CCC RECAP: Recession or No?

Understanding the Current Economic Climate and the Future of MSPs

By T.C. Doyle

Persistent inflation. Supply chain disruptions. Even food supply insecurity. All of these and more are weighing on the global economy — and giving tech industry professionals fits.

Thanks to global uncertainty, many industry insiders are in a quandary about what to expect in the next year. During the Channelnomics CiQ Community Call on Aug. 16, this topic took center stage, along with a separate topic that Channelnomics analysts have been studying of late, the future of the MSP.

On the latest BCC, Channelnomics founder and CEO Larry Walsh addressed some of the factors that are weighing on the rapidly changing economy:

• Increasing cost of money
• Persistent inflation
• Declining stock value
• Destabilized trade routes
• Supply chain disruptions
• Energy insecurity
• Food supply insecurity
• Geopolitical instability

Not surprisingly, tech stocks, which in upbeat economic times fuel M&A, new product launches, and expensive marketing campaigns that have proven to spur new growth, have languished of late, some notable exceptions (Apple) notwithstanding. Since January 2022, tech shares are down 17% overall.

The implications of these conditions are widespread. They include an anticipated decline in spending, reduced investment and profit-taking among start-ups, increasing production and sales costs, and decreased margins. These outcomes are already burdened by realities that set in during the pandemic, including supply chain disruptions and shortages, and a newer realization that surge spending, done at a time when tens of millions of workers needed new work-from-home setups, has fallen significantly.

For those working at tech vendors in and around channels and go-to-market activities, some new realities are starting to take shape, including:

• Decrease in partner contributions
• Constrained channel productivity
• Margin erosion
• Limited credit, financial flexibilityRisk mitigation tensions
• Lower dependency on vendor revenue
• Accelerated M&A activity
• Channel attrition

But Walsh, for one, said this is no time to panic. Yes, it may be difficult for vendors to achieve yearly goals identified before the economy started to turn. But channels, Walsh added, are the key to continued prosperity.

“The channel is the antidote to recession ills,” he said, so, cutting back on channel investments isn’t the way to go. Rather, now is the time to lean into the channel for support, automate and simplify business process, leverage distributors, focus on analytics, and invest in enablement and support.

MSPs: The Problem With Everyone’s Favorite Partner Type

The business partners that many tech vendors covet, MSPs, have widely embraced a business model that increasingly looks to be problematic for many vendors and MSPs alike. During the August call, Channelnomics Vice President of Strategic Content T.C. Doyle discussed why this is so.

Doyle noted that, as revealed in our 2022 Channel Forecast report, partners themselves said they plan to reinvest less revenue in their businesses this year than in years prior. Partners also revealed that their current level of reinvestment is below the threshold that’s considered healthy. What’s more, much of what business owners do plan to invest in their businesses is earmarked for short-term sales and marketing activities, not long-term value creation or business reinvention.

Several reasons explain why, including price commoditization, increased technological complexity, and changing customer buying habits.

Additional research also points to uncertainty within the MSP community. In 2022, for example, industry research from CompTIA revealed that more than one-quarter of MSPs are pessimistic or very pessimistic about the long-term viability and competitiveness of their business model. This explains why so many MSPs lament their fate on forum message boards where they trade advice and share insights. In February 2022, one tech veteran summed it up best in a Reddit post: “The MSP space is doomed; it’s only a matter of time.”

Implications for Vendors

While the broad implications of this phenomenon, dubbed by Channelnomics as the MSP Conundrum, haven’t fully emerged, it’s abundantly clear that the collaboration between vendors, business partners, and customers that has existed in the tech channel for several decades is under strain.

So, which direction will MSPs turn? During the call, Doyle walked through a variety of options that MSPs may embrace. They could become cloud service providers (though that would require them to de-emphasize their own tech stack sin favor of vendor-provided digital services) or move upstream into business applications, which would require developing greater vertical market knowledge and greater business process insights.

Laster this month, Channelnomics will publish a new analysts note in the CiQ portal that further examines this topic. In this report, Channelnomics will examine several options for MSPs and walk through what vendors relying on MSPs might do in anticipation of what will inevitably be another business model shift.

If you’re wondering whether MSPs make sense for your partner program, here’s a handy SWOT analysis of MSPs to help guide your thinking:

MSP Analysis: Strengths, Weaknesses, Opportunities, and Threats

Strengths

• Are the go-to choice of vendors serving SMBs around the globe
• Are ideally positioned to offer outsourced systems administration and management
• Possess cross-platform and multidisciplinary skills
• Can make money from multiple business models simultaneously
• Rely on a proven business model that attracts investment

Weaknesses

• Play a limited role in the strategic mission of customers
• Have a limited focus on business-specific applications
• Are challenged to match the convenience and pricing of marketplaces and vendors
• Depend on common tech automation tools that reduce their differentiation
• Are underinvested in sales excellence, customer success, and marketing

Opportunities

• Exploit customers’ pivot from brands to solutions to cement role as trusted advisors
• Introduce customers to new automation
• Manage the integration, billing, and renewal of SaaS investments
• Provide ongoing security and compliance solutions
• Play a bigger role in the business outcomes of customers’ tech usage

Threats

• Vendor-operated marketplaces and other direct-sales efforts
• The escalating cost of providing managed services across multiple platforms
• An inability to expand into business apps, verticals, and more
• The rise of new business models that are incompatible with managed services
• Provider consolidation that’s fueling the rise of big competitors operating at scale

HOT OFF THE PRESS: CQ Magazine, Volume 2 — This month, Channelnomics will publish the summer edition of Channelnomics Quarterly, which will feature a look at the steps channel leaders can take to reallocate funds if they find themselves in need of a midyear course correction. Also, the upcoming issue will showcase the latest in Channelnomics research, guest commentary, and insights from Walsh himself. CQ publishes digitally and in print four times a year, providing channel chiefs, C-suite executives, and other business leaders with research, thought leadership, and practical insights for developing and executing effective indirect-sales programs. For more information, reach out to T.C. Doyle, editor of CQ.

DONT MISS: The Channelnomics Channel Recession Survival Guide — With all eyes on the economy, Channelnomics has produced a new (and FREE) recession survival guide designed to help you make adjustments within your business, be they budget redirects or priority reassessments.

The guide features a comprehensive look at the current state of the economy, an assessment of some anticipated outcomes, and practical advice for channel practitioners.

Again, the guide is free and available for download here.

Don’t miss the next CiQ Community Call on Sept. 20, when we’ll discuss why customers who prefer buying tech goods and services directly from vendors nonetheless find themselves turning to the channel again and again. Our CiQ Community Calls, which take place on the third Tuesday of every month (except in December), are now open to any channel professional and practitioner. Meanwhile, if you’re a CiQ subscriber looking to request your monthly one-on-one call or schedule your annual channel program review, send an e-mail to info@channelnomics.com.