The Future of MSPs: The Good, The Bad, The Ugly

Author: Guy Nadivi, Sr. Marketing Director, Ayehu

Leading analyst firms are forecasting a lot of turmoil ahead for MSPs, so I thought it would be well worth exploring not only the ramifications of this expected market upheaval, but also how smart MSPs can actually take advantage of it.

Are any of you fans of old westerns?  I’m personally a big fan of movies about the old west, an interesting time in American history.  Western cinema, as many of you already know, often depicts harsh wilderness landscapes where people end up in a shootout, fighting over something that’s important to them.

One of the best examples of Western cinema is a classic movie called “The Good, The Bad, & The Ugly”.  Maybe some of you have seen it.  Back when I still purchased DVDs, this was actually the first DVD I ever bought. 

This movie title, “The Good, The Bad, & The Ugly” is an apt metaphor I’m going to use to help me describe the current situation in the MSP market, where much like the old west, many MSPs find themselves in a shootout over something very important – market share.

Let’s start with ‘The Good.’  According to MarketsAndMarkets, a research and advisory firm focused on B2B markets, “The managed services market is expected to grow from over $180 billion in 2018 to $282.0 billion by 2023, a Compound Annual Growth Rate of 9.3%.”  That’s a pretty good market to be in.

Here’s the ‘The Bad,’ though. According to Gartner, “…as competition heightens, service providers will be forced to aggressively roll automation out across their client base and service lines because, if an existing provider is slow in implementing automation, this will leave that account quite vulnerable to competition, proposing a strong artificial intelligence proposition with the possibility of a vendor switch.”  In other words, Gartner’s saying that MSPs who don’t start introducing automation & AI to their customers, are now at risk of being left by that customer for another MSP that does.

And here’s ‘The Ugly.’ Again this is from Gartner and please note, this is advice they’re giving to sourcing executives at enterprises that hire MSPs.  “Understand the provider’s service capabilities, product development plans and AI roadmap to be able to negotiate effective reductions associated with new technology. Otherwise, consider moving away from the service provider if investments are lacking, lagging, or the service provider is not actively sharing the benefits with the client.” 

That last part might require a bit of explanation. Gartner is telling customers that they should EXPECT their MSP vendor to start automating their service offerings, and begin sharing the benefits of automation back to the client in the form of reduced charges. If an MSP doesn’t do that, they’re explicitly telling sourcing executives to go find another MSP that does!

Some of you might now be realizing seeing why I’m using the old west as a metaphor for the MSP market.  There’s a big shootout coming among MSPs that don’t start rolling out effective automation for their clients.

Here’s another one. The Good – according to Gartner, “Many of the large players in the Gartner Magic Quadrants that address IT infrastructure have rolled out intelligent automation that provides for effective management of the data center, end user, service desk and applications. The rollouts have been in the operations area and have reported improvements of 30% cost savings with 30% gain in service quality.”  So the organizations that have started automating are seeing significant benefits, meaning that automation is working really well.

But, also according to Gartner, here’s the The Bad – “Reconcile with the fact that revenue cannibalization is bound to happen in the near term because of automation. Instead, prepare to divert cost savings into fueling new projects. This is the best way to protect your turf.”  Interpretation: Gartner is telling MSPs that automation will cause unavoidable revenue losses in the immediate future, but your best bet for safeguarding market share is to invest in new automation projects now.

Finally, here’s The Ugly, and this too is from Gartner, “Use forward pricing to reap the benefits of artificial intelligence in your infrastructure outsourcing deal.” BTW – this is another Gartner recommendation specifically addressed to sourcing executives.  They’re advising them to incorporate the expected savings of artificial intelligence, and by inference automation, into their outsourcing deals REGARDLESS of whether or not their infrastructure provider offers it.  Meaning that whether or not automation and AI are part of an MSP’s strategy, the market will be expecting it to be, and that will put further downward pricing pressure on a business with already thinning margins.

Let’s do just one more of these.

The Good.  Gartner says, “Those providers that invest early will see their business flourish for a few years, and then will land in a position where the business around those services is underpinned by a positive and sustainable margin performance. Yes, it will be transactional and maybe per quantity in nature, but it will be nevertheless sustainable.”  So if you make the investment in automation now, you will reap the profitable benefits down the road in a SUSTAINABLE way.

Here’s The Bad.  “Those that fail to invest will see quick revenue erosion, followed by margin erosion, because they will be forced to lower prices without being able to enjoy the reduction in delivery costs that automation can offer.”  So again, they’re saying the market is expecting MSPs to provide automation, and will also expect lower pricing going forward, regardless of whether or not the MSP even offers automation.

And here’s the last Ugly.  “It will not be a question of getting to ‘smaller but sustainable,’ but a case of exiting with a strong focus on damage limitation.”  This advice from Gartner basically boils down to a warning that if you’re not going to start using and offering automation soon, you should consider getting out now while you can still get some value for your business.  Pretty dire warning!

