Can MSPs Adjust To The Growth Of Cloud?

As cloud computing gains steam, does it threaten the long-term future of the managed service provider industry?

That threat is real, and has grown over the last six years, according to results of a recent survey by Sonian, a cloud-based email archiving and insights provider.

Sonian, in a study of 327 respondents from MSPs that sell to businesses, found that 79 percent believe cloud providers are bigger competitive threats than other MSPs. That marks a significant rise from the 54 percent who believed that in a 2011 survey.

Among smaller MSPs, that perception grew even more alarming, according to Sonian, based in Waltham, Mass. Fifty percent of MSPs with 100 to 500 employees saw cloud providers as the bigger threat five years ago. Today, that number is above 82 percent.

That change isn't lost on Jamie Begin, founder of Right Brain Networks, a solution provider based in Ann Arbor, Mich.

"The MSP business model is dying," he told ITBestOfBreed. In seeking to justify whether an MSP is necessary, Begin said, an IT executive at a typical business might ask, "Why would I need managed services when I no longer have servers?"

Indeed, Sonian says based on the results of its study, "by enabling businesses to purchase mission-critical software and services directly, cloud vendors have made a clear move to own the customer relationship."

Amazon Web Services, the cloud services giant, threw down a gauntlet for MSPs late last year when it unveiled AWS Managed Services, which allows businesses to manage their AWS infrastructures, as well as some services, such as monitoring and incident investigation, that are provided directly by Amazon's internal engineers. Predictably, reaction from channel partners contacted by CRN was negative.

What can an MSP do beyond what a public cloud provider can do? That's a question Ric Opal, senior director of Oak Brook, Ill.-based solution provider SWC Technology Partners, which offers managed services, can answer easily.

The key for an MSP is to figure out what its value add is above and around the cloud, Opal told ITBestOfBreed. For instance, is it change management? Security?

"You've got to figure out what you're going to be when you grow up," he said, adding that MSPs must always innovate and change. Opal said SWC has seen an uptick in its MSP business, but he also believes his company's diversity of offerings (SWC offers software and infrastructure solutions, as well as digital marketing), gives the company an advantage.

"Customers need value now from partners more than ever," which means knowing your customer, he said. "It's not about support; it's about understanding your customers' business [and] applying the technology with a customer's use case."

New Service Offerings From MSPs?

Most MSPs represented in the Sonian survey agree. The study found that 55 percent of MSPs said that introducing new services would be critical to compete with cloud providers, with security at the top of the list. An even higher group of MSPs surveyed by Sonian – 64 percent – said they're seeing "strong customer interest" in security offerings. In addition, 52 percent said their security offerings had been large business drivers in the 12 months prior to their being surveyed. Those findings echo recent research findings that predict a near doubling of the managed security services market between 2016 and 2020, from $17.8 billion to $35.5 billion.

Here's what else the Sonian survey found: