What lies ahead for MSPs in 2023?

By Chris McKie, VP, Product Marketing Security and Networking, Datto, a Kaseya company.

  • 1 year ago Posted in

The past three years have been a rollercoaster ride for managed service providers (MSPs). The pandemic brought a whole range of threats as well as new opportunities. At the beginning of the first COVID-19 wave, MSPs had to act fast to meet their clients’ work-from-home needs when the first lockdown was announced; they then had to adapt their services again when people returned to their offices and hybrid working became the new normal. While the industry may be hoping to return to calmer waters in the coming year, Kaseya’s latest Datto Global State of the MSP Report makes for insightful reading. The survey of 1,800 MSPs worldwide found that providers will have to keep developing fast in order to thrive – and the break-fix model is back, but with a twist.

Published at the end of October, the report shows that for the second year running, MSPs are worried about their competition. Almost one in three respondents ranked this as their top concern. Although the pandemic led to an overall upsurge in demand for IT services, it also meant new MSPs entered the scene. And in a largely saturated market, a quarter of MSPs say they find it hard to attract new customers as small and medium-sized businesses (SMBs) shop around for the best deals.

Some MSPs manage to get a foot in the door with larger companies by solving a problem for internal IT teams that are initially reluctant to work with new vendors. In this spin on the traditional break-fix model, they suggest a one-off project such as a compliance audit; the results then lead to a co-managed service agreement. This paves the way for MSPs to establish a relationship, and in the future, expand their service offering with the client.

More revenue from break-fix

This approach to new business is one of the reasons why revenue from break-fix has increased. According to the Kaseya report, over a third of revenues in the past 12 months came from break-fix or project-based work. Meanwhile, sustaining growth and profitability still prove to be major concerns for 28% of surveyed MSPs. One major factor that contributes to the challenge of remaining competitive is that many MSPs struggle to find the time, tools and skills required to run successful marketing and lead generation campaigns.

But, without a solid brand, an MSP may only be competing on price. Some lean on their technology partners for marketing and sales enablement support, taking advantage of tools ranging from pre-built campaigns to social media services and joint events to boost their success rate.

The move to the cloud continues

In fact, there are huge opportunities ahead. The cloud is still an area for growth. The pandemic greatly accelerated cloud uptake. Now, as businesses navigate the downturn, they seek to take even more advantage of cost-saving cloud services. Roughly half of MSPs anticipate that at least three quarters of their clients’ workloads will be in the cloud over the next three years, including email servers, databases and application servers. In line with this, MSPs are increasingly delivering cloud migration projects.

Many of the surveyed MSPs are also preparing to add new managed services in 2023, primarily around collaboration software (26%), storage design and implementation (25%) and business intelligence or analytics (23%).

Security remains a priority

In addition, there are plenty of growth opportunities in expanding security offerings. The top services currently delivered by MSPs are email security (76%), password policy management (71%), security framework and compliance auditing (69%) and two-factor authentication (67%). Nearly all MSPs offer some form of managed security service, and there is now a move toward solutions that do more than just help the recovery from cyber-attacks.

Increasingly, MSPs are looking toward tools that allow them to mitigate and minimise risks for their clients. Expected growth areas include dark web monitoring, threat detection and response, compliance monitoring and privileged access management. However, there are barriers to delivering these new security services, too. Four in ten MSPs find it difficult to hire skilled cybersecurity professionals, while over a third say they are having to manage too many different security products.

Trends for 2023

Overall, the MSP market appears to be strong and healthy. As many as 95% of survey respondents believe that ‘now is a good time to be an MSP’. Three out of five stated that they have upped their revenue over the past year and 82% expect to grow further over the next three years.

However, to succeed in a busy marketplace in 2023, MSPs will have to find ways to stand out and become savvy marketers. MSPs have also reported challenges in hiring new talent, so given the number of technology and growth areas that they will have to juggle, improving operational efficiencies will be a key focus. Adopting the right tools will help them overcome any challenges and make the most of the opportunities ahead.

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