Is the Consolidation of MSPs Inescapable?
The majority of MSPs are small businesses–with just a few IT pros staffing the company and managing a handful of clients. But shifts to the cloud have allowed even the smallest organization to run like an enterprise company. This has changed customer expectations about who their MSP is and what the MSP should do, what kind of services should be provided and how an MSP handles their needs. At the same time and often, MSPs want to grow their business using the formula of “more customers + more services = business success.”
Given that 35% of MSPs foresee mergers and acquisitions in their three-year plans, how do MSPs interpret the fact that more than one-third of their colleagues are considering joining forces? And for an MSP to remain competitive, is it in their best interest to think about the possibility of consolidating their business?
So, why consider merging with, acquiring or being acquired by another MSP?
There are three, MSP-centric reasons I see consolidation as a driving force for MSPs during the next few years:
- The increased demand for cyber security services: Cyber security is a key focus for organizations big and small. More than 60% of SMBs are planning to increase their spend on cyber security. As software companies continue buying up security vendors in order to offer more well-rounded services to their customers, a similar trend is occurring in the services market. MSPs that traditionally didn’t focus on security are now prioritizing adding a traditionally security-focused provider rather than starting small and growing that part of their menu of offerings over a number of years.
- The need for a one-stop service provider: From the customer’s perspective, having a single throat to choke when anything goes wrong with their technology is valuable. No customer needs to manage two MSPs handling different parts of their operations pointing fingers at one another. At the same time, customers are becoming savvier at understanding what they need and want from their MSP. Remaining the “little guy” on the block no longer is an option for most MSPs. So, it makes sense for MSPs that don’t offer a full spectrum of services (think backup and data recovery, RMM capabilities, cloud-based security, etc.) to quickly begin offering additional services to remain competitive.
- More customers to sell to: One of the reasons software vendors acquire others is because of the opportunity to cross-sell to both organizations’ customer bases. So, take either of the scenarios above–my MSP is good at RMM and backup, yours is focused on security and the cloud. If we join forces (through a merger or acquisition) we can sell my services to your customers and vice-versa. At its core, it’s multiplying both organizations’ revenue streams to create a larger, more profitable MSP.
Regardless of the industry, companies choose to merge with or acquire other companies for one of three simple reasons: They want to expand their products and services to sell to their own customer base, they want a new customer base to sell to, or both. As discussed above, MSPs are no exception.
Results of consolidation for the MSP include:
- Additional revenue streams
- The opportunity to become more embedded with their customers (which creates a longer customer lifespan)
- Happier customers
- A larger degree of technical expertise in more service areas
- An ability to leverage new technologies more easily
All this said, the question posed in this article’s headline still remains. In short, there’s nothing that says you must be a part of the consolidation trend. The question is: How competitive will you as an MSP be as consolidation continues, and will you remain that competitive if you choose not to consolidate? If the trend holds, we’ll have a smaller number of very effective, larger MSPs that those “little guys” will need to compete with. In reality, cloud services make it unlikely that the smallest MSPs (less than five employees) won’t be affected by their larger competitors.
So, the best advice I can offer is to either begin to aggressively look to grow your services and customer base, or to look for an MSP with complementary services that you can join forces with to take on more of the market.
I encourage you to start a free Webroot product trial to see for yourself how our solutions can help you maximize growth: Endpoint Protection | DNS Protection | Security Awareness Training.
This guest blog is part of a Channel Futures sponsorship.