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Times have changed for managed service providers.
Datto Inc.'s "Global State of the MSP Report," released earlier this month, revealed 75% of the MSPs polled identified cloud productivity services such as Microsoft 365 and Google G Suite as the leading managed service they provide. Future plans also call for cloud: MSPs cited cloud-based infrastructure design and management as the top service they plan to offer within the next year, according to the Datto MSP report. That's quite a shift from just four years ago, when many service providers had yet to commit to cloud computing. The COVID-19 pandemic, meanwhile, is shifting how MSPs manage their operations and deliver services.
Rob Rae, senior vice president of business development at Datto, a data protection and MSP software company based in Norwalk, Conn., recently elaborated on some of the managed services trends surfacing in the company's report.
The importance of cloud as a current MSP offering and expansion priority was an interesting finding in the Datto MSP study. As recently as 2016, many MSPs were generating limited or, in some cases, no revenue from cloud services. What factors influenced the rapid uptake?
Rob Rae: This ranges from market to market. However, if we look at the U.S. specifically, cloud adoption has been slower than initial estimates. If we think about why people evolve to adopt new technologies, it's usually for ease of use, price or speed. Because connectivity in the U.S. and certain parts of Europe haven't had any significant issues, there has been no rush to adopt the cloud. Yet, when you look at regions like Australia as an example, they are experiencing the opposite and, therefore, are seeing faster cloud adoption and hardware reductions compared to other regions.
COVID, however, has changed the game. Software-as-a-service products and services are widely popular right now as the 'work from anywhere' movement has affected the industry. I anticipate that the longer we are working remotely, cloud adoption will accelerate.
In the 2019 Datto survey, 44% of MSP respondents said they generated more than half of their revenue from recurring services and in 2020, that portion has gone up to 53%. Does an increase in cloud business contribute to the increase in recurring revenue?
Rob RaeSenior vice president of business development, Datto
Rae: Monthly recurring revenue (MRR) encompasses not only products, but services. Cloud businesses are built on an MRR basis, but it's not the whole answer as to why MRR is growing. For entrepreneurs and business owners, MRR adds so much value to the worth of businesses. Combined with vendors selling all their products with an MRR component and the end-user adoption of everything 'as a service' in both our professional and personal lives, this increases growth in recurring revenue and services.
During COVID, this has never been more important. If we reflect on 2008, during the housing crisis and deep recession, those that relied on one-time, large project work were greatly affected. The ones that survived were those that had built an MRR practice. COVID will prove that once again and accelerate the growth in MRR, but with a worldwide effect.
I am wondering about the relationship between managing on-premises servers and managing cloud-based resources on clients' behalf. Is it incremental to on-premises managed services or does it replace on-premises managed services?
Rae: The relationship between managing on-premises servers and managing cloud-based resources is ever-evolving. Today, the evolution is incremental as we break from old tradition and comfort, and a strong argument can be made that on-premise services will be replaced. The key is that as the services evolve, so will the MSP. This is, however, a slow-moving transition. There is no urgency for now, but a good conversation and a plan should be in place.
The 2019 Datto MSP survey covered hiring, noting 71% of MSPs were planning to hire one to five people in the next year. Do you have a number for 2020 based on the effects of COVID-19? Is there a general hiring freeze going on or are some MSPs still recruiting?
Rae: In January and February , one of the biggest issues MSPs were facing was finding talent. That is still somewhat the case, but things have changed. I think we are in a holding pattern, not wanting to add too many more staff members until we see the fallout from COVID. Like some end-user businesses, some MSPs weren't prepared for a pandemic. I do see that the government stimulus packages have assisted the retention of employees. However, there will be some fallout longer term. This will enable those that are thriving and still looking for good talent to finally have a bigger pool to pull from.