MSPs Have a Growing Business Value Problem

Managed service providers (MSPs) make money by delivering technology to their customers, but customers are increasingly looking for business outcomes that MSPs are ill-equipped to deliver and reluctant to adopt.

By Larry Walsh

Managed services grew out of opportunity and necessity. As Internet infrastructure became more pervasive and robust, it became easier for resellers and integrators to deliver their “break-fix services” remotely. Through remote monitoring and management of infrastructure and data, MSPs became the backbone of the channel.

While they deliver tremendous value, much of it is focused on the things they did yesterday: endpoint and server management, endpoint and network security, and storage and backup management. These are valuable services that alleviate a customer’s IT burdens.

Today, MSPs and their vendors face an increasingly different market in which customers want more than just access to technology and peace of mind that their endpoints, infrastructure, and data are working and secure. They want solutions to their business problems. And just as the average customer doesn’t care what tools MSPs use for their services, they also don’t care what components — hardware, cloud, applications — go into their systems, as long as they produce a positive value (ROI).

According to the Channelnomics Partner Confidence Index survey, 29% of MSPs say their customers shop around for better experiences from their suppliers and service providers. Other studies have shown that most business buyers will pay more for a better experience or outcome, with customers increasingly evaluating experience by how technology improves their revenue and profitability through more efficient operations.

At the recent GrowCon event produced by Marketopia in St. Petersburg, Florida, a newly minted sales rep from a small Midwest MSP asked me for advice in succeeding in her new role. I told her this: “Managed services are hard to sell because you have to convince the customer they should pay to see nothing happen. My advice is don’t sell technology.”

She was stunned until I explained that customers want help solving their business problems, not just buying technology or services that perform specific functions. Yes, every business needs security and backup — two core technologies in the average MSP stack. However, they also want to know how to build and deploy AI resources, organize and manage data, automate business processes, and leverage artificial intelligence to reduce costs and gain efficiencies.

MSPs could argue that they deliver technology that betters their customers. There’s no arguing that. MSPs’ core services are essential for smooth, uninterrupted business operations. Businesses need more, though, and MSPs are in a perfect position to deliver cost optimization, process automation, business process management support for cloud computing infrastructure, and Software-as-a-Service.

Unfortunately, the average MSP has been conditioned by its vendors to focus on yesterday and not necessarily tomorrow. While the core functions have value, their contributions to the customer’s growth and profitability are minimal. They’re the equivalent of electricity and air conditioning — you need them for operations, but they’re not necessarily directly pushing an outcome.

This focus on legacy services, while understandable, stems from established revenue streams and vendor incentives. MSPs make good money through the sale and delivery of those services. Moreover, they get rewarded handsomely by their vendors for driving the adoption of their products and services in the managed service context. This vendor-driven reward structure has become a significant factor in holding back MSP development. After all, why change if this is how you make money and earn attention from vendors?

MSPs need to shift their focus and adopt models more akin to a business process outsourcer (BPO). They can and should continue to offer their core services, but they should augment those offerings with pre-sales consultative support for identifying new customer opportunities and designing value-producing systems. Further, they should start offering application and cloud management, helping customers optimize their instances, control costs, and reap more from their investments.

Vendors should also encourage their MSPs to look beyond the core technologies. Vendors do need their MSPs to adopt and sell their products to generate recurring revenue. They also need end customers to feel satisfied with their investments, renew their services, and expand their consumption. They’ll do that through higher-value services and experiences.

Customers are struggling to keep up with the pace of technology change. According to our research, 40% of MSPs say their customers are looking to them for direction on what technology investments to make, and another 51% will end up sourcing through an MSP if the solution is available. It’s up to MSPs to keep up with customer value expectations and evolve their business-related offerings. Vendors should encourage this MSP transformation as it will also benefit their future sales.

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