The fear of recession may be looming over everyone’s heads, but MSPs are traditionally less prone to economic vagaries.
That, however, doesn’t mean MSPs can sit back and relax. They do need to ensure they are making the right moves, and taking advantage of new opportunities.
The first step for this is to understand what the recession means to MSPs.
Is the talk of recession being blown out of proportion? How bad is it going to be?
With employees being laid off, purchasing power of consumers and businesses dwindling, and an economy with volatile tech stocks, recession seems to be making a hard landing!
MSPs typically handle businesses for small and medium enterprises and in any downturn, it's these small enterprises that are affected directly. But, senior analyst at Canalys, Robin Ody, is still hopeful about MSPs keeping afloat in these times. He spoke on SuperOps.ai’s limited series podcast, SuperPod - Recession-proof your MSP, and he said,
At the moment we still see demand as relatively buoyant. So at the moment the way that it could affect MSPs, it hasn't yet hit that level where we are worried about where it's going to go. We are in the soft landing stage, I am less confident it’ll stay that way.
- Robin Ody
What is going to be the direct impact of this recession on MSPs in terms of their potential overall growth?
One of the worries MSPs have due to this economic decline is that companies could think twice about outsourcing all their IT managed services, which might result in MSPs losing out on large monthly subscription services.
When SMBs are the more vulnerable impact group of this downturn, these enterprises might be more wary of where they are spending money and this might also be a factor that could hurt MSPs.
But, history of the last decade or so and recent events, especially during pandemic, shows that in tough times companies trying to cut costs do outsource. Especially their tech. This is more true now when tech is becoming more complex, there are multiple security threats, and companies need experts - something they cannot afford to hire full time in-house. Businesses across industries require help with cybersecurity, IT management, assets management, and other organizational functionalities. This expertise cannot be found in a small in-house IT team. Not just that, companies are cutting down on manpower, so they will turn to MSPs to mitigate dependance on full time employees.
Significant Mergers & Acquisitions in the MSP space
One of the key indicators of the growth potential of a sector is the interest from venture capital and private equity players in the said sector. It is safe to say then that the MSP industry continues to show great promise.
For, mergers and acquisitions have seen a steady incline in the MSP space. The consistent interest from venture capitalists for new companies and private equity investments aimed at merging several MSPs into one is a leading factor.
Increased recessionary worry is also a contributing factor, with some of the smaller MSPs wanting to find strength within a larger MSP player. The first half of 2022 saw quite an upward tick in the M&A activity with the year ending with more than a thousand buyouts.
Increased regulatory scrutiny is another factor. With MSPs handling sensitive data of their clients, and also working with public sector companies,regulatory oversight is only becoming more acute. Many smaller MSPs are considering their future under these circumstances and are coming to the conclusion that being part of a larger or consolidated MSP will make it easier to ensure regulatory compliances are being met.
How conducive is the current environment for smaller players?
However, it is true that recessionary times offer a good opportunity to build a differentiated business, especially in the MSP space.
With technology diversifying, there is a rising focus on security, automation and vertical specialization across enterprises. Smaller players have a great opportunity to find a strong niche and grow if they can specialize..
With the markets already causing some uncertainties, is this the right time for smaller service providers to enter the game? Will they survive? Robin had an insightful perspective towards that,
I think this is a time where brave and bold companies will be coming into the market, I think this is absolutely a time for courage. And that's the kind of thing that I would say to any company that is looking to start doing your research, of course, first, understand your market, understand how you can serve customers better than anyone else. There's always opportunity for that.
- Robin Ody
What could be the next big disruption that can transform the MSP market?
Market research has shown that MSPs have not only overcome challenges thrown at them over the past couple of years, but have found ways to make these fluctuating market trends work for them. MSPs that have survived are the ones that have moved from the traditional breakfix model to scale up to remote monitoring and management.
The next generation of RMM is moving towards consolidating multiple capabilities and functionalities. Tying in client management, project management, invoicing, contracts, CRM, and many more into one cohesive platform is the new MSP avatar.
MSPs are ready to take the bull by the horns. We are here to stay!
In conclusion, it looks like it's still going to be a soft landing for MSPs. Ultimately, an MSP is catering to customer’s requirements and when their needs are constantly evolving, it is fair to say by extension that the MSP too needs to evolve. Such an MSP will find that growth is a given.
If an MSP has the attitude to grow, that itself will be an armor to shield them from these unpredictable times.
Product marketer, avid reader, and firm believer of the adage that "where words fail, music speaks"
