How MSPs Can Take Advantage of the XaaS Business Model

Written by Sheen Khoury
March 17, 2021

Providers can help IT deliver niche services that enhance agility and efficiency.

Sheen Khoury

IT leaders are seeing a greater need to work with managed service partners these days. Spurred by the ongoing complexity and cost of technology, the rapid shift to cloud services and the lack of in-house skills, managed service providers are valuable partners in deploying and managing distributed IT environments for diverse user needs.

First, a little history: value-added resellers (VARs) reinvented themselves by outsourcing and offering services, giving birth to MSPs. The rise of MSPs changed again with the public cloud. The advent of infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS) allowed IT to unload the burden of paying for expansive data centers, yet there was still ample work to procure, design, secure and optimize cloud infrastructure.

Now, IT leaders are looking to MSPs for help in managing and optimizing large swaths of their IT environments as services, from disaster recovery and backup to monitoring, operating on top of cloud service providers (CSPs) such as Amazon Web Services, Microsoft Azure and Google Cloud. And the demand is growing. For example, the global managed security services market is expected to reach $46.4 billion by 2025, while in the third quarter of 2020, the worldwide unified communications-as-a-service space jumped 30% year-over-year. Disaster-recovery-as-a-service (DRaaS) could reach $14.6 billion by 2025.

The COVID-19 pandemic, which created a widely distributed workforce almost overnight, has only amped up demand for cloud services. Many enterprise IT organizations are finding that managing hybrid and multicloud environments in-house can be a burden and introduce extra risks, if staff levels and specific skills aren’t aligned.

XaaS: The Next MSP Revenue Driver

The opportunities for MSPs in this expanding market are profound, opening new revenue streams as services. A formidable opportunity is anything-as-a-service (XaaS), a market that Gartner predicts will hit more than $304.9 billion this year and grow to more than $362 billion in 2022. Organizations are gravitating toward XaaS vendors such as Salesforce, Microsoft 365, IBM and SAP. MSPs can play a leading role in making this complex environment more manageable and cost-effective.

For MSPs, there are real benefits to the bottom line. They can rapidly expand recurring revenue streams and gain an even closer and ongoing relationship not only with their customers but also with the CSPs that are critical partners in this as-a-service world. Cloud-based services allow the MSP to narrow the technologies they focus on by removing infrastructure from the equation, eliminating the need to understand dozens or hundreds of hardware systems and components.

For customers, the benefits are significant:

Management: Corporations can have dozens of cloud services from multiple vendors running in their environments. With an MSP managing those services, they only have one company to work with, not 40 or 50.
Integration: All those services need to work in unison. MSPs bring the expertise to integrate the services and create a cohesive unit. Not all services – such as a backup service – will need integrations. However, others will, such as security- and monitoring-as-a-service. In addition, integration between cloud services from providers like Azure and AWS also may be needed.
Business efficiency: MSPs with catalogs of services give organizations a single place to find what they need.
Cost savings: In an as-a-service world, capital and operating expenses are already reduced. With CSPs, XaaS and MSPs, those costs are whittled down further.
Closed skills gaps: Enterprises and SMBs already are struggling to find the in-house expertise to deal with all the facets of their IT environments. MSPs bring those skills to the table, removing the burden for the customer and reducing internal headcount needs.
Personal touch: MSPs have partnerships with multiple cloud providers and can mix and match based on quality of service requirements for different users and departments, cost and other factors to match end users’ needs. They also can provide value-added services, such as white-glove services for a specific service offering, creating a last-mile experience that the big CSPs can’t match.
Vertical approach: MSPs also can create bundled services targeted at particular verticals and industries.