The Blurring Lines Between Mega Solution Providers and Mega MSPs
Giant integrators don’t see giant MSPs as competitors—unless they start offering the outcome-oriented, industry-specific services businesses really want. Plus: SonicWall has SASE coming soon.
For better or worse, private equity appears to be in the early stages of a rebound.
Here in the U.S., PE-funded deals climbed about 12% year over year both in volume and dollar amount during the first two quarters of 2024, according to Pitchbook. The global numbers look even better, according to S&P, which says deal value year over year jumped more than 42% in Q2 to $175.73 billion.
Which is to say that the capital needed to create those mega MSPs I wrote about a few weeks ago is becoming more readily available even before the Federal Reserve begins lowering interest rates, as it’s (finally) expected to soon.
TL;DR on mega MSPs: they’re a wave of managed service goliaths beginning to appear now and coming in larger numbers soon that will make MSPs we think of as big today appear modestly-scaled by comparison.
My previous post looked at the implications of that development for smaller providers, but soon left me wondering if colossal IT firms outside the world of managed services view colossal MSPs as potential competitors.
Not so much, it appears. “That’s not a threat to us,” says Mike Strohl (pictured), CEO of e360, a roughly $400 million solution provider with locations across California.
There’s a caveat attached to that statement though. Strohl’s talking about mega MSPs that continue to focus on generic IT management and maintenance even as they grow in scale and reach. When, versus if, some megas cultivate the kind of specialized business problem-solving expertise e360 offers, he notes, the distinctions between giant MSPs and giant solution providers will indeed gradually get harder to define.
“The lines are going to blur a lot,” Strohl says.
They’re blurring already, in fact. e360, for one, is increasingly providing managed editions of its solutions in areas like virtual desktop infrastructure. “They need the technology, but they’re getting out of the business of managing it themselves,” Strohl says of his customers.
And once you’re delivering managed solutions, he continues, you can potentially expand into other, more traditional kinds of managed services, even at the mid-market and above businesses e360 mostly serves.
“There’s a lot of day-to-day IT business that companies want to get out of,” Strohl says.
On the flip side, meanwhile, mega MSPs like Fulcrum IT Partners (close to 1,000 employees and $1 billion in revenue last year) are doing the same thing in reverse, growing from managed services into solutions based in many cases on custom-coded IP.
“That’s where we’re generating real value,” says Kyle Lanzinger, Fulcrum’s president and head of M&A.
Critically, those solutions are narrowly tailored not just to vertical industries but to sub-verticals. There’s little market, Lanzinger notes, for healthcare solutions. “We have to get into either a provider application or a payer application or maybe a research application, because these are very different end users with 20 different business problems that we need to solve for.”
Fulcrum’s services, like its managed SOC offering, are growing more specialized too. Retailers, for example, have e-commerce sites in multiple countries to defend. “That requires a very different touch point than perhaps a discrete manufacturer would,” Lanzinger says.
e360 is taking that same sub-specialized approach to both services and solutions. “We have specializations within our specializations that make us stand out,” Strohl says.
This is not just an enterprise story
ePlus, an even larger solution provider than e360 (1,900 employees and over $2.2 billion in net sales during the fiscal year it concluded in March), is also pursuing a hyper-specialized strategy in areas like the AI solutions we’ve written about before.
“AI is going to create a whole new ecosystem of ISVs and software partners, as well as MSPs, where there’s going to be super niche things around very specific AI outcomes for an industry in early cancer detection, or reducing retail theft, or optimizing floor plan layout and retail shops for foot traffic,” says Justin Mescher (pictured) the company’s vice president of cloud solutions. “You’re going to have people come in the market that are just really, really, really good at that thing, and I think that’s going to be the next pivot point.”
Like e360, ePlus sells principally to enterprises and the mid-market. Neither company has designs on the SMB space. But both Mescher and Strohl, not to mention Lanzinger, believe small, medium, and mega MSPs that do work with SMBs must similarly target solutions and specialties to remain competitive. Mescher, in fact, is seeing rising demand for AI and cloud solutions among SMBs already.
“They’re areas they know they need to embrace to survive and thrive, and that trying to hire and cultivate that expertise internally is probably not the best way to go about it,” he says.
Unlike endpoint and network management, moreover, AI and cloud solutions can be delivered from anywhere, allowing MSPs to expand their potential customer base beyond businesses within driving distance. “I find that locale matters less, and it’s more about expertise and relationship and trust,” Mescher says of ePlus clients.
Specialization matters too. “You have to verticalize,” Strohl observes. “I can’t say, ‘I’m an AI company’ to all industries. I have to say, ‘I’m an AI for healthcare,’ or ‘I’m an AI for finance,’ or ‘I’m an AI for manufacturing or government,’ whatever it is, because for that business to work you have to understand the inner workings of the business itself, not the technology that supports the business.”
MSPs that don’t meet that standard are going to find landing and retaining new customers increasingly difficult, regardless of their size or the size of the clients, for reasons I’ve discussed a bunch of times in the last year. Basic IT services and horizontal anything will soon be commodities, if they’re not already. ePlus, e360, and Fulcrum are all modeling ways to avoid the inevitable repercussions for anyone who does nothing else.
