MSP Software Buyouts: Will Microsoft Follow CA's Lead?

MSP Software Buyouts: Will Microsoft Follow CA's Lead?

It's finally starting to happen: mid-size to large software companies are starting to acquire small (but fast-growing) MSP software providers. So far, the buyers include CA Inc., Citrix Systems and Quest Software. The big question: When will the really big IT titans -- Microsoft, Cisco Systems, HP and others -- open their wallets and get into the managed services software game? Here are some educated guesses.

First, some background. In case you missed the news, CA Inc. on March 10, 2010 acquired Nimsoft for $350 million. The privately held Nimsoft develops unified monitoring software for corporate IT managers as well as managed services providers. So far, about 300 MSPs have jumped on the Nimsoft bandwagon. And in 2009, Nimsoft started promoting cloud monitoring software as well.

The CA-Nimsoft deal raises all sorts of questions about the MSP software landscape. But it also answers a few questions as well: CA and Nimsoft managers boldly stated to MSPmentor that "MSPs are the channel of tomorrow."

If true, how come big IT titans like Microsoft and Cisco have mostly ignored the MSP market?

Microsoft: Ready to Write a Check?

Actually, the tech titans are taking notice. Sources say Microsoft considered -- then abandoned -- three separate MSP software acquisitions in 2008 and 2009.

In one case, the potential seller was seeking a price premium that Microsoft considered excessive. In a second case, Microsoft could not agree with the potential seller on executive retention agreements. And in the third case, the potential seller suffered a surprise revenue shortfall that soured Microsoft on the potential deal, sources say. All three potential moves involved separate companies, the sources add.

But Microsoft continues to poke around the managed services market. The software giant spent considerable time at the MSPAlliance's MSPWorld conference in 2009. And Microsoft has longstanding partnerships with a range of RMM (remote monitoring and management) tool providers, and PSA (professional services automation) providers.

Will Microsoft open its wallet and actually buy an RMM player? At this point, sources say such a move faces two hurdles:
  • First, Microsoft's channel team must re-convince Microsoft's executive management team that the MSP software space is large enough to warrant an investment.
  • Second, Microsoft's executive management team must decide whether systems management and monitoring is core to Microsoft's business.
For more than a decade, Microsoft has dabbled in systems management. The company's Systems Management Server (SMS) from the 1990s was met with mixed reviews. And the more recent Systems Center platform has had reasonable success with corporate IT folks. But Microsoft has mostly watched as IBM Tivoli, HP OpenView, CA and BMC battle in the enterprise management space.

The big question: Will Microsoft continue to sit on the MSP software sidelines?

Microsoft, MSPs and the Cloud

That depends on whether Microsoft connects the dots between MSPs and cloud services. Earlier this week, Microsoft Channel Chief Allison Watson outlined Microsoft's cloud channel strategy to The VAR Guy.

The conversation touched on the fact that some VARs are worried about aggressive pricing in the SaaS market. But the conversation also lacked any major emphasis on MSPs -- and their potential role in Microsoft's cloud strategy.

At some point, I think the light bulb will turn on in Redmond. Instead of winning over skeptical resellers, Microsoft should be fine tuning its cloud strategy for MSPs that already understand recurring revenue business models. When that day comes, Microsoft will open its wallet and start buying up management tool providers. My prediction: 2011.

Cisco Gains Momentum

Meanwhile, Cisco hasn't made any big MSP software acquisitions. But the company has revitalized its managed services partner program. Overhauled in September and October 2009, the partner program now allows MSPs to leverage NOCs (network operation centers) from other certified Cisco MSPs. That subtle move has prompted dozens of Cisco MSPs to either (A) build their own NOCs or (B) partner up with those who have NOCs.

Certainly, more titans are preparing MSP moves. Lenovo has been particularly active in recent months, signing a partnership with Kaseya and planning additional RMM and PSA relationships. The executive who led Lenovo's MSP moves -- Stephen DiFranco -- recently made the leap to Hewlett-Packard. So you can bet HP is planning some MSP moves of its own.

Lingering Concerns

Still, I don't want to paint the managed services software market as some sort of nirvana. Some software providers are extremely successful. Others are merely hanging on. Separating the leaders from the followers can be challenging, since most of the major MSP software providers are privately held.

Plus, MSPs themselves have had hit-and-miss performance. The best MSPs are wildly successful. But plenty of traditional resellers have tried to hype themselves as MSPs -- only to stumble badly with the recurring revenue business model, or shut down entirely.

Next Moves

Nevertheless, I remain a glass-half-full type of guy. CA's $350 million buyout of Nimsoft offers further proof that the MSP market is strategic. The tools -- from a range of vendors -- work. Success or failure has little to do with technology, and much to do with business execution.

I certainly expect the MSP software buying spree to continue. Citrix Systems and CA, two recent MSP software buyers, are pretty big names in the software market. But bigger names will be making strategic moves. It's inevitable.

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