Cloud Trends + MSP Opportunities are creating a perfect storm for profitability. Here’s why:
International Data Corporation (IDC) estimated that worldwide whole cloud revenues will reach $554 billion in 2021, more than double from 2016. Spending on managed and professional services around cloud adoption are, collectively, the second largest opportunity in the whole cloud market, accounting for 31% of all cloud-related spending in 2016 and 2021.
However, traditional MSPs are facing additional pressure with new entrants into the market. A CloudJumper survey of more than 1,000 MSPs, reported that, “Continued movement down market by Telcos and independent software vendors (ISVs) resulting in the erosion of MSP market share.” Many telcos are actively trying to make use of their existing scale and IT savvy to move beyond basic voice and data services in order to begin selling a managed service. Additionally, ISVs seeking to expand software availability, delivery, and reach, are augmenting revenue with service-based business units.”
In order to find out more information behind these trends Lead to Market (LTM) conducted a survey this spring regarding the Profitability of MSPs selling Cloud Services. The results validated some of the top trends facing the market today as well as some of the constraints that are impeding MSP cloud service profitability.
Digital Transformation is a Major Driving Factor for Businesses Today.
Research by IDC states that 70% of customer digital transformation projects fail due to complexity, lack of cloud competency, cost over runs, etc. This fact was confirmed by the LTM survey respondents. In fact, 73% agreed that it is strategically important to move away from management of existing IT infrastructure toward digital transformation for revenue growth in 2018. They reported that their customers are having issues with:
- Cloud implementation (planning/buy-in/pre-requisites)
- Cloud deployment (remanufacturing on the fly, unidentified gotchas)
- Daily operation (lack of an intuitive SaaS management portal/App marketplace)
- Cloud maintenance such as Hardware/Software/Firmware/Security updates
Clustered Virtual Infrastructure Imposes Profitability Constraints
Advanced virtualization relies upon clusters of nodes. However, the LTM survey found that the majority (94%) of MSPs in the survey struggle with at least one of the following cost drivers when it comes to managing clustered virtual infrastructure:
- Incompatibility between differently configured nodes between cluster
- Limited or constrained scalability
- Suboptimal infrastructure resource allocation due to multiple clusters
- Managing the trade-off between domain fault tolerance and efficiency
Furthermore, 60% of the survey respondent expressed concern about the instability of large clustered systems under heavy loads during peak use times. But Clusters aren’t the only way to manage virtual infrastructure environments. Federated non-clustered virtual infrastructure is possible.
Tackling Cost Management Challenges Requires Flexible Infrastructure Platforms
Pricing of cloud-based services is becoming much more of an issue with the thousands of various options offered by Cloud Service providers today. This is making for a “perfect storm” for MSPs who can get a handle on properly pricing value-added managed cloud services. Even though 48% of enterprises use multiple clouds and more applications are moving to the cloud, estimates are that up to 35% of cloud spending is wasted. MSPs have recognized the advantage of good pricing models and have rated utility based or consumption based pricing as the top form of support IT vendors could offer to support their profitability in a recent survey by Channel Masters.
The LTM survey respondents are planning on taking advantage of these trends—53% plan to move some of their customers applications and services from the public cloud to private cloud at their location or at their own hosted cloud. To do so profitably, 57% prefer a hybrid approach of CapEx and OpEx as their IT investment model. When balancing capital investments (CapEx) in scalable flexible platforms balanced with value-added consulting and management services (OpEx) offerings, a hybrid approach can be achieved that lets MSPs amortize their capital purchases while maintaining revenue streams from consulting. So, it’s no surprise that 89% of the LTM respondents believe it’s important to invest in a pre-integrated software and hardware cloud appliance that’s scalable and includes an app marketplace, integrated back up, recovery, archiving and security.
Becoming A Trusted Partner Requires Accurate Cost Estimates and Repeatable Experiences
Another trend worth noting is the difficulty customers are having getting accurate information about what their cloud services cost. According research by HyperGrid, cloud customers are paying for idle resources, not getting negotiated discounts, struggling with complex bills and chasing down rogue spending across their organizations. Customers need help to manage this spending. HyperGrid noted, “Providing value added management support to solve these problems will also allow MSPs to earn margins above the typical 7%+ for cloud services resale alone.” The LTM survey respondents echoed this finding—62% noted that it’s impossible or extremely difficult to estimate accurately cloud costs for many of today’s cloud customers. Having the right cloud infrastructure in place with features such as multi-tenancy, elastic scaling and automated orchestration of resources lets MSPs provide a better forecast of pricing for their services and gives their customers greater peace of mind which, in turn, drives greater loyalty.
Getting a better handle on pricing also involves platforms that making it simpler for an MSP to sell, implement, deploy, operate and manage the cloud infrastructure. This was validated by the 80% of the LTM respondents who believe repeatable, simplified cloud experiences are critical.
The Cloudistics Cloud Platform is a Simpler Approach to Managed Cloud Services
The Cloudistics Ignite Cloud Platform is a virtual infrastructure architecture that was built from the ground up to handle the challenges presented by today’s IT environment where new applications are coming on the horizon daily, customers expect cloud-based self-service, and resources need to be elastic and scalable. The platform is software-defined, scalable and built on Open-Source technologies to enable easy, rapid implementation, deployment, operation and maintenance of a private cloud environment. It can be deployed in a customers’ data center or at an MSP facility behind a firewall to keep data and applications secure.
The Cloudistics Ignite private cloud platform addresses all of the current issues MSPs are facing in their quest for profitability:
- The Cloudistics composable platform is the 4th generation of IT infrastructure design built to maximize resources, rapidly implement new container technology and quickly spin up applications or workloads for testing and development to help customers move through their digital transformation journey. Find out more by downloading the 451 report, “The Cloud Transformation Journey: Great Expectations Lead to a Brave New World.”
- It uses a cluster-free federated design to eliminate the operational hurdles of managing VM clusters. For more information read the