Now that you’ve heard what the experts think, if you’re an MSP is it time to hit the panic button? 

NO!  Don’t panic.  Not yet anyways.

Let’s return again to our old west theme.  Back in those days when people went to the local saloon to enjoy some recreational fun, everybody played the same card game just like they always did. 

In modern times, up until recently, the game was always the same for MSPs too.  Now though, the MSP game is changing.

In fact, thanks to automation and other technologies, the MSP game is changing dramatically and everybody is being dealt a new hand. If you’re an MSP, your new hand in this new game means a new opportunity to increase market share!

Just to be absolutely clear about the changing game for MSPs, let me illustrate what exactly is changing.

Traditionally, the MSP game was about filling up massive cubicle farms to provide services with inexpensive labor.  Unfortunately, that’s just not sustainable anymore. Even if you’ve got a supply of the absolute cheapest labor and you can double up people in each cubicle, there’s one inconvenient fact that can’t be escaped – people don’t scale very well.

That includes even your very best data center workers, who can only handle so much. Today, analysts and thought leaders are telling companies to walk away from these kinds of outsourced deals, no matter how cheap your labor is.

And why are they recommending that?

Because the new reality is that digital labor is MUCH cheaper.  Not only that, but digital labor takes no vacations, or coffee breaks, or sick time, and it never has mood swings.  It’s always available, 24/7/365 and unlike people, it is extremely scalable.

The new game for MSPs is Automation-as-a-Service.  Leveraging digital labor to provide a much better offering, and doing it for even less than before.

Remember, in this new game MSPs are expected to play, Gartner and others are telling your customers that what they should demand from you is more quality, increased speed, and better results, all at a lower cost.  The only practical way an MSP can do that is with automation.

Back once more to the old west.  One of the really great stories in the history of that time period was the gold rush.  The gold rush of the 1800’s made a lot of MSPs very rich.  Yes, you read that right – MSPs.  Except back then, M.S.P. stood for Mineral Searching Prospectors.  (Alright, maybe I’m the only one who thought that was kind of funny.)

Today’s gold rush doesn’t involve any shovels or pick axes or specialized pans for sifting gold nuggets out of rivers.  That’s because today’s gold rush is in automation powered by AI.  Ayehu predicts that between now and about the middle of this century, a lot of MSP’s are going to get very rich by using an enterprise automation platform to provide Automation-as-a-Service for their customers.

Before diving into that though, I’d like to talk just a little bit about open source automation.

If there’s one character from the old west that best epitomizes the idea of working with open source software, it’s undoubtedly the blacksmith.  Everybody knows what blacksmiths did back then, right?  They took a piece of metal, and forged it into something like a horseshoe.  And by forging I mean they did a lot of hammering and a lot of sweating.

That’s exactly what you’re going to do with open source software.  Except instead of hammering, you’re going to be doing a lot of coding, but you’ll still probably do a lot of sweating too, just like the blacksmith. 

Maybe that’s appealing on some level.  Build it yourself and take full pride in forging an automation tool that does exactly what you want.  Except the problem there is that while you’re hammering away on your keyboard just to build the automation tool itself, your competitors are using commercial-grade automation software like Ayehu that works right out-of-the-box and is fully supported by the publisher.  That means your competitors are orchestrating actual workflows for their customers that are up & running quickly and in production to start earning those customers an ROI.  The best way to stay competitive as an MSP is to go with the tool that’s already proven itself and can earn a fast ROI for your customers.

Remember – generally speaking, your customers aren’t worrying about the plumbing.  They just want you to give them hot water.

Let’s discuss a couple of use case examples.

The first use case is a major international financial services firm, with what can only be described as a colossal environment:

  • They have over 60,000 servers
  • They also have over 10,000 database instances
  • And they have nearly 500 supported applications!

Their challenge was the high cost of monitoring and maintaining this massive infrastructure.

Using Ayehu’s automation platform, they realized:

  • A 40% improvement in MTTR
  • A 90% improvement in response times
  • And together, those two yielded a 15% cost savings in year one!

Not a bad return on investment, and a huge win for our MSP partner that delivered these results to this customer.

The second use case involves one of the largest department stores in America.  Not quite as big as the previous company, but pretty big nonetheless.  Their infrastructure included:

  • About 20,000 servers
  • Nearly 6,500 database instances
  • And all this was spread out between 2 different datacenters!

Their staff was spending a lot of time and effort on manual, repetitive tasks that were impacting their resolution times.

After Ayehu was deployed, they experienced:

  • a 95% improvement in MTTR
  • a 1,500 man-hour reduction of effort in Year 1
  • and a savings of nearly half-a-million dollars!

Quite an impact.

The final case study I want to share with you shows the power of automation in reducing the cost of operations for the MSP.  This case study comes from a global MSP partner of ours who’s among the largest $ multi-billion MSPs.

They were looking to reduce operations costs and improve their margins at one particular client where they had a multi-year contract with a project value of $11.6 Million per year.

