Validating MSP Business Model
Posted: 2:03 pm
June 27th, 2013
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IT Business, IT Culture

Every now and then I write a blog post that just digs me further into the ground. While I generally tend to ignore the negative nastygrams that come as a result of it (perception is perception, if you misread something and took it the wrong way then it’s kind of your problem not mine) but with the amount of legitimate, sincere messages questioning the MSP model.. I thought I’d explain what I meant.

Are the RMM takeovers evidence that the MSP model is dying?

Yes. The fact that these guys couldn’t grow fast enough to secure more funding or expected rate of return their investors had clearly indicates that the either the appetite for RMM tools is not as strong as many believed or that there are fewer things to manage. Probably both.

No. It does not mean that the MSP businesses are doomed just because one of the suppliers happens to be struggling. Not just that but there is no firm direct evidence that these guys were struggling at all. They could have been growing. The skepticism was over whether they were growing fast enough or what their future potential may have been. 

So it’s clearly a yes or no question. The elaborate answer is that the dynamics of managed services providers have evolved away from alert-jockey IT guys into solution-based service providers. In fact, when I talk to my largest and most successful partners rarely do conversations dwell on bugs, Windows releases, patch cycles or best remote tools. When the business is about the technology and business and not about the process of laying bricks, the premium (read: vendor profit margins) take a hit and people move money elsewhere.

Are the PSA takeovers next?

Not sure why everyone is so concerned about this.

Again, not a yes and no kind of a question. As I hinted about GFI and as Dell, Quest, etc, etc, etc have done – helpdesk is a critical part of an overall IT solution and there will always be activity surrounding that. Whether that means that ConnectWise or Autotask or Tigerpaw will be bought tomorrow I don’t know but you can ask them – as far as Shockey Monkey goes, there is nothing on the horizon (6-12 months out) for us in terms of M&A or fund raising or VC (so please stop calling ffs)

What does this mean for my RMM?

In the short term, probably nothing.

In the long term, change is a part of every platform and you’ll have plenty of time to switch to something else if you see that the product performance, integration, support and other issues creep up.

I think the response or outburst of concerns and questions has more to do with the speed at which the M&A has taken place over the last month than anything structurally wrong with the industry. The simplest way to sum this up is:

Big boys with big bank accounts need to produce big returns.

That’s all.

Does the Unicorn become an RMM now?

Oh boy. No, ExchangeDefender Business Monitoring aka Unicorn is not going to be an RMM and it’s not an RMM.

As I have said throughout the whole development and current evolution of the Unicorn, we are building something that is meant to deal with the true endpoint – the user – not the damn PC. The PC or tablet or phone or netbook or notebook or ultrabook or a smart watch is simply a tool that a user uses to do something.

To a business owner it matters far more what the user does with the technology than how that technology is doing.

True story, few years ago when we talked to all the PSA and IT folks about upcoming release of Shockey Monkey, everyone (without a miss) told us we should build a free RMM first because that’s what people were far more likely to install and use. They were probably right. But funny thing happened when I called my top partners and friends in the industry: “Hey, how come you don’t install all your unused CALs on clients desktops and stuff?” and the same response came back over and over and over again: “Because nobody gives a @#% about the PC, they only care about the server”

Not sure if I’ve ever mentioned this (kidding, I’ve mentioned it over a million times) but you always always always go with what your clients demand.

So no, no plans for an RMM. The new release is in the works though.

Will the RMM M&A lead to M&A in other vendor or MSP businesses?

M&A exists separately from the technology business.

Quite simply, M&A is more of a game of numbers than it is a game of building a technology company. If you’ve ever sat down with a VC or investment banker or a private investment rollup person… they don’t sit down and start talking about how awesome integration between different products is going to make each one of them more appealing and how the marketplace is demanding a more unified solution or..

No, they sit down with a highlighter, marker and a red pen and start crossing stuff off the list and diving through profiles and projections. They look at all the places selling widget A and try to figure out how much widget B would be worth if it were sold alongside.

The game is valuation and potential sellthrough, crossover and ultimately synergy that leads to cost reduction.

Also keep in mind that most of the buyouts are not leveraged by the side that has no power. What I mean by that is that very few businesses that get bought out get to dictate the rules and terms – they are mismanaged, in debt, riddled with mistakes and problems. For most, this way out was the only way out. Be that as it may, it is not a representation of a business model but a portrait of a failed business execution.

MSPs will buy other MSPs – much the same way that sandwich shops will buy other sandwich shops. Businesses are for sale.

But does a shrinking MSP toolset vendor selection list actually and precisely reflect the shrinking pool of MSPs? To an extent yes because more successful MSPs don’t use MSP tools when they grow big and MSPs that are differentiating to the cloud and other technology aren’t buying RMMs. But then again, we aren’t in 2003. We aren’t a single Internet connection, single server, single PC world anymore – so those things happen to lose importance. It’s a matter of evolution of technology, not an extinction event driven by less choice when it comes to IT vendors.

“I hate change.. nobody cares about the IT guys anymore”

Truth is, IT guys care about the IT vendors just as much. If the MSPs were so loyal to their vendors than no vendor would ever have to pursue an M&A strategy, they would just stick to their business plan and make their partners stronger and stronger and stronger.

But that’s a fantasy. The reality is that everything and everyone is for sale – heck, you can even buy a peer group of independent MSPs and force them to use your tools.

The reality is that our industry is that of change. I recently spoke in England how MSPs (and VARs and IT Solution Providers) need to forget about the business of technology and be the business of not just embracing but championing change in technology. For it’s that change of technology and constant cycling of tech that keeps the business more efficient and more competitive that ultimately drives billable time, solution building and business growth.

If you’re really happy about what you do today and you consider it a lifestyle business and don’t want it to change then you better throw all your clocks in the freezer because your odds of having a growing IT business that doesn’t change is about as good as your ability to freeze time. (P.S. Don’t do this, you’ll just ruin a perfectly good clock)

For some reason, lots of people are depressed and downed by this. I feel pretty damn excited about what is next. Please feel free to scroll down through the past 8 years of Vladville, damn near everything I write about here is about change. Some people have a personal bias and perspective that makes them feel like everything they read here is about beating up on a poor little IT business – but that is why perspective matters: It’s not about you, it’s about the industry.

You either live in it or it kills you.

Cheer up.

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