How Many VARs Will Become MSPs?

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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