Top Challenges for MSPs As We Head Into 2023
The size of the global MSP industry is projected to exceed $500 billion by 2028. Here’s a look at the top factors driving this growth and the challenges that lie ahead.
The global managed services industry is projected to grow from $243.33 billion in 2021 to $557.10 billion in 2028 at a CAGR of 12.6%. Here’s a look at the top opportunities and challenges for MSPs as we head into 2023.
Most businesses today rely entirely on their technology thanks to the digital transformations they have undergone over the past few years. This is true of companies of all sizes, including SMBs. The problem for SMBs, however, is that they often need more internal talent to support and maintain their technology infrastructures. This forces them to seek IT support outside of their organization. This trend is reflected in a 2021 survey that showed that the number of companies using third-party firms to manage more than half of their IT needs increased by 50 percent over the year prior. That’s nearly four in ten businesses.
Advantages of partnering with a managed service provider
By partnering with a managed service provider (MSP), SMBs can gain access to IT stacks and personnel that would be unobtainable for them due to limited resources. It also allows them to concentrate on their core competencies that directly impact their business.
In contrast to a break-fix IT provider, MSPs have a shared interest in ensuring that a client’s network and IT estate are as stable and problem-free as possible. MSPs often serve as strategic partners to their customers, giving them insights into new technologies they can leverage to achieve business objectives better. With an increasing number of cyberattacks being directed at smaller organizations today, MSPs also play a critical security role. For these reasons, the global managed services market is projected to grow from $243.33 billion in 2021 to $557.10 billion in 2028 at a CAGR of 12.6%.
For those looking for further insights into the MSP market, Datto recently released their 2023 Global State of the MSP Report. The report is based on a survey conducted by Datto of more than 1,800 MSPs worldwide. The report’s purpose was to learn more about their successes, challenges, and growth opportunities for the coming year. A resounding 95% of MSP respondents are upbeat about their industry and say it’s an excellent time to be in the MSP business. On another positive note, 82% expect revenue to increase over the next three years. Below are some of the other findings outlined in the Datto report.
See More: Five Ways MSPs Can Build a Next-Gen Managed Security Practice
What does the typical MSP look like?
Some of the characteristics of the typical MSP show that the industry is still relatively young.
- Just over half said they had been in business between six and 11 years
- Nearly 25% have been doing business for less than five years.
More than a third of MSPs in the study reported annual revenues between $1 million and $5 million, while another third reported less than $1 million in earnings. Regarding the more elite establishments, 8% had annual revenue of more than $10 million, and 5% raked in over $20 million. Three out of five MSPs saw their incomes increase in the past twelve months, while 10% said their revenue decreased. Three-quarters of surveyed MSPs expect growth of more than 5% for their business next year.
What is the typical customer profile?
The size of the typical business that MSPs serve is between 20 and 200 employees, with 50 to 100 employees being the most common range (20%). Almost none served clients with fewer than ten employees and very few had served organizations with more than 300 employees. The typical MSP client spent $13,000 on managed services last year, with high-tech and healthcare being the top two industries served by MSPs.
Is break-fix making a comeback?
Since the birth of the MSP industry, MSPs have been marketing themselves against break-fix organizations. A break-fix firm is summoned by customers when there is a problem. A technician is sent out, the problem is fixed, and operations continue. Under an MSP model, a technician proactively services a customer’s environment, ensuring that the components they support are fully patched and adequately maintained so that there are no problems in the first place.
One surprising trend highlighted by the study is that MSPs are starting to offer more break-fix services. MSPs have always offered break-fix services on a limited basis for new clients with legacy equipment that can’t be properly converted to managed services. The report highlighted an 11% increase in break-fix revenue for MSPs overall.
One of the explanations for this upward trend is that large businesses are turning to MSPs to augment their over-burdened IT departments. Staff augmentation is a growing trend for companies of all sizes that desperately need IT personnel with the right skill sets. Another is that MSPs are offering co-managed service offerings that are outside of the usual MSP stack offerings and are being categorized as break-fix operations.
See More: Why Businesses Are Fed Up With MSPs And Top Tips to Win Back Their Trust
Top Challenges for MSPs As We Head Into 2023
The top challenge for MSPs cited by survey respondents was competition, with 29% citing it as their greatest challenge, followed by revenue growth, profitability, and the acquisition of new customers. Increased competition should be expected as more industry participants, including some very large players, are entering the market.
The increased competition is also attributed to businesses being more familiar with the MSP model and being more selective when choosing a partner. Rather than having to be educated on what an MSP does, they actively want to know more detail about strategies, services, and toolsets. As for profitability, MSPs need to review their customer portfolio every year or so and look to drop customers that aren’t profitable. At the same time, they also need to check their vendor partnership agreements and perpetually evaluate new partners that may represent better pricing or opportunities.
Technology trends
Like their larger competitors, SMBs have begun transitioning more of their workloads to the cloud, forcing MSPs to shift their offerings to the cloud in response. According to the Datto study:
- 98% of MSP clients are using the cloud in some capacity
- 76% of MSP clients have shifted more than half of their workloads to the cloud
- 99% of MSPs expect to have at least half of all client workloads in the cloud in the next three years
The top MSP service offerings according to participants are Networking, Business Continuity and Disaster Recovery (BCDR) and Technical Support. Security services are in high demand with the current breakdown as follows:
- 76% of MSPs offer email security
- 71% offer password policy management
- 62% conduct security framework and compliance audits
- 67% provide MFA solutions
- 65% offer basic firewall services
Other services included remote access technologies, advanced endpoint security, and identity access management.
Conclusion
As more SMBs become technology driven businesses, there is no doubt that the demand for MSPs will continue to accelerate. Those that can provide the relevant services that their clients need will continue to be successful.
Do you think skills shortage could impact MSPs’ fortunes in the year ahead? Let us know on LinkedIn, Facebook, and Twitter. We would love to hear from you!
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