSP itself. There are several common themes that have become apparent for enterprise needs now and over the next several months. These include secure and reliable remote access capabilities, high-performing collaboration tools, the resurgence of BYOD which requires strong  infrastructure monitoring and security practices, and the expansion of public cloud and SaaS. The push for digital transformation and the demand for cloud-based services accelerated during and after lockdowns and many pundits expect this trend to continue through the remainder of 2020 and beyond. MSPs will need to emphasize these areas of expertise in their offerings immediately and demonstrate to customers how they can deliver a secure, high quality, 24x7 service in a distributed, remote work environment. They will need to deploy tools that give their operators complete visibility into the customer environment and provide an audit trail. Compliance will be critical and contractual.

OpsRamp: What will be the greatest change to how MSPs work?

PB: Given the highly competitive environment with large MSPs and CSPs, using automation to deliver services will be critical. If an MSP is not investing in technology such as AI to automate repetitive tasks, it will be very difficult to increase profits moving forward. My advice to every MSP today: use your finite people skills to differentiate and innovate, not operate systems that a machine can do with equal or better outcomes.

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