After implementing Ayehu at that customer to automate numerous repetitive manual processes, their operational costs steadily dropped each year until by the 3rd year of their engagement, they were saving 35% in costs using Ayehu automation, all of which dropped straight to their bottom line.

And thanks to Ayehu, they were able to deliver a 30% FTE optimization while increasing their SLA performance by 98%.

As you can imagine, now that this MSP has mastered our automation platform with such success, they’re going to be aggressively competitive in the market place.

Speaking of SLAs, I should also point out that incorporating automation into your managed service practice will allow you to say goodbye to SLA penalties and missed targets. As previously mentioned, automation never takes a break, and it also remediates incidents much faster.  That more than anything will give your MSP practice its best shot at hitting its KPI goals. Typically with automation, you can reduce ticket-handling time for incidents down to seconds.

BTW – Since offering automation will alter your cost structure as it did for the MSP above, it will open up many more opportunities for you that were not previously economically profitable.  Automation will also enable you to generate more business opportunities from your existing customer base.  On average, our partners tell us Ayehu has increased their MSP wins by about 10x.

Q:          What’s your onboarding program like & how long does it take?

A:           Onboarding generally takes 6 weeks.  During that time we’ll put your team through training, help you get your own Ayehu environment up & running, and hold your hands helping you build your first workflows.  We’ll also help you build POC’s with your clients, and enable your success however we can.

Q:          What’s the difference between your solution and a freebie Open Source Software download?

A:           It depends on what open source software you’re referring to.  In general though, open source software means you’re doing all the heavy lifting of building out your own tool.  So be prepared to do a LOT of coding.  We’ve invested over a decade of man hours building out the Ayehu automation platform and it’s ready to go out-of-the-box right now without any coding.  The first question you should ask yourself then is, would you rather invest your time & effort reinventing the wheel, or using the wheel that’s been on the market for over 10 years to start adding value to your clients from day one?

Q:          How should an MSP determine when to use Ayehu versus some other automation tool?

A:           That depends on what it is you want to automate.  There’s a lot of different automation tools out there with a lot of different specialties.  Ayehu has a very specific focus on automating IT & Security operations.  We’ve been doing it a long time, we’re very good at it, and we’d be a great choice for any MSP looking for that kind of solution.

Q:          What is the minimum time to learn Ayehu?

A:           Very minimal.  Usually hours, but no more than a couple days.  We like to tell people all the time – take your lowest-level SysAdmin (even an intern), preferably someone who’s never written a single line of code in their lives, and let us train them for just one day.  Afterwards, they’ll probably end up being the most productive person on your IT staff.  Ayehu is very easy to learn.  If you’ve ever used a tool like Visio to build something like an org chart, then you’re already pretty well qualified to build automated workflows with Ayehu.

Q:          What makes Ayehu a platform that MSPs should use, compared to other automation tools?

A:           The Ayehu automation platform is actually designed with MSPs in mind.  So that means features like:

  • Being SaaS-ready which allows an MSP to create their own automation cloud, and since it’s also multi-tenant that means you can partition the same automation cloud out to different customers while managing it all centrally from one instance.  We deliberately made Ayehu an enabler for MSPs that makes it easy for them to offer Automation-as-a-Service.
  • Providing white labeling, so you can rebrand Ayehu as your own tool, which is a great way to reinforce brand loyalty with your customers.

•            Offering a strong partner enablement service that gets you up & running quickly so you can start delivering value to your clients ASAP & begin conquering more market share with automation.

Q:          You mentioned that Ayehu includes AI, but you didn’t give much detail.  Can you please elaborate on what Ayehu’s AI capabilities are?

A:           Ayehu is partnered with SRI International, formerly known as the Stanford Research Institute.  SRI holds something like 4,000 patents worldwide including for things like the original mouse & SIRI, Apple’s conversational AI.  SRI is Ayehu’s design partner, and they’ve designed a lot of the really cool stuff like Machine Learning-driven Dynamic Activity Suggestions.  That means that based on the workflow you’re building, our system provides a real-time recommendation on the next best activity to incorporate into your workflow, based on what we know has worked best for other customers building similar workflows.  That’s been available since last year.

              Another cool AI/ML feature is Dynamic Rule Suggestions, to augment the current static rules we have for triggering workflows. What that means is that when an incident comes into Ayehu, if we have a static rule that matches its profile, then that rule will kick off a workflow to remediate that incident.  Dynamic Rule Suggestions will allow us to suggest rules for incidents that don’t match any rules so they don’t just fall through the cracks.

              By next year, we’ll be offering Dynamic Workflow Suggestions. This is exactly what it sounds like, namely we’re going to be offering real-time suggestions of best practice workflows and workflows that are industry-specific, based on a little understanding of what you’re trying to accomplish.

              So there’s a lot of very cool AI & machine learning features baked into the product and we believe it’s all going to give our customers an insurmountable market advantage.

To see this information in action, click the image below to watch the on-demand webinar.

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