It’s that time of the year again as we reflect on the year past and turn our attention to the year ahead. The cloud and managed services profession has witnessed some amazing things in 2013 and 2014 is shaping up to be another record year of growth. So, what are some of the things MSPAlliance is tracking and predicting for 2014? Here is our list.
Private Cloud Increases in Demand
Cloud has been popular for a while now, but 2014 will see a sharp increase in the demand for private and hybrid cloud solutions. Naturally, there will be a continued increase in the divide between those MSPs who can deliver private/hybrid cloud solutions and those only playing in the public cloud arena.
Private Cloud Becomes More Affordable
As demand increases for private/hybrid cloud solutions, so will the pressure to bring costs down. MSPs are already facing customers who want these solutions; 2014 will be the year when vendors (including the distributors) will play a more hands on role in helping equip and finance MSPs with private cloud essentials.
“Born in the cloud” service providers face M&A consolidation
2013 saw significant M&A activity but non of it we can call “consolidation”. 2014, however, will see consolidation driven M&A activity, particularly around the more commodity based cloud service providers, especially those designated as “born in the cloud.”
PSA/Storage M&A
Just like the RMM community saw its own M&A activity, other vendor groups like PSA and storage will likely also see M&A pressure in 2014. The reason for this M&A activity will include a) need for technical innovation, b) pressure from larger public cloud storage vendors, and c) demand for acquiring pre-existing MSP channels.
Service Provider Transparency
Customers today are now on their fourth or fifth managed service provider relationship; that’s how long managed services have been in existence. With maturity comes knowledge and awareness and customers are becoming more capable when it comes to questioning MSPs about their capabilities. MSPs need to become more transparent in their operations, including better documentation and willingness to share that transparency with clients.
Smarter MSP Pricing Models
MSPs have tried many different pricing models for managed services but in 2014, the MSP community needs to make some fast changes. First, pricing needs to adjusted, and I don’t mean lower. Too many MSPs have been comfortable in lowering their prices. Typically, when a MSP lowers prices they only serve to make their financial status more risky, and we saw plenty of MSPs go out of business in 2013 as a result of poor financial health. MSPs need to look at increasing their prices if they are not making enough margin.
MSPs also need to evaluate new pricing models such as SLA based pricing and avoid per user or per device models, which are too susceptible to commodity pressures, especially from customers. SLA or risk based models allow MSPs to tailor their pricing based on the risk they assume. Not only would MSPs lower their risk exposure, they would also increase their profit margins and avoid difficult pricing discussions with customers.
MSP Demand and Revenue Growth
It goes without saying that 2014 should be another year of solid customer demand and revenue growth in managed services. According to Markets and Markets global managed services revenue should hit $320 billion by 2020. Already around $140 billion in 2013, managed services spending has been seeing an impressive growth trajectory over the last few years. Cloud computing spending, considered by MSPAlliance to be a subset of managed services, still represents only a minority of overall managed services spending.
Summary
MSPAlliance remains optimistic about the managed services and cloud computing industry in 2014 and beyond. This should be no surprise. However, we still, as we usually do, have issues that need to be addressed in order to see our profession continue at its current growth rate. Public cloud security and privacy concerns, private cloud adoption and costs, M&A pressures and opportunities, and pricing models are all key areas of focus for 2014. We remain, however, vigilant in our belief that managed services remains one of the leading growth sectors in IT, if not the global economy.