Study shows startlingly slim penetration rates in security and backup managed services

Neal Bradbury, Senior Director of Business Development, Intronis MSP Solutions by Barracuda

AUSTIN — Just because a managed service is commoditized doesn’t mean that everyone is doing it. That’s one of the findings of a new State of North America Managed Services report. It’s not, however, the most significant finding. Those revolve around the growing role of security in managed services, and include the fact that while only a small minority of managed services providers sell security today, over 60 per cent may add security services within the next twelve months. The report was released at the CompTIA ChannelCon event here.

The data come from The North America Managed Services report, based on a survey conducted by research firm The 2112 Group, on behalf of Intronis MSP Solutions by Barracuda. 201 qualified providers of managed services in the United States and Canada were surveyed during the first half of 2017.

Networking management is the most common managed service. However, the most surprising part of the study was the percentage of providers who indicate that they are selling data recovery services and security services today. Only 30 per cent said that they sell data recovery services, a surprisingly low figure given the length of time such services have been in the market. Only 15 per cent are selling security services today, which even though the services are newer still seems low given the enormous waves of publicity security breaches and ransomware have had over the last two years.

A key to understanding this aspect of the data lies in the nature of the sample size, which reflected the purpose of the study, which was to look at how the whole of the channel is using managed services, rather than to just focus on MSPs.

“The study is unique in that it looked at business models rather than products,” said Neal Bradbury, Senior Director of Business Development, Intronis MSP Solutions by Barracuda. “It looked at them by their business model, including VARs, integrators, professional services firms, and MSPs, and looked at what it did to their revenue.”

The study found that to some degree, all the channel partners had a hybrid model.

“While the business models themselves were very different, they weren’t a pure 100 per cent recurring revenue model,” Bradbury said. “They all had some on-prem component or professional services component as well. The hybrid model is here to stay.”

Almost all the channel partners surveyed had some degree of managed services revenues, regardless of their primary business model. Only 6 per cent said that they had none. 8 per cent said that they had no profits from managed services.

Channel partners in the aggregate earn up to 30 per cent of their revenue from recurring revenue. This varied significantly by primary business model, with it being under 10 per cent of revenue for self-identified VARs, and between 51 and 60 per cent for self-identified MSPs. With the three other categories – solution providers, integrators and professional services firms – recurring revenue was between 11 and 20 per cent.

Data on profitability fell into the same percentiles for the same groups. For example, companies that identified as MSPs earn between 21 per cent and 30 per cent of their profits from managed services, on the average. Two out of every five MSPs, did, however, report more than 31 per cent of their profits came from recurring revenues.

64 per cent of channel partners said that services sold on a recurring revenue basis are their best growth drivers. MSPs’ specifically are adding an average of 9.8 new customers a month. 59 per cent of channel partners say managed services prices are increasing, while 55 per cent say managed services margins are increasing.

Bradbury said that this doesn’t reflect the ability of partners to milk more profits out of commoditized services, but rather their investment in more new services.

“It’s those new recurring services that are producing the revenues here,” he said.

The fact so few partners – 30 per cent – sell data recovery services wasn’t a huge surprise to Bradbury, because they haven’t been seen as fitting into a lot of companies’ business models, even though they certainly could.

“Take for example an integrator focused on Salesforce, and that’s all they do,” he said. “That kind of company just isn’t offering data protection as part of what they do now.”

The overall security numbers of partners presently offering security (15%) are very low as well for the same reason.

“Security is underpenetrated,” Bradbury said. “While more are offering basic level services like firewall, help desk, and anti-virus, few are offering more advanced solutions like SIEMs or forensics.” Even the adoption rates of those more basic services were low, however, with firewall around 16 per cent the most common, followed by help desk at 13 per cent.

On the other hand, the number of channel partners planning to add security services within the next twelve months is significant. 26 per cent definitely plan to add some, and 36 per cent are exploring it, but have not yet committed. Only 23 per cent have no plans to add any security managed services.

Firewall and encryption are the top two services being considered for addition, both at over 40 per cent.

“Overall, the report shows that there is still room for growth in managed services, and especially in combining synergistic services like security and data protection,” Bradbury said.