One last shameless plug
I’m speaking next Thursday at CompTIA’s ChannelCon event on techniques for working successfully with the media. Drop by and say hello if you’re both a Channelholic reader and a CompTIA member.
SonicWall has SSE in its present and SASE in its future
The folks at SonicWall unveiled a security service edge solution last week. By now, you’ve probably seen the details. I want to touch on it briefly anyway, because it brings together a couple of topics I’ve been writing about in recent months and forecasts the next big milestone on the vendor’s roadmap.
First, a few words about the product: It’s called Cloud Secure Edge (CSE) and based on technology SonicWall acquired in January along with Banyan Security. Unlike Banyan’s solution and comparable ones from Cisco, Netskope, Palo Alto, Zscaler, and others, CSE is multi-tenant, sold at monthly rates, and available through the same MySonicWall portal partners use to buy other SonicWall solutions.
“It has been designed with MSPs and MSSPs in mind,” says Chandrodaya Prasad (pictured), the vendor’s executive vice president of global product management.
Also unlike Banyan and competitive offerings, CSE integrates with a “private connector” built into version 7.1.2 and later releases of SonicOS, the operating system that powers SonicWall’s firewalls, so end users can access the new system without buying and managing an SSE gateway. “They no longer need an extra piece of hardware,” Prasad notes.
Or an extra relationship with an SSE vendor for that matter, which is where the CSE launch intersects with one of those two ongoing trends I’ve been discussing here. MSPs increasingly want to get as many of the solutions in their security stack as possible from as few vendors as possible. SonicWall’s trying hard to satisfy that wish through acquisitions (of Banyan and MDR vendor Solutions Granted) along with moves like its April introduction of a centralized management interface.
CSE does more than help SonicWall partners consolidate vendors though. It also gives them the cloud-friendly alternative to VPN they’ve been clamoring for, according to Prasad, at a time when businesses are rapidly adopting zero-trust network access solutions.
“VPN is based on the notion of always trust,” he says. With CSE, on the other hand, “you don’t trust anybody. You don’t trust any session, you don’t trust any application, and you don’t trust any users. You constantly have to revalidate and reauthenticate yourself.” SSE systems like Cloud Secure Edge are also faster and more reliable over long distances than VPN, Prasad adds, making them a better fit for the age of hybrid work.
Which brings us to the second of those two trends I’ve been writing about, and the next big addition to the SonicWall portfolio. SD-WAN suits hybrid environments just as well as SSE does, for similar reasons, and SASE solutions that combine SSE with SD-WAN are selling fast as a result. SonicWall already has SD-WAN technology in its firewalls. What’s to stop it, then, from turning its SSE offering into a SASE offering?
Very little, Prasad says. “It’s just about bringing that security stack and the networking stack together at a management layer.” That process is underway now, as is a further effort to roll in CASB and data loss prevention functionality.
Without specifying exactly when that work will be completed, Prasad suggested SonicWall partners won’t have long to wait. “Both of these are fairly short-term items,” he says.
IoT security really is a problem
Speaking of SonicWall: Just days after I wrote about the risks and rewards of IoT security last Friday, out came the company’s 2024 Mid-Year Cyber Threat Report, which reported a 107% year-over-year increase in IoT malware during the first half of this year. Targeted IoT devices apparently spent a solid 52.8 hours under attack on average too.
An additional fun fact in the report is that SonicWall sensors detected 50 hours of critical attacks during a typical 40-hour work week in H1, meaning that the average firewall was under assault 125% of the time an average person spent doing their job. Gotta appreciate the hustle those threat actors show, I guess.
Further details and a link to the report itself here.
PCs are back!
IDC’s latest personal computing sales update appeared after my co-host Erick Simpson and I recorded this week’s episode of MSP Chat, but confirms our take (borrowing from Canalys analyst Jay McBain) that PC sales are a potential money-maker for the channel again. We also have an informative interview with Cisco channel execs Elisabeth De Dobbeleer and Ken Seitz on underleveraged revenue opportunities in security, networking, and beyond and what partner programs can do to help MSPs capitalize on them. I’m biased, but worth a listen.
Also worth noting
SentinelOne is now letting cyber insurers offer its software to their clients at preferred rates, in hope of reducing claims and lowering premiums.
Malwarebytes has added AI-based chat assistance to its ThreatDown platform’s Security Advisor feature, expanded the system’s DNS filtering rules, and rolled out other enhancements.
Nozomi Networks, a company I referenced in last week’s IoT security writeup, has introduced what it says is the world’s first embedded security sensor for industrial control systems.
Salesforce and Workday are sharing data and AI agents to break down barriers between CRM and HR. There’s also a new Workday integration with Slack.
Teresa Anania, formerly of Zendesk, is the new chief customer officer at Sophos.
Jason Wakeam, formerly of SnapLogic, is the new chief revenue officer at Backblaze.