Master IT Service Providers, Will They Continue Being the Masters?

 

After experiencing Master Service Providers first hand as the COO with a very successful Managed IT Security and Services Firm, I wanted to share some thoughts regarding how I see the future of these providers. First, I must say that I am not a fan or proponent of outsourcing to Master Service Providers in today's world of commoditizing IT. Master Service Providers attempts to scale the complexities of more sophisticated MSP's customers is hampered by their need to continue to support the less sophisticated customers, which are the majority.

The Future MSP

In 2019 and beyond, successful MSPs must be more focused and verticalized to separate themselves and ensure their survival against innovative disruptors. Success for the future MSP will come from delivering the service requirements to the more sophisticated customer. These customers will also compensate the MSP much higher than those who utilize Master Service Providers and continue providing canned services to the lower paying customers.

When you look at the industry, a common theme is that the most successful MSPs do not use Master Service Providers. Also, their average monthly reoccurring revenue is much higher than those MSPs who are relying on a Master Service Provider for their core customer deliverable. Those in the Imaging Channel who are transiting to IT Services should evaluate this fiscal disparity and ask why. Like all things, there may be one or two outlying success stories. However, I would presume that the deliverable will be less sophisticated, and the customers they service will be vulnerable to innovative disruptors.

The Master Service Provider's Future

The looming challenge for today's Master Service Provider will be the consolidation and merger of smaller MSPs into larger MSPs. These larger, more operationally mature organizations, for the most part, do not use Master Service Providers. Another threat is the entrance into the space of huge corporations which will go directly to end-users.

I believe that those MSPs whose monthly service contracts average less than $2,500 per month will quickly find themselves competing against innovative disruptors like Amazon, Google, and HP.

Will the Master Service Providers see a mass exodus of MSPs from their ranks? I think, yes. If so, will the larger Master Service Providers modify their platforms, enabling them to deliver services directly to end-user in the way Konica's All Covered does? I can visualize Continuum along with other Thoma Bravo owned companies attempting just that. However, smaller Master Service Providers will ultimately run into innovative, competitive threats and commoditized buyers.

The market is shifting more to cloud services, technology is getting easier and easier to use, and the end users become more tech savvy every day. The MSP's lower revenue-producing customers will seek more commodity-based approaches, and they will be comfortable making those buying decisions from well-known, global branded companies.

The growth will be in IT Security Services. However, that space is quickly filling up with national and global organizations as the example we see with AT&T's acquisition of AlienVault. IT Security is a much more complicated and potentially mission-critical deliverable than helpdesk and NOC Services. Therefore, buyers of these services will perform more due diligence and be far more selective when they choose a provider. MSPs who engage a Master Service Provider for helpdesk, backups, and NOC services might have reservations placing their customers' security in the same hands.

It seems that some Master Service Providers are attempting to capitalize on the IT Security moniker as a marketing strategy more than a comprehensive deliverable. Teaching MSPs the language of IT Security is only a tiny first step in actually delivering it. Littering websites with the latest buzz words will not prevent the security threats customers face. When looking at the security services that many Master Service Providers offer there are still vital components missing. Things such as comprehensive fee-based security analysis, fee-based compliance readiness services, and fee-based educational services are necessary services but seem largely ignored by most providers.

The IT services firms with higher operational majority levels and average monthly reoccurring contracts above $5k will do well in delivering IT Security Services to specific verticals and customers who are not commodity buyers. These organizations have the revenue and profits to hire the appropriate human capital allowing them to provide critical services that Master Service Providers are not offering.

Those resellers with lower operational maturity will struggle with successfully curating a security deliverable. The MSPs will find their smaller customers courted by the likes of AT&T and other well-known entities which will soon litter the market with IT security choices for customers at the lower end of the revenue scale. The locally owned MSP will struggle to retain these customers against the national and global entities which will continue to drive down end-user cost.

The next generation MSP will be too sophisticated for Master Service Providers as they exist today. The MSPs who have invested in an internal support infrastructure will be better suited to transform into specialized security firms. The Managed IT Services deliverable is changing along with how customers consume technology. These changes will challenge many MSPs and the Master Service Providers they currently depend on for their success.

 "Status Quo is the killer of all that will be invented."

Ray Stasieczko

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