Another year has gone by and it is time to reflect on lessons learned so we may begin to plan for the upcoming year. 2014 was another busy year for managed service providers. There were some notable M&A deals, a few data breaches, and some interesting trends which have developed.
So, let’s take a look at a few of the highlights from 2014 and see what we can learn.
Data Breaches & Cyber Threats
2014 may well go into the history books on account of the ferocity and scope of the data breaches that occurred. There were a few celebrity hacks, of course, involving compromising photographs taken from cloud based accounts, but the real damage came in the form of the Sony and Heartbleed attacks.
Heartbleed was disclosed in April 2014 and targeted OpenSSL vulnerabilities. The number of sites affected is not known, although some media sources have indicated that the costs for dealing with the Heartbleed vulnerability is somewhere in the $500 million range. Many MSPs dealt directly with the fallout from Heartbleed and advised their customers on how to mitigate their risks.
Sony recently experienced a devastating cyber attack of its systems, the suspected perpetrators of the hack being North Korea. While the Sony hack involved corporate email, passwords, and other intellectual property, the incident has raised larger issues involving cyber blackmail and its effectiveness. The Sony incident is probably the most effective use of cyber blackmail we’ve ever experienced and should be a warning to other entities who may be vulnerable to cyber blackmail.
M&A
We still didn’t see any “MSP consolidation” in 2014 (for those interested on my views on MSP consolidation click
here) but there were a few notable M&A deals worth mentioning. The two biggest deals, which actually didn’t get a lot of discussion in the channel involved Best Buy and Staples and the sale of both of their respective MSP business divisions. Best Buy and Staples respectively sold
mindSHIFT and
Thrive Networks in 2014, marking a reversal of those two company’s investments into managed services. Although both companies captured headlines for their acquisition of these marquee MSPs, the sale of the MSP divisions should not be viewed as a failure of the MSP business model, but instead should be seen as further evidence of how complex the MSP profession really is and how it is not so easily commoditized as some may think.
MSP valuations have been holding steady, which is good. 2014 also saw an increase in legacy MSP operators creating and/or executing on their exit strategies, specifically buying out partners but wanting to continue the MSP practice. Although it is difficult to track, anecdotal evidence suggests that there are more companies liquidating existing partners instead of selling the entire MSP business to a third party. If this is true, it suggests that the growth in managed services is still strong, and the inherent value to MSP business owners remains high.
On the vendor side, there were a few notable M&A deals in 2014 which will impact managed services companies. First, IBM sold its small business server division to Lenovo. These companies have had previous dealings with one another, but this deal puts Lenovo on the map as a viable private cloud computing dealer who wants to do a lot of business with MSPs in 2015.
Another event, while not a merger or acquisition, involves
HP’s decision to split apart its company, effectively creating a printer and PC business, while HP Enterprise will focus on servers, software, storage, and other higher end services. This move could have great potential for the MSP channel, as HP seems poised to invest a lot more into channel recruitment and partner cultivation.
MSP/Cloud Verify Program
The Unified Certification Standard for Cloud & MSPs officially became part of the MSP/Cloud Verify Program in 2014. The UCS was originally created back in 2004 and is now recognized on 5 continents and across a variety of industry and service verticals. A number of key vendors became supporters of the MSP/Cloud Verify program this year, specifically leasing company GreatAmerica.
Cloud
Cloud continued its rampage, both good and bad, in 2014. The good was seen by the tremendous growth in IT spending related to cloud. Most industry research and analyst firms have predicted even greater growth in cloud computing in 2015 (relative to IT spending).
On the negative side, the numerous unplanned outages and data breaches involving some noteworthy public cloud vendors demonstrated the real risks still inherent in public cloud. Clouds belonging to Google, Microsoft, and Amazon, all experience outages in 2014.
Commodity Business Models
The continuing evolution of MSP business models is a natural part of this industry. When MSPs hold on to outdated technology for too long and continue to lead with those older technologies, the MSPs tend to risk becoming viewed as a commodity. When this happens, MSPs become vulnerable to pricing and other competitive pressures. One company, in particular, made some strategic decisions in 2014 and they have, so far, paid off tremendously.
Rackspace, the managed hosting company, made a crucial decision in 2014 to leave the commoditized Infrastructure as a Service business and remain focused on its managed services centric business divisions. In one of the few scenarios where such a move can actually be analyzed using data, Rackspace’s stock prices have been climbing for much of the year as investors clearly are pleased with the company’s decisions.
While this move does not mean that IaaS is no longer a viable technology, it does demonstrate the inherent value of managed services and how this remains the antithesis to commodity driven technology services.
Conclusions
2014 was a busy year for managed services and cloud computing. Then again, this industry has been on a growth curve since the late 1990s. The IT industry as a whole saw solid growth in 2014 and is projected to see more growth in 2015. As a percentage of that overall IT spending growth, managed services (including cloud computing) is representing a larger portion every year. In a few years, managed services may be a majority of the IT spending around the world.
Our industry still has challenges, but these challenges are being met and solved. Managed services remains a vital component of our larger IT management ecosystem and will remain so for the foreseeable future.
