New research sheds light on how the managed service provider sector has been transformed by the pandemic. By Sooraj Shah of NS Tech.
Despite being in an industry that hasn’t been as affected as many others during the coronavirus pandemic, many managed service providers (MSPs) have still had to rely on government financial relief programmes.
However, the majority have managed to keep the same number of staff on, and have adapted their products and packages as a result of coronavirus in a bid to support customers who have been struggling.
These are the findings of a survey of 500 MSPs across Europe, North America, Australia and New Zealand, undertaken by IT management software provider SolarWinds MSP.
The majority (59%) of MSPs said they had applied for government financial relief programmes, with 74% receiving the help they needed. The programmes vary significantly by country and region, and include a wide range of options such as loans and furloughs – although SolarWinds MSP did not ask for details on the specific types of relief considered.
More than 80% of respondents said they had continued operating at their pre-pandemic staffing levels, meaning employees had not been put on furlough or made redundant. In the UK, the proportions are significantly different – with 55% stating that they were operating with existing staff. This is because they took advantage of the government’s furlough scheme in a bid to preserve jobs in the long term, which resulted in more furloughs than in other regions.
However, overall it still means that a fifth of staff have been either let go or furloughed by MSPs.
Colin Knox, vice-president of community at SolarWinds MSP, tells NS Tech that this should not impact the overall positive outlook for MSPs.
“The market outlook for MSPs is strong, with projections of growth at a CAGR of 9–12% over the next three years.
“Like many businesses, Covid-19 may have had a temporary impact on such things as staffing, but we believe MSPs – with the right business model – are poised to thrive as we move forward,” he says.
Services and packages have changed
Some 59% of managed-services-centric businesses said they were offering more security bundles than any other business model, as they are adapting security services for work-from-home clients. In addition, many MSPs have been offering their customers various other support mechanisms. For example, nearly a quarter (24%) have offered delayed payments, 23% have offered temporary discounts and 19% have reduced their services to fit shrinking customer budgets.
Although almost two-thirds (65%) of MSPs do not anticipate making any pricing changes to their managed services package in the long term, 13% say they intend to increase their prices following the pandemic. This is surprising, as although it may mean companies holding their prices until the pandemic is over, cash-strapped customers may be hoping for prices to remain the same for a longer period of time.
However, Knox says that the price increases may be a necessity for MSPs.
“In order for them to continue to grow and meet the market’s demands for such things as increased security services and more operational support, they will need to invest in their businesses, which in some cases will mean price increases,” he says.
“With that said, while pricing increases may be warranted to accommodate the heightened expectations some clients may now have as a result of the pandemic, MSPs need to ensure they communicate the value and listen closely to the market to see if it will bear the increased price in general,” he adds.
MSPs are wary of the challenges they are likely to face over the next year, and according to the survey the biggest barriers will be securing new customers; social distancing requirements in the office and at customer sites; lower IT budgets and spending due to the recession; and adapting to having staff and clients work from home.
At the same time, they see opportunities to increase revenue in the next year by increasing the amount of security services they provide, and increasing cloud services sales. Some 40% of the largest MSPs say that they are likely to engage in a merger or acquisition in the next 12 months to support growth.
According to Knox, MSPs who operate as “true managed services providers” rather than break/fix providers, and have worked smartly in regards to their finances and cash reserves to prepare for potential unknowns, are the ones that have tended to fare the best.
“Those who operate in a more reactive mode with less financial solvency, as in any business, are not going to be as likely to do well in this type of environment,” he says.
“The ones with the higher cash reserves are the ones who were focused on driving operational efficiencies to be able to run at a higher level of profitability, so the adjustments to any contracts (discounts or non-payment) would not have put them in crisis to the same extent,” he adds.