Recession fears linger. Inflation and high prices are still a concern. There’s constant speculation about what the Fed will do with interest rates. There are wars raging around the world. Oh, and it’s a presidential election year.
2024 promises (or should we say “threatens”) to be a year of uncertainties that could impact your MSP business and your ability to grow.
While every industry is facing macroeconomic challenges, the good news is that MSPs are moving full steam ahead and expecting to grow, says Jay McBain, chief analyst at Canalys, a leading global technology market analysis firm. And rightly so, he notes, pointing to opportunity in three main avenues:
- Cloud services
- Security
- Hybrid cloud
“Managed service providers are the most optimistic people in the world at the moment,” says McBain. “Sixty-four percent of them think that they’re going to grow by double digits in 2024. That’s revenue and profit.”
In 2023, the average MSP grew 12.9%, according to Canalys data. Globally, the managed services industry grew revenue from $419 billion to $488 billion, McBain says. “So, we’re looking forward, saying that the MSP market’s going to grow by double digits every year until 2027. We’re calling 11% growth year on year going forward.”
Follow The Money
McBain drills down into his expectations for MSP opportunity in 2024.
Cloud infrastructure and value-added services. Cloud companies are growing at 20-30%, and McBain says MSPs can capitalize on that by helping customers drive cost efficiencies and more value from their cloud spend, including making sure that workloads are in the right place.
Using AWS as an example, McBain says Canalys data shows that for every dollar spent, there is $6.40 of potential services.
“If a customer’s going to consume $100,000 of public cloud, they’re going to spend another $640,000 to get it to work,” he says, adding that “right now, managed service providers are at about a dollar per dollar.” He expects that ratio to rise, too, as MSPs expand into consulting, design, architecture, implementation, and integration. “So MSPs are now asking not only, ‘How can I make a dollar per dollar, but how can I make $2? How can I make $3 per dollar?’”
Cloud maturity is a massive opportunity, he says.
Action item: Level up your skills around cloud and develop value-added service that you can bill on a recurring basis. “The more services, the more skills, the more experience that MSPs build in the cloud, the more they can ask for as a multiplier on that [cloud] revenue growth,” McBain say.
Security—all seven layers. “This isn’t just a firewall-antivirus story anymore,” he says. “Managed service providers, they’re looking at the full security, full threat vector surface area and seeing a massive opportunity … they’re seeing 20, 30, 40% growth areas protecting their clients.”
McBain says how MSPs sell security has also changed from what he calls “fear selling”—instilling the fear of a breach with client—to more “pull in demand” from boards of companies and executives who have fiduciary responsibilities.
Teamwork, or multipartner deals that may include MSP, managed security service provider (MSSP), vendor, etc., will more and more be how MSPs go to market with security offerings, he says.
“The average MSP has eight people. Are they going to be up 24/7 inspecting threats and getting out in front of these? No.”
As a result, he says, “Security is becoming a team sport and MSPs are learning that playing within this team sport has high growth, high profitability. There is no single throat to choke. There is no trusted advisor when it comes to security. But being that orchestrator is a great place to be.”
Action item: Partner with an MSSP or a vendor that does managed detection and response (MDR) and build a team that can drive zero trust principles for your SMB customer. And make sure you offer solutions (or your partners do) for all seven layers of security: physical, network, perimeter, endpoint, application, data, and user education.
Hybrid cloud and repatriation. As businesses reexamine their cloud spend and look to gain more cost-effectiveness, they are examining options to process and store data more locally or co-host it “somewhere in the middle,” McBain says, noting that MSPs are finding repatriation to on-premises as an opportunity.
Aiding and abetting this movement is the fact that the large data centers are at capacity, and getting pushback on the impact this is having on clean water and power consumption. That means “the work on gen AI is going to be done at the edge, where the MSPs are,” he says. “So, the MSP opportunity for 2024 in a hybrid cloud environment is that 85% of the world’s business data sits on-premises today.”
He explains, “Basically every client now is not just a multicloud client. They’re a hybrid. So, in every single environment, from a flower shop to a big bank, there’s this hybrid opportunity to say what ought to be at the edge, what ought to be in a public cloud, and everything in between.”
Action item: Focus on services that help customers leverage their data from edge to cloud. Customers, he says, will be looking for MSPs to help them set up a hybrid environment, including “what storage, what compute, what networking, what edge security and all the things that come around this new kind of blended environment.”
Good Reason for Optimism
No one, of course, likes uncertainty, but there is historical precedence for MSP optimism in 2024, McBain says. “In 2008 and 2001, which were the two previous world downturns/recessions/depressions, the tech industry pulled the world out of recession twice, and it was the tech channel that was the tip of the spear both times.”
Canalys believes 2024 will be no different. “For everything that’s happening, we believe, again, the tech industry will pull the world out of this. And again, the tip of the spear will be the channel.”
