Managed services providers (MSPs) are facing their first major identity crisis as the average price per seat they are able to charge continues to tumble.
We're all used to reading only glowing headlines about the MSP market.
But while it's undoubtedly a vibrant sector, players in this space are being hammered by an erosion in what customers are willing to pay for their core services. Indeed, one provider I spoke to estimated that the average price it claws in per seat has fallen by five per cent over the last four years, not including inflation.
Leading MSPs are therefore under pressure to re-invent themselves and add more higher-value services to their repertoire.
This could be in some of their traditional domains, such as security, or backup and disaster recovery, or it could be in completely new fields such as the Internet of Things (IoT).
Part one of this feature delves into what some of the UK's leading MSPs are doing to turbo charge their sales and margins in the area of backup, while parts two and three will look at IT security and IoT, respectively.
Backup and disaster recovery (DR) may not be as sexy a topic as cyber-security, but the increasing value customers are placing on data means many smart MSPs are also adding to their repertoire in this area.
Top MSPs are spotting opportunities within the backup and DR arena to offer higher-value services, increase customer stickiness and retain higher margins.
"We're actually increasing our profit by giving away the device in certain instances," - Paul Tomlinson, Mirus IT
Paul Tomlinson, managing director of Mirus IT, said the commoditisation of traditional MSP activities means Mirus IT typically now faces two or three competitors on every deal. As a result, the average price Mirus IT receives per seat across its entire base has reduced by five per cent over the last four years, Tomlinson said.
Mirus IT is therefore having to launch higher-value services and become more efficient across its business, with backup and DR no exception, he explained.
"We are starting to analyse the usage of our time on backup-related issues," Tomlinson said. "If customers are logging lots of issues, or taking lots of our time, we have started to give them BUDR [backup and DR] devices for free. We're making sure they're not suffering from any data loss, but at the same time we're also reducing the time we're expending on the customer. We're actually increasing our profit by giving away the device in certain instances."
Tomlinson said Mirus IT had shifted half of its customer to BUDR devices, which he said - unlike traditional backup from a local server - also protects them from ransomware.
"There are various strains of ransomware that can encrypt the actual backup, so by moving across to BUDR devices, they've got ransomware detection built within them," he said.
"We're seeing recurring revenue for two forms of backup in certain instances because the customer is so concerned about the threat of ransomware or potential data loss," Tomlinson added.
Les Keen, sales director at Amicus ITS, said the growing buzz around backup and DR prompted it to acquire a stake in specialist backup supplier Curatrix Technologies last September.
Keen said backup and DR are rising up the agenda for the Southampton-based MSP's core public sector and healthcare client base due to concerns over macro issues such as GDPR and data sovereignty.
"We wanted to short cut the journey to learn all this knowledge, so we made an acquisition to specifically get into [the backup] space," - Les Keen, Amicus ITS
"As time goes forwards, a lot of our clients have more specialist requirements around what they are expected to back up and how they're expected to do it," he said.
"We wanted to short cut the journey to learn all this knowledge, so we made an acquisition to specifically get into this space. It's proved successful for us - through some of the frameworks we sit on we've won substantial pieces of work this year by leading on backup, and have got into some new customers we couldn't have got into before. And around 80 per cent of our existing large public sector customers are currently in discussions with that particular bit of my business, where we are talking about backup and what it can do."
Keen said Amicus ITS resolved to bolster its backup business following a management buyout at the start of 2016.
"Managed services is a low barrier to entry and the market is commoditising," he said. "But we are achieving a good turnaround in profit because we know who we are and we see the opportunities in the market; we've stopped drifting with the herd."
Colin Blumenthal, managing director of SME support specialist Complete IT, said his firm has also been able to identify new areas for expansion in the backup market.
"We're evolving our proposition from a traditional tape backup and tape recovery environment to more of a continuous server snapshot solution, with built-in failover to an appliance in the cloud," he explained.
"In the event of a disaster that affects the local server, it will fail over to an appliance, and then if a whole building were to go up in flames it would then quickly fail over to a cloud environment. That gives you a business continuity solution. That's how we see the market changing, and there are technologies out there that do this that are affordable for our SME clients."
But mature markets like backup aren't the only areas where leading MSPs are expanding their services to beat the margin crunch, as we will explore in parts two and three of this feature….
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