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Creating shareholder value in Managed Services

Last month, Matthew Caffrey spoke at Microsoft’s European partner conference, presenting to 90 European Managed Service Providers (‘MSPs’).

Livingbridge were asked to speak because of our track record backing a number of MSPs, including Onyx, Cablecom and M24Seven and we’re invested in a number of businesses operating in the Microsoft ecosystem, including Exclaimer and Giacom. Having operated and invested in the market for over 10 years, Matthew Caffrey gave Livingbridge’s perspective on where the market has been, how it’s evolving and where it’s likely to go in the future:

If we go back 15 years in the UK, the managed service market didn’t really exist.  We simply had small regional data centres, that owned their own infrastructure and were typically offering co-location services.  Whilst SMEs were the vanguard of the movement into the ‘cloud’, in reality all they were really doing was shifting infrastructure from on premise into a data centre and renting space and power, whilst still maintaining and managing infrastructure and applications. 

 

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Even today, there remains some space in the market for this type of provider – however expectations of what cloud providers can and should deliver for SMEs and enterprises has markedly changed and that change is largely being driven by customer expectations and demand. 

We are in the middle of a digital revolution that is driven by a desire within organisations to become more online, more mobile, more global and more innovative, all wrapped up and delivered in an agile way. At least…that’s the nirvana.

Yet the skill sets to deliver this nirvana mostly sit outside the SMEs and Enterprises that are demanding it. As a result, the hosting industry has had to evolve rapidly from its regional co-location roots to an international business, capable of servicing all of a customer’s global requirements as they journey into the cloud.  

And so, we have seen the rise of the Managed Service Provider – organisations capable of supporting SMEs and Enterprises design, shift and manage their infrastructure and applications in the cloud environment. Indeed, a number of providers are evolving to support the cultural change required in most businesses to ‘digitise’, delivering training, resource and support to embed continuous and agile development. The MSPs who have got their proposition and service stack right have become trusted partners in the cloud journey with the skill sets and capabilities to give companies the confidence to move.

Some of these MSPs have grown out of the consolidation of the regional data centre market in the UK. However, over the past 5 years we have seen various models drive into the market: value-added resellers (hardware and applications) looking to extend their proposition in recurring hosting revenue; major system integrators with migration skill sets extending their footprint into ongoing managed services; and more recently unified telcos starting to offer infrastructure services behind the data pipes they are selling. Many of them, in my opinion, have not yet got their proposition quite right. They often come from backgrounds where the voice of the customer is not heard as loudly as it should be.  In a market where service stacks are often quite similar, the ability to differentiate on customer service and tailored customer support will become increasingly important. MSPs need to ensure they are constantly listening to their customers’ evolving and changing needs.  Once you acquire a customer in this market – you should have them for life if you continue to service them well. 

 

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As competition has increased, so we have seen services proliferate and geographic reach extend. Then into this mix we have to factor in the Hyperscalers – AWS, Microsoft and Google to name but three. It’s like a Clash of the Titans out there with each Titan having endless resources and appetite to build capacity and take market share.  

Knowing where to play in this market without getting crushed is not straightforward, but from our perspective owning infrastructure, unless you have a vertical or service specialisation now feels increasingly risky and capital inefficient. Why build when you can lease? The benefits are self-evident:  lower cost per unit, increasing service stack, endless capacity, geographic reach and never having to think about whether you are operating on the latest and best hardware.

So, what’s the future for independent MSPs? I don’t believe infrastructure ownership is dead, but MSPs need to have a good strategic reason to own it, typically linked to specialist service delivery. As highlighted above, having a strategy to operate opposite the Hyperscalers is critical. Customers will be demanding it, so MSPs need partnerships in place to deliver it.  Most MSPs are now working towards delivering a hybrid cloud proposition focused on managing infrastructure on premise, in the private cloud and in the public cloud. This was the service stack front and centre on the agenda of every Microsoft Partner in the room.

For SMEs and enterprises, it’s a question of when not if they will take a proportion of their business into the cloud. Why not make sure that as an MSP you’re in the best place to deliver it?

 

If you'd like to know more about how we could help your business, please contact investments@livingbridge.com.

 

 

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