Top 6 Findings From the Second Quarter Channel Futures MSP Study
Recurring revenue, biggest challenges and future forecasting all yielded interesting results among our respondents.
August 27, 2021
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Not surprisingly, the theme of security prevails when it comes to the top sectors in which MSPs added vendors in the second quarter. Backup and disaster recovery (28%) led the pack, with cloud storage (23%), managed security (22%) and data analytics (21%) coming in close behind.
Other notable mentions included data center (16%); IaaS (15%); RMM (11%); followed by colocation services, managed compliance services (HIPAA, PCI, etc.), managed phone services, managed print services and managed SD-WAN (all 10%).
We asked how recurring revenue in the second quarter of 2021 compared to the year-ago quarter. The results showed that it went up rather sharply in Q2 from Q1 of this year. About 18% of respondents said their recurring revenue increased more than 20% in the second quarter — up from 12% in the first. Additionally, 24% said recurring revenue was up between 11% and 20%, compared to just 15% of respondents in the first quarter.
This indicates that a good portion of the community is having a successful year. It also corresponds to the fact that there is more strategic and long-term decision-making happening.
The data we gleaned from the quarterly survey shows a steeper slope for recurring revenue compared to the increase for security solutions sales and the slight decrease for cloud sales. Why these shifts?
In terms of elements that are long-term in scope (annual forecasting 2021 compared to 2020) and overall economic outlook (confidence in the U.S. economy and confidence in the industry), we really didn’t see any change from the Q1 survey to Q2. This makes sense when it comes to revenue forecasting, since we are discussing a full year. We wanted to know if there was anything that jumped out to our respondents in terms of economic outlook confidence and industry confidence.
“We track results for 200 MSPs in our peer groups,” said Gary Pica, president, TruMethods. “This data lines up with what we are seeing. Recurring revenue, for example, is up for several reasons. Seat prices are higher because of security enhancements, and new client acquisition is up because of all of the technology changes related to security and hybrid work environments. These same factors are driving top providers to be optimistic for this year as well. We expect record sales and profits for the top 15% of the industry.”
To some degree, the uptick in recurring revenue is to be expected, as Q2 2021 was the busiest time for MSPs in the past decade.
We also wanted to know the challenges managed service providers are seeing in Q2 compared to Q1. While expanding customer bases and hiring remained fairly level, marketing jumped big time, from 6% in Q1 to 16% in Q2. Why the sharp uptick? Why the overall lack of movement from the other challenges?
Many MSPs are now getting their feet under them from a chaos standpoint. As we get back to business, now we have a new set of problems.
“There are a couple of things I see in the ecosystem that are contributors to these stats,” said Juan Fernandez, vice president of managed IT services at MSP ImageNet. “Our competition got better, buyers are shopping online for the best fit and the employment market is hot for remote workers. MSPs grew like weeds during the pandemic and we hired like crazy. But now, MSPs are feeling the pains of, ‘how do I keep everyone busy?’ That is where many are looking to try and increase marketing and sales capabilities.”
The flip side of the coin, according to Fernandez, is the hiring problem. Many IT professionals have left their day jobs for the remote work opportunities that many MSPs are offering.
Marketing is becoming more competitive as the MSP ecosystem advances. Many are experiencing an identity crisis, and are unsure of which way to go. Cybersecurity, managed services, managed security (oh my) and the cherry on top, social selling, are all mixing together.
Jeremy MacBean, director of marketing communications, Konica Minolta Business Solutions Canada, emphasizes the overall shift in approach for the marketing spike.
“This all goes back to the fact that the narrative is changing,” he said. “Our go-to-market messaging now needs to correspond to what people care about and how they talk about technology. And so it’s changing our approach. We have to go to market, so the job of the marketing team is to give sales and the clients things to read and things to watch that speak to what they give a damn about. Business outcomes must be driven by empathy rather than feature sets.”
While recurring revenue spiked in Q2, annual forecasting for 2021 compared to 2020 didn’t see much change from the Q1 survey to the Q2.
According to Forrester’s Jay McBain, this speaks to the benefits of the new remote topology given the future of work benefiting the MSP model.
Again, not much of a change from the Q1 survey to the Q2. In terms of overall economic outlook (confidence in the U.S. economy and confidence in the industry), companies are now looking at a permanent shift in how they work.
According to Jay McBain, shops are reassessing workflows, processes, business logic, and even real estate investments.
“The output of this will be a remote (or residential) topology that will require new levels of service, support, infrastructure, security, compliance, and continuity,” says McBain. “I expect the percentage of firms that outsource some or all of their IT will start to increase again by double digits — for the first time in five years.”
Again, not much of a change from the Q1 survey to the Q2. In terms of overall economic outlook (confidence in the U.S. economy and confidence in the industry), companies are now looking at a permanent shift in how they work.
According to Jay McBain, shops are reassessing workflows, processes, business logic, and even real estate investments.
“The output of this will be a remote (or residential) topology that will require new levels of service, support, infrastructure, security, compliance, and continuity,” says McBain. “I expect the percentage of firms that outsource some or all of their IT will start to increase again by double digits — for the first time in five years.”
We recently reported on our second quarterly survey, this one focused on Q2 2021. Taking a look back at the first quarter, there were several interesting shifts we wanted to dig into a little more.
The biggest themes were:
Quarterly realized business activity
How Q2 2021 recurring revenue compared with Q2 2020
Biggest challenges in the quarter
Recurring Revenue
In terms of recurring revenue, we noticed that the “Increased over 20%” and “Increased 11% to 20%” categories jumped a bit in the second quarter when compared to the year-ago quarter. According to Jay McBain, principal analyst of channels, partnerships and ecosystems at Forrester Research, this is pandemic-related.
“The first quarter had less impact last year than the second quarter on revenues,” said McBain. “The growth numbers are indicative of smaller baselines (versus market growth).”
Realized Business Activity
For this category, our data showed that recurring revenue increased pretty sharply for many MSPs. Security sales rose moderately, while cloud sales saw a slight decline.
Regarding questions that were more long-term in scope (annual forecasting 2021 compared to 2020) and overall economic outlook (confidence in the U.S. economy and confidence in the industry), we didn’t see much change from the Q1 survey to Q2. This makes sense when it comes to revenue forecasting since we are discussing a full year. But we wanted to get a better sense of economic outlook confidence and industry confidence. According to McBain, this speaks to the benefits that changing work partners are having on MSP businesses.
“Companies are now looking at a permanent shift in how they work — reassessing workflows, processes, business logic, and even real-estate investments,” McBain wrote in his “What I See Coming For the Channel: 2021″ predictions back in January. “The output of this will be a remote (or residential) topology that will require new levels of service, support, infrastructure, security, compliance and continuity. I expect the percentage of firms that outsource some or all of their IT will start to increase again by double digits — for the first time in five years.”
Biggest Challenges
The “biggest challenges” category yielded some head-scratching data from our respondents. According to McBain, the delta variant of the coronavirus might have impacted some partners in the second quarter.
“Companies that may have [seen] the end of the pandemic tunnel in Q1 may be recircling the wagons on a digital or digital-first marketing strategy to acquire more customers (which is No. 1 in both periods),” said McBain. “Also interesting is that hiring-tied customer acquisition in Q2 showing the impact on the labor force that has been well publicized in retail, restaurants, etc.”
In the slideshow above, we further break down our important benchmark survey findings. What will we discover as we head into Q3 and beyond?
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