State of play for MSPs: challenges, opportunities and emerging tech

The managed services providers (MSPs) industry is set to continue to grow, with distinct opportunities available to extend revenue during and post the COVID-19 pandemic.

This is according to Datto's Global State of the MSP Report, which is based on a survey of more than 1,800 MSPs around the world and highlights the situation for MSPs in today's challenging environment.

The report states that prior to the COVID-19 pandemic, MSPs were expected to grow by 17%. After the start of the pandemic, 40% of MSPs expect to reduce their growth projection by at least 10%.

While this highlights that many MSPs will be flat this year, there are still growth opportunities in the market, Datto states.

Furthermore, nearly 40% of MSPs reported annual revenue of $2.5 million, which Datto states demonstrates health and opportunity in the market.

In the report, Datto identified various key growth drivers for MSPs.

The company states that with IT playing an even bigger role for millions of small and medium businesses (SMBs), MSPs have become essential service providers to this evolving market.

In fact, as SMBs increasingly entrust their IT to MSPs, individual MSPs are benefiting from that growth. Over the past three years, 22% of MSPs reported that their total revenue per year grew by up to 5%, and 24% of MSPs reported growth of up to 10%.

Supporting MSPs in this economy and market, the two most consistent drivers of MSP growth include generating a higher portion of total revenue from managed services, and setting specific revenue and growth goals, Datto states.

Combined, these two activities enable MSPs to roughly double their rate of growth. In fact, for every 10% of total revenue derived from managed services, MSPs grow their businesses by between 0.25-0.75% on an annual basis.

Though many cited economic uncertainty as the main driver of potential fiscal challenges, an increase in cloud migrations may offset losses.

The survey found that 57% of MSPs expect the use of on-premises servers for critical applications to decline over the next three years.

Worldwide stay at home policies and regulations have dramatically increased demand for cloud and IT for many businesses, with MSPs playing a critical role in helping businesses meet the demands of the accelerated digital economy, Datto states.

Despite the opportunities, MSPs still have their share of worries, the survey highlights. In addition to the unknown economic landscape, client cybersecurity, work/life balance, sales and marketing and hiring are the top issues keeping MSPs up at night, according to Datto.

Cybersecurity continues to be a pain point, with 34% of MSPs citing this as a top concern, compared to 30% in 2019. However, rising concerns around cybersecurity could indicate a higher demand for security services from clients, as SMBs increase their awareness about IT security, Datto states.

This paints an optimistic picture for MSPs who offer effective cybersecurity services, as it is now a requirement for SMBs. In addition to opportunities and challenges, Datto's report looks at the impact of emerging technologies on MSPs.

As MSPs determine how to navigate and succeed in the new digital economy, many are turning to emerging technologies to help propel their businesses into the post-COVID-19 normal, the survey shows.

Given the reliance on remote management technology, MSPs are most excited about the promise of 5G technology as it will enable new opportunities for their clients through the use of faster wireless networks.

MSPs will have huge opportunities to assist companies with the developing, testing and deploying of this technology, which will significantly fuel innovation, Datto finds.

Datto senior vice president of business development Rob Rae says, "MSPs remain the cornerstone of our economy as they serve small businesses through the pandemic and beyond.

He says, "Along with identifying the specific behaviours of high-growth MSPs and the technologies MSPs rely on, we also wanted to understand how MSP priorities have shifted due to the pandemic. While economic uncertainty is troubling for MSPs, it's still a good time to be in the industry.