- June 6, 2023
- Posted by: sdascoli
- Category: Business plans
The backup vendor is seeing double-digit growth as MSPs reduce the number of BCDR systems in their stacks, as predicted by Channelnomics research
By Larry Walsh
When most people in the channel hear “consolidation,” they think of the trend of merging managed service providers and other partner types, reducing the overall population.
In a recent CRN interview, Axcient CEO Rod Mathews credited consolidation for the double-digit growth his business continuity and disaster recovery (BDDR) company is experiencing. In this context, consolidation refers to an emerging trend among MSPs to reduce the number of redundant systems in their service delivery technology stack.
It’s a real thing. Channelnomics did the research for Axcient last fall, revealing how inflation pressures were hitting MSPs hard, driving up their software licensing and labor costs.
Any good engineer or mechanic will tell you to use the right tool for the right job, and MSPs are no different. They need different tools to perform various monitoring, maintenance, and management tasks on behalf of their customers. But just how many of the same tools, such as BCDR (more commonly known as backup), do they need?
Our research found that 87% of surveyed MSPs have two or more BCDR vendors in their technology stacks, with over one-quarter having four or more BCDR systems in their inventory.
All that redundancy is a result of legacy thinking toward technology sales. Different products in various price bins meet and align with the spending capacities of different customer types. If a customer can’t pay for the Mercedes, no problem; there’s a Chevy right over here.
That kind of product management and merchandising is fine for product sales, but the brand is opaque to the customer in managed services. MSPs commonly offer the service under their own brand, meaning they can sell a Chevy at the Mercedes price as long as the customer gets the functionality and value they expect.
In good times, when customers are spending freely, having multiple systems at different price points doesn’t make much of a difference. Each line can support itself through its respective sales. When times get tight, though, the cost of that redundancy becomes clear. Our research with Axcient found that redundancy increased licensing, training, operational, sales, and, most important, labor costs.
MSPs aren’t immune to recessionary conditions and inflation pressure. In the research, MSPs noted how they’re feeling the pinch of increased labor costs. Many MSPs were sacrificing profitability to retain staff that demanded higher compensation. They would rather give their people more money than risk losing talent, which would further impact their viability.
In the survey, 42% of MSPs said they were replacing existing BCDR systems to achieve greater levels of efficiency, and 40% of MSPs said they were consolidating systems to reduce costs. Consolidation makes sense. Operating multiple systems doesn’t just increase costs and stretch resources with overlapping processes that, when strained, impact customer experience. As Channelnomics has found in previous research with Pax8, poor customer experience in managed services leads to lower renewal rates.
So, it’s no surprise that Axcient sees a 20% increase in revenue and a 48% increase in quarterly bookings resulting from the consolidation and optimization trend.
Channelnomics suspects that more vendors will see the same benefit as MSPs look to cut costs and increase their operational efficiency. However, this trend also means that some vendors lose as MSPs walk away from expensive and cumbersome systems.
Channelnomics believes that consolidation and optimization will continue as a background trend alongside flashier technology and market trends. Vendors and partners must reconcile their operating expenses against the uncertain and challenging economic climate. Technology-stack consolidation is a logical step in that process and an opportunity for vendors looking to help MSPs optimize their operations.
Larry Walsh is the CEO, chief analyst, and founder of Channelnomics. He’s an expert in the development and execution of channel programs, disruptive sales models, and growth strategies for companies worldwide. Follow him on Twitter at @lmwalsh_CN.