Market Consolidation: Four Major MSPs Per Major City Area?
I just ran into Jason Waldrop (pictured), CEO of Connected WorkPlace Solutions (CWPS) — an MSPmentor 100 company. We had a five-minute discussion before Waldrop participated in an SMB panel at Cisco Partner Summit. We stumbled onto the topic of industry growth and market consolidation. Waldrop thinks each major metropolitan market has room for roughly four big, dominant managed services providers — though he thinks successful, lifestyle MSPs will also find success in the market. So what steps will Waldrop take to ensure CWPS has a high-profile position in the company’s Washington, D.C., region?
Waldrop offered a few quick clues before stepping on stage. He mentioned that there’s still room to resell products — including small business unified communications systems. (Waldrop’s panel focused on that very topic.) Those offerings help create pull for CWPS’s managed server, managed desktop and managed backup services. Also, Waldrop is helping a few customers to stand up private clouds now. The private clouds will be architected to support virtual desktop infrastructure (VDI).
Meanwhile, Waldrop doesn’t sound too concerned about simplified IT products emerging in the SMB market. Instead, he believes SMB business owners are becoming allergic to in-house IT staffers. As a result, more and more SMB entrepreneurs are seeking out Connected WorkPlace Solutions’ advice, Waldrop said during the panel discussion.
I’ve got to say I wish there was more managed services chatter here at the event. Cisco Channel Chief Edison Peres is quick to note that the new Cisco Cloud Partner Program leverages much of what Cisco learned from managed services. And my five-minute conversation with Waldrop was a healthy reminder that there are MSPs here at Cisco Partner Summit.
I was intrigued to hear about Waldrop’s SMB strategy. But his point about market consolidation — four major MSPs per major metropolitan area — really caught my attention. I suspect his estimate is on the mark…
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You’d have to be pretty refined in your term “Major Metropolitan Area” to get down to four large MSPs in the D.C. area, don’t you think? D.C. also encompasses the Northern Virginia corridor and parts of Maryland as well. I know we’re in touch with dozens of smaller MSPs in the area and also several larger ones, not to mention Network Depot.
Interesting thought though. I suspect that large areas like D.C., NYC, LA, etc have room for many more than just four dominant MSPs – especially if you start to tackle niche markets within the area… You could grow a massive MSP by just finding a good niche and specializing in that alone. What do you define as a “Dominant MSP”?
-Dan
Dan,
I respect your thoughts. And yes indeed, the post was pretty vague in terms of defining “dominant” MSPs. I’m still sorting out the trend in my own head. But I can confirm this: Many smaller MSPs (say, sub $5 million recurring revenues) are trying to figure out whether to build strategic growth organizations or to simply enjoy a lifestyle business. There’s definitely a feeling in some tier 2 markets that the dominant MSPs are gaining strategic footprints…
-jp
Dan:
I tend to agree with you.
First the SMB market is very segmented with many SMB having rather unique needs. It will be difficult for this market to be served adequately by only a few large MSPs in a major metropolitan area.
Secondly, the choice by an SMB of a particular MSP is often made largely from relationships cultivated over years along with a preference by the SMB customer to do business with another small business. To say that major metropolitan areas only have room for 4 large MSPs does not not seem to take into account the value of the relationships the small MSPs have with their customer base. Sure, some of these guys will be consolidated into larger operations, but for each one that is consumed another will spring from the remnants to capitalize on the old relationships.
Dan, Mitch: Just spoke with another MSPmentor 100 company here at Cisco Partner Summit. He’s located in Southern California, city population under 500k. His city is down to two major MSPs, the rest are resellers chasing very small business.
I realize this conversation isn’t scientific. Plenty of room for debate. But I’m hearing from readers in multiple cities who are trying to figure out whether to (A) hook up with a large MSP or (B) stop pursuing the millionaire dream and instead regroup and focus on a lifestyle business. Again, not scientific. Purely anecdotes. But I think it’s safe to say some MSPs worked really hard to make it through the recession. Now, they’re are considering new paths to either (A) achieve scale or (B) work less.
-jp
Well I believe, like any major niche, there is only so much bandwidth that a geographic area can offer to MSPs as far as revenue from the local populace. So I guess it makes sense that there will emerge a few dominant competitors in the MSP market. Eventually you’ll simply run out of opportunity.
But I guess since I’ve been with Virtual Administrator I’ve gotten a pretty clear view of just how vast that opportunity is. We work with at least a dozen MSPs within the same area we service at Network Depot and the chances of running across one of their clients is so small that I could count on one hand the number of times I’m aware of us doing it.
True, many of these companies would not qualify as “dominant MSPs” but in an area like Northern Virginia the opportunity is so vast that to get to dominant status would be a true feat of sales and marketing prowess.
Ah well. I just get all hot and bothered when people tell me that once a market has filled up with competitors there is no more room for new players. I know that wasn’t the main message you were delivering, but it was what I read out of it. The truth is that if any industry has taught us that there is ALWAYS room for new competition, it is the tech industry. :).
Here is me rooting for the underdogs to topple the “big four” in their market and show people what MSPs are made of ;)! Haha :).
-Dan
As another note (sorry, can’t get off this), the other thing which caught me off guard with the “big four” concept is that it promotes a spirit of competition. I am not sure that that is the right attitude to have in a market.
I’m always a fan of working to help the little guys who are coming up behind you. However, if the only thing they can ever do as they grow is steal your market share, then that gives little incentive for large MSPs to help their small kindred grow.
Maybe this is the attitude that has kept the MSP model so underground up to this point?
Just a thought.
-Dan
Dan,
Never a need to apologize. We enjoy the dialog here at MSPmentor. And we also highly value the SMB readership. I’d like to apply the MSP model to the media model. On the one hand there are some really big technology publishers out there (TechTarget, United Business Media And IDG come to mind). But on the other hand there are small, fast-growing, nimble media companies that also find successful niches. Fingers crossed, that continues to describe our own company.
So yes: There will always be room for innovators among giants.
At Parallels Summit last week, Parallels explained cloud and managed services in a different way … comparing it to the financial services industry. Some people think cloud will only have a few massive players (Amazon, Microsoft, Google, etc.). But Parallels thinks it will be like the financial services industry. Sure, there will be giants. But in financial services there are thousands of community banks, credit unions, lenders, etc. that work in local/regional SMB markets.
So too will be cloud and managed services — though I think the headline of the blog above remains accurate. There won’t be room for too many giants in each market.
-jp
Dan:
Again, you and I agree. I see the opportunity in these major metropolitan areas as vast as well. Additionally, once you get past the largest companies, it becomes very fragmented and specialized. Hence plenty of room for a lot of specialized competitors.
Joe:
I really like the analogy to the financial services market. I think it fits on a number of levels. If the point is that there will only be a few Citibanks or Bank of Americas, then I agree, but there will always be plenty of opportunity for smaller competitors to serve their fair share of the market.
Mitchell: I’ve got to give credit where credit is due. Financial services analogy entirely from Parallels Software.
-jp