Datto just released its fifth annual Global State of the MSP Report. Based on an independent survey of more than 1,800 MSPs worldwide, the report highlights how MSPs are evolving as their SMB clients fully transition to the cloud and kick cyber resilience up a notch.

The report highlights several critical aspects. It stresses the critical importance of cybersecurity to today’s MSP, with nearly all (99%) respondents offering managed security services. It’s worth nothing that this jumped significantly from the previous year’s survey. It also highlights the continuing cloud migration trend, with one-half of respondents saying their clients have 50%-75% of workloads in the cloud. Almost two in five say they have 25%-50% in the cloud. Both data points signal the emergence of the next generation of MSPs that prioritize a scalable and resilient IT stack. 

Datto’s Tim Weller

“Businesses have had to rethink operations and explore new avenues for managed services,” said Tim Weller, CEO of Datto. “Over the last year and a half, MSPs were the unsung heroes for SMBs, enabling them to run their business while the MSPs themselves faced many of the same challenges of remote/hybrid work and economic uncertainty. This accelerated MSP and SMB digital transformation. This research reflects that MSPs are focused on cloud migration, increased collaboration, and investment in security solutions. With this new mindset, MSPs can support SMBs for the transformation to come.”

Here are a few of the key findings from the Datto MSP study, with commentary from Rob Rae, senior vice president of business development at Datto.

Increase in Revenue as a Result of the Pandemic

Almost half of MSPs saw a slight increase in revenue resulting from the pandemic. Furthermore, 58% of MSPs saw an increase in workload.

Datto’s Rob Rae

“There was more work being done throughout the pandemic, and MSPs were a critical part of that work,” said Rae. “Forty-seven percent of them saw an increase in actual revenues. At the beginning of 2020, nobody really knew what that was going to look like. I think these stats in particular are very optimistic and positive.”

It is also worth noting that two-thirds (67%) of total annual revenue is coming from managed services for these MSPs, as opposed to one-time project work. This is not entirely shocking, as shops dialed back on projects and focused more on the recurring revenue aspect. 

Increased Competition Now a Top Challenge

With IT more important than ever for SMBs, MSPs are essential to business operations. This increased reliance and subsequent growth has also introduced new challenges, the Datto MSP survey revealed.

The most commonly reported challenge for MSPs in the survey was competition (34%), followed by revenue growth (27%), profitability (24%), and acquiring new customers (23%). This is the first time in the report’s history that competition topped the list of MSP challenges, highlighting the maturing of the market and increasing need for MSPs to offer differentiated and relevant solutions.

MSPs Target Improved Security Solutions, Shift to the Cloud

Given the steady increase in ransomware and cyberattacks over the past few years, SMBs need security expertise now more than ever. Still, hiring in-house security specialists is outside …

… the budget of many SMBs.

Nearly all Datto MSP survey respondents claimed that clients had shifted workloads to software-as-a-service (SaaS) applications and the public or private cloud. 

Positive Outlook

Ninety-three percent of respondents said now is a good time to be in their industry. Still more, 96% expect that revenue will increase over the next three years.

That being said, competition is getting stiffer — 34% said it was their biggest challenge. It will be interesting to see how this plays out over the next few years as the market gets more crowded.

“The pandemic actually accelerated that business transformation for SMBs,” said Rae. “It forced them to re-look at the way in which they’re doing business. As a result, that’s going to increase the reliance on technology, on technology migrations to the cloud, and security opportunities. There’s a lot of this report that focuses on growth opportunities — what MSPs are doing today, and the growth opportunities from there. So with all of those things factored in, I think it’s very possible that the optimism will continue.”