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Why MSPs Should Be LSIs
As in local solution integrators modeled after global systems integrators. Integration, it turns out, may just be the biggest service opportunity in IT.
No doubt about it, there are some big MSPs out there these days.
I wrote about two of them, Logicalis and Presidio, in my coverage of the Cisco Partner Summit last week. The former collects about $1.7 billion of revenue annually. The latter pulls in over $5.8 billion.
There are plenty of private equity-backed rollups with more modest but still substantial top lines too, and it’s not hard to imagine them pricing smaller, less efficient MSPs out of business someday.
If that day is coming, however, there’s no sign of it yet, according to Robin Ody, a principal analyst at Canalys. “What I’m currently hearing from the smaller MSPs is that they see the marketing from those [bigger] companies,” he says. “They’re not necessarily yet seeing them at the end customer level.”
Ody’s not so sure they ever will. “I do wonder if human nature doesn’t always get in the way, which is to say that big companies want to go after big companies,” he notes. And if you’re a small business owner, conversely, you’re probably just as inclined toward small IT providers.
“You want local people who understand your business,” Ody says.
So maybe, he observes, it’s not big MSPs that small MSPs should be worrying about. “My view is that the biggest competition for small MSPs is other MSPs who are small but are moving faster,” Ody (pictured) says.
Ody’s is one of the big brains I had the pleasure of picking at this week’s Canalys Forum North America in Palm Springs. Alex Smith, VP of channels at Canalys, is another, and his presentation Tuesday morning pointed toward a role model that small MSPs eager to be on the fast-moving vanguard should consider emulating: global system integrators (aka GSIs) like Accenture, Deloitte, and Capgemini.
“They generate about 30% higher margins than what a typical partner makes,” Smith noted.
The reason why, suggests fellow Canalys analyst Jay McBain, is right in their name too. “They’re systems integrators,” he says. “This is the core of where they make money, as an integrator.”
In fact, integration just may be the IT service opportunity of the early 21st century. In the age of shadow IT and cloud sprawl, there are more products in the average tech estate than ever. Those products are little good in isolation from one another, though, so businesses are desperate for help meshing them all together.
And not just big businesses. Community banks and regional hospitals have the same integration needs as global financial institutions and healthcare conglomerates. Meeting those needs is a challenging job more akin to high-end project work than classic managed services, McBain observes, but it’s also four times more profitable.
Indeed, the most intriguing thought I came away from the Canalys Forum with was that MSPs can grow faster, make more, and separate themselves from competitors more thoroughly by becoming not GSIs but LSIs, as in local systems integrators, providing GSI-like services to businesses too small for GSIs to bother with.
They probably have most of the skills they need to do it, too, because they’ve been integrating their own RMM, PSA, and other systems for years. “You’re already writing those scripts,” McBain says. “Just turn around and do it as an integration service.”
McBain prefers “local solution integrator” to “local systems integrator,” however, and he makes a good point. As I’ve noted multiple times in recent weeks, MSPs increasingly see outcome-based solutions as the antidote to managed services commoditization, which is a very real threat.
“Most of the area where an MSP surfs is the area below a hundred employees, where the customer hasn’t bought or hired an IT person,” McBain notes. “300,000 MSPs are going to be battling for the exact same customer.”
Ody, who defines “MSP” as a company making over 50% of its revenue on a recurring basis, thinks it’s more like 43,000 companies you’ll be competing against, but I’m still not wild about your odds unless you’re doing something smarter than everyone else. Combining short-term consulting, design, and architecture services with long-term monitoring and management just might be the answer.
And the best part? “You’re not that guy in the white van. You’re not the trunk slammer anymore,” McBain says. “You’re really the guy that is going to rethink my business.”
Customers tend not to replace that guy very often.
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Hyperscalers, friend or foe?
That cloud marketplaces from hyperscalers like AWS and Microsoft came up regularly at the Canalys Forum is hardly a surprise.
