The Doyle Report: Three Insights on the MSP Market
What’s the health of the MSP market? To hear Kaseya CEO Fred Voccola tell it, the future is bright—brighter than naysayers would have you believe.
At the Kaseya Connect conference this week in Las Vegas, I sat down with Voccola and asked him about the health of the MSP market, what separates his company from its rivals, and the future of his business. Here’re some thoughts he shared.
What Is the Health of the MSP Market?
Voccola tells MSPmentor that he has a good window into the MSP market. His source? The data Kaseya gathers from its engagements with MSPs. “One of the statistics we have is what the growth rate of an MSP [that does business with us] is. If they had 1,000 seats [under management] last year and now have 1,200 with VSA, then we can tell they grew 20 percent that year. It’s pretty black and white,” he says. He can also glean how much anti-virus, back-up business, etc. they are doing as well. When aggregated across 12,000 customers, he sees telling patterns.
“I can only talk about Kaseya customers because they are the only ones I have real data on. The average Kaseya managed service provider in 2016 in North America grew 31 percent year-over-year. Let me be careful: this means they acquired 31 percent more ‘above the line’ software from us, which one would assume means they grew 31 percent.”
Based on the recurring revenue growth of a Kaseya MSP in North America, and research Kaseya has paid for from third parties, Voccola says the health of the market is “awesome.” What’s interesting, he notes, is that smaller MSPs are actually growing a little bit faster than their bigger rivals.
“We are seeing different stats than what people’s gut feelings are telling them,” says Voccola. “I look at the health of the MSP market as the health of the SMB market. And SMBs are spending massive amounts on tech. The increase year-over-year is like 25 percent.”
Kaseya CEO Fred Voccola
While this is especially good news for those who are satisfying small business customers’ needs for innovation that helps make them more competitive, it is challenging to those whose primary value-add is “keeping the lights on” for customers.
Consider: Kaseya, Voccola says, is adding roughly 800 new MSPs each quarter. Some may pick up only one or two of its growing portfolio of products, but the growth is coming—especially at the smaller end of the market. Kaseya is attracting niche specialists that either have spotted a unique market opportunity or have been compromised in their careers working inside a corporate IT department and launched new businesses of their own. Regardless, the new MSPs are giving classic ‘end point-centric’ MSPs stiff competition because they are solving customers’ more pressing problems such as security or back-up and disaster recovery.
How Is Kaseya Different That Its Competitors?
Though Voccola is fond of taking a poke at Kaseya’s rivals, he can be surprisingly charitable in private with his thoughts on ConnectWise, AutoTask and others. He simply believes he has a better positioned business than them. One reason? The amount of “above-the-line” business that Kaseya does compared to its rivals.
Those familiar with the businesses of Remote Monitoring and Management (RMM) and Professional Service Automation (PSA) software vendors know they have two principal lines of business, “above-the-line” sales and “below-the-line” sales. The “line” that separates the two, of course, is the divide between the software and services that these vendors sell to MSPs and VARs themselves—aka below the line sales—and the software and services that these vendors sell that translates into revenue for their business partners. That’s the above-the-line revenue.
Kaseya generates less than 5 percent of its business from below-the-line activities compared to a ConnectWise, which Voccola estimates generates half if not more of its business from below-the-line software services.
Why does this matter? Voccola says the difference helps him to position Kaseya as the best-positioned player in the market to help MSPs drive top-line revenue growth. While helping MSPs run their businesses more efficiently is important, Voccola prefers to help them drive business growth.
“The above-the-line [capabilities] at the end of the day are all about helping MSPs become more successful,” says Voccola. “When I read the press, our competitors say all these things and they can say whatever they want. But the math speaks for itself and doesn’t lie: If you’re a company that generates revenue in a licensing model that is not associated with the revenue that is coming in from your customers, you fundamentally do not have a mutually-beneficial financial relationship. Full-stop, end of conversation.”
What’s Next For Kaseya, an IPO?
Le’s face it: for the past six years, the biggest payout most software companies could hope for is an acquisition by a larger player. But that’s changing. IPOs are back. With momentum, Kaseya is pondering its own fate and thinking about going public.
When pressed directly, Voccola says he is very interested. With interest rates low, the stock market surging and revenue growing, Kaseya believes it’s timing might be perfect.
In the next few weeks, the company will pick its bankers, which will help with its debut. A roadshow for potential investors and an official filing with the Securities and Exchange Commission (SEC) will follow—if all goes according to plan. Things could, of course, change if the economy sours, rates soar or some big software company comes calling. But when asked what’s next for Kaseya on this front, Voccola was clear.
“First, we want to keep rocking, keep kicking ass. If we lose sight for one minute that our customers pay our bills, that they are the only reason we are able to feed our families, etc., [then we are screwed.] That’s No. 1 and I don’t mean it in a cheesy way,” he says.
“I think we are a public company in two years. All of this goes with a giant asterisk, but I think second half of 2018 we are filing. We are the perfect profile right now. We are north of $100 million in recurring revenue. Our addressable market is gigantic… [And our parent] Insight has relationships,” he says.
