How Many VARs Will Become MSPs?
The headline poses a question that I get asked all the time: How many VARs will truly become managed services providers? My answer varies day to day, hour by hour. But during this week’s HP Americas Partner Conference and Cisco Partner Summit, my thoughts became clearer. Here are some observations.
Let’s start with the HP Americas Partner Conference. To CEO Mark Hurd’s credit, the company is profitable and growing. But for the most part, HP continues to promote traditional channel messaging. The HP pitch to VARs goes something like this: “Work with us and sell more products, and add networking to your PC and server lineup to sell higher margin products. Innovative products on the x86 architecture will lift sales volumes.”
That might be true. But for MSPs and VARs focused on recurring revenue, HP didn’t have much to say.
I saw a few MSPmentor readers at the HP conference. But not many. It made me feel as if the managed services market was very small. But my perspective changed dramatically when I traveled from the HP Americas Partner Conference to the Cisco Partner Summit. There, MSPs seemed to be out in full force. Larry Kesslin was kind enough to introduce me to many MSPs I hadn’t met before, and I also managed to catch up with folks like Dan Holt of HEIT — the MSPmentor 100 company focused on financial services and banking.
During one Cisco session focused on the SMB market, chatter about RMM and PSA tools popped up. I felt right at home: Managed services conversations were everywhere.
Get to the Point
But I still haven’t answered the central question: How many VARs will become MSPs? Based on the HP conference, I was a little nervous about the state of the industry. New HP channel chief Stephen DiFranco certainly has managed services on his mind. And the HP printer group intends to push managed print into the SMB space. But there was no MSP rally cry at the event. Surely, there are thousands of VARs managing HP gear remotely for set monthly fees? True?
In stark contrast, you could see more and more Cisco VARs flocking toward the MSP business model. And Cisco CEO John Chambers spoke a bit about the MSP shift during a media briefing. (We’ll be posting some FastChat video featuring Chambers this weekend.)
Cisco’s lead in the MSP channel is pretty easily explained — the company overhauled its MSP partner program in October 2009. And Cisco’s rich heritage in the big service provider market is now trickling down into smaller service providers
Of course, there are plenty of hybrid VARs that do some managed services. Some pundits think the VAR model is done. I tend to disagree — but I’m biased, since our company built a media brand called The VAR Guy. I still believe in VARs because of companies like BlueWater Communications Group — one of Cisco’s fastest-growing North American solutions providers. Launched less than four years ago, BlueWater’s revenues will push well above $100 million this year, I hear.
A few months ago, BlueWater launched a NOC service focused on data, voice and video management. So BlueWater is now an MSP. Or are they a VAR with some managed services expertise?
The answer doesn’t really matter. They’re growing fast, selling Cisco-centric solutions, and generating recurring revenue. By any definition BlueWater is successful.
So product reselling and product involvement aren’t dead — that’s why Autotask recently acquired VARStreet, and ConnectWise Capital invested in CharTEC. The more central issue: It’s HOW you resell the product, and what services — on premises or remotely managed — you wrap around the products. That’s why so many VARs are plugging product sourcing and quoting tools into PSA platforms. And it’s why product maintenance-type applications will increasingly integrate with PSA software. (Stay tuned… hint, hint.)
Finally, Some Best Guesses
Overall, I suspect North America has about 80,000 to 120,000 VARs and solutions providers. Based on our ongoing coverage, I suspect about 15 percent of the market (12,000 to 18,000) have serious managed services efforts under way. But I suspect only about 10 percent of those MSPs (1,200 to 1,800) are really thriving as pure-play MSPs. Those are my best guesses…
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I’m surprised to see that there is such a small percentage of solution providers focused on being an MSP.
When I read your question, my first thought was…you mean that there are still VARs that aren’t MSPs.
Keep up the good work Joe… You missed out on a great HTG Summit.
VARs and MSPs comprise two entirely different mindsets: hunter vs. farmer. Those that can successful make the transition will be stronger for the long-run.
Brian: My estimates certainly aren’t concrete. Some folks may have data suggesting the MSP industry is much, much bigger. If the data’s out there I’d like to see it.
Scott: Thanks for weighing in. I’m not quite sure I agree with the hunter vs. farmer analogy. A lot of VARs are like mini-IBM Global Services and mini Perot Systems (er, Dell Services), enjoying long-term strategic engagements with their customers…
Best
-jp
As time goes on, the lines get increasingly blurry. We’ve been asking IT service providers to tell us what business they are in for a decade now, and have 100,000+ data points. Rather than forcing them to select one, they can select from a range of descriptors… VAR, MSP, IT Solution Provider, IT Consultant, Systems Integator, etc. It’s rare that only one box is checked.
Other than the pure IT consultant or internal IT people, the vast majority of IT service professionals are involved in selling products — some more than others. And, in today’s world, you’d be hard pressed to find a VAR that doesn’t offer some services — again to widely varying degrees.
Our research suggests that the most profitable and successful business model is a healthy balance of both product sales and services, cross-roughing each against the other. What will we end up with… a bunch of VAMSPPs (Value-Added Managed Service amp; Product Providers)?
Put THAT in your pipe and smoke it :-gt;
— Bob V
Bob: I’m mobile and can’t purchase www [dot] vamspps [dot] com. Please reserve it on my behalf 😉
-jp
Hey Joe, since I have been out of the MSP business for a few months now I have also noticed that outside of groups like HTG, SMBNation and a handful of others…the MSP word is not used. Many of my colleagues at larger IT firms..50+ employees do not call themselves MSPs. They are IT solution providers or IT outsourcing firms. So I think it is fair to assume that only those focused in the SMB market, I say 5 – 50 employees use the term MSP openly, others…not so much.
Cheers Joe, great job…
Stuart Crawford
Ulistic Inc.
http://www.ulistic.com
I can add to the numbers conversation…starting big and drilling down:
– Professional data companies (ie. Jigsaw) recognize 300,000 IT businesses in US total – ALL flavors. 90%+ are single employee.
– Microsoft just showed a slide recognizing 120,000 partners in US (SMB Nation Spring)
– Public sources show HP, Dell and Lenovo each have about 12K US partners on the hardware side. Based on Distributor estimates, about 7K of these partners regularly buy on a monthly basis.
– Looking at the community sizes of the largest RMM and PSA ISV’s, then taking out repeats, 12K would be my guess of “reported” MSPs in US.
– Looking at participation in the various peer groups, events and online resources, I would guess there are about 4K “active” MSPs, contributing back to the community, and SHAPING the future direction of managed services industry.
– Finally, the MSPMentor 250 list does an excellent job of highlighting the core group of “connectors”, those DRIVING the future of the industry.
I think we are seeing the 80/20 rule evolving into a 95/5 rule in this space.
Jay McBain
Lenovo
Jay: Sorry I didn’t make it to SMB Nation. Thanks for the facts/figures/insights from the show.
Stuart: I think the larger guys break off into a few camps. Service providers, hosting companies, consulting shows… the micro segments seem to keep giving way to even more micros 😉
Best,
-jp