“A total of 80% of partners now tell us that their customers are at least partially using this as a route to market,” said Alistair Edwards, chief analyst at Canalys, on Tuesday.
It was interesting, though, watching Canalys Forum speakers sort through whether hyperscalers are friends or foes. Take SHI International, for example. The $14 billion a year solution provider signed a collaboration pact with AWS three months ago. So friend, right?
Not so fast. “They’ve taken a lot of business direct,” observed Thai Lee (pictured), SHI’s CEO, during a Canalys Forum panel discussion. “It is a threat for us long term.”
That’s how distribution goliath TD SYNNEX sees it too. “It’s a big threat for us, because the end user’s one click from buying something,” said Michael Urban, the company’s Americas President, during the same panel.
Urban’s right to feel threatened, Edwards says. “These hyperscalers, they’re becoming more like distributors, which is a big threat to distribution.”
So OK, got it now. Pax8 is a distributor just like TD SYNNEX, and it’s clearly concerned about businesses going direct. It’s with Urban on Team Foe, correct?
Nope. The rapidly growing company is all friend all the time on hyperscaler marketplaces, according to Ryan Walsh, Pax8’s chief strategy officer, who calls the Azure Marketplace in particular a valuable resource.
“The way that they set this up allows us to take advantage of vendors that are on their line card that are not on our line card,” he says. “And it doesn’t preclude us from having a direct integration with that vendor.”
More interestingly, Pax8 sees the hands-on, personalized support and advice it provides vendors and partners as having little in common with what an automated procurement site like Azure Marketplace does.
“Our value-add with the vendors that come into our line card is the full integration” with PSA, CRM, and similar tools partners use to run their business, Walsh says.
So what about channel partners, who stand to get locked out of cloud deals altogether by hyperscaler marketplaces selling straight into their clients. Foe all the way, yes?
You clearly haven’t figured out how this game is played. “Partners are increasingly playing a role in the success and the momentum of these cloud marketplaces,” Edwards says. “More and more complex products are being bought this way via the hyperscaler marketplaces. Customers are looking for help, for advisory, for discovery, but also integration, deployment, cybersecurity, and support, and they need partners’ help to do this.”
The hyperscalers are well aware of it too, Edwards notes, so they’ve created programs like Amazon’s Consulting Partner Private Offers and Microsoft’s multi-party private offers. Now it’s your turn to climb onboard.
“This is going to be one of the many procurement choices that are available to your customers,” Edwards says. “If you ignore this, you’re at risk of losing a big chunk of growth. If you embrace it, you just strengthen your relevance and your value to your customers.”
Canalys versus TD SYNNEX
I’ve been known to attend two conferences (like, say, the Cisco Partner Summit and ConnectWise IT Nation Connect) in the same state in the same week, and even two conferences in the same city in the same week. I believe I set a personal best this week, however, by attending two events in the same hotel.
The Canalys Forum wrapped up at the JW Marriott Desert Springs midday Wednesday. A short time later, I strolled a few feet up the hallway to register for TD SYNNEX’s annual CommunitySolv event, which concludes today. Together, that one-two combo turned out to be a perfect way to compare expert analysis with real-world results. Let’s see how Canalys research compares with the view from TD SYNNEX in cloud computing, security, and you know what.
Edwards, of Canalys, sees a fierce tail wind coming for anyone who sells or supports cloud services. Businesses seeking better rates have committed $300 billion of spending to AWS, Google, and Microsoft in advance. “This is a massive available pot for customers to use, particularly when their own core IT budgets are under pressure,” he says.
Michael Urban (pictured) is similarly bullish on cloud, and especially hybrid cloud. Just 20 to 25 percent of workloads are running in public clouds, he said during a Wednesday keynote. “75 to 80 percent of the business is still on premise in a private environment, so the world is hybrid.”
Managing hybrid environments and migrating on-prem workloads are big potential revenue sources that TD SYNNEX is helping partners go after, according to Senior Director of Product Business Management Calhoun McKinney. “We’ve launched a really specialized sales team that’s really focused on helping partners navigate the cloud opportunity,” she says.
TD SYNNEX is even more enthused about cybersecurity. “Security is still growing in the ballpark between 20 and 30 percent every year,” Urban says. “This is bigger than cloud growth and this is still a huge opportunity.”
Canalys agrees. The worldwide total addressable market for security is up 11.1% this year to some $79 billion, it says. Unfortunately, adds Chief Analyst Matthew Ball, the businesses responsible for all that spending are spreading it out over a lot of different vendors.
Cisco thinks it’s 3,500. Speakers at the Canalys Forum cited numbers like 6,000 and 10,000. Let’s not quibble over the matter, Ball says. “There’s too many, with very little integration, which leaves us vulnerable.”
It leaves channel partners confused too, which is why TD SYNNEX offers line card consultations aimed at steering partners to the right vendors for their needs. “That’s where we help partners really kind of turn down some of the noise out there and hone in on where we see that their best next step from a solution building standpoint is,” McKinney says.
Its services organization can then step in to do the actual building, she continues. “We have a really large bench of technical resources that can help actually assess an environment, do the pen testing on an environment, help with the migrations, the data integrity that’s happening out there.”
I’ve written before about the $15.4 billion Canalys expects the channel to make on generative AI this year and the $158.6 billion it forecasts channel players making in 2028. McBain reiterated those numbers this week and provided an update on where the money’s going so far.
“We’re so early in this that our entire customer base is looking for information,” he said. “There might be a thousand things that they’re hearing within their watering holes of what to do, but they’re coming to their trusted advisors to steer them in what order they should do that.”
Those trusted advisors are gearing up to help too, according to research from TD SYNNEX out this week showing a 186% increase in North American resellers planning to offer AI or machine learning solutions. The Destination AI program TD SYNNEX launched in August is designed to ready them for that work.
“This is made up of data scientists and consultants that really help our partners ask the right questions and get the right understanding of an environment,” says McKinney, who sees accelerating AI deployments fueling demand for more than just AI expertise.
“I think security and securing all of that innovation is going to be the long-term play that’s really at the forefront of the complexity here,” she says.
You can’t spell CommunitySolv without c-o-m-m-u-n-i-t-y
There’s been a lot of talk about artificial this and automated that here in the desert this week, but the word “community” in the name of TD SYNNEX’s event is a nice reminder that the channel is still ultimately about people helping people.
Two bits of evidence emerged during conversations with Kaye McMillan (pictured), the distributor’s SVP of sales development and communities for North America, and her colleague Tim Bynarowicz, director of North American communities.
CommunitySolv offers a lot of resources, but one of the most popular additions in the last year has been a directory that members can use to find partners with complementary skills. And one of the most requested enhancements to that tool, coming shortly, has been a discussion board for sharing peer-to-peer advice.
“A lot of times people just have a quick question,” McMillan observes. “Does anybody know X, Y, or Z?” They now have a place to get answers from people they can trust.
Or rather two places, because TD SYNNEX announced plans this week to expand the CommunitySolv peer groups it launched earlier this year.
“We had an ask from our membership of how we can create engagement on a smaller one-to-one or one-to-few level, and so we launched the groups,” Bynarowicz explains. “They were well received, had a lot of interest, and we have over seven groups in North America currently active. We have plans to double that here as we head into Q1 for 2024.”
There’s real power in community too, apparently. According to McMillan, North American CommunitySolv members alone will account for some $7 billion in revenue this fiscal year. That’s a sizeable number on any scale but particularly impressive given that TD SYNNEX reported a little over $62.3 billion in global sales during its prior fiscal year and about $14 billion in its prior fiscal quarter. McMillan has an ambitious goal for fiscal 2024 too.
“If we can hit $10 billion and continue to show double digit growth, I think that’s a lot to be proud of and to strive for,” she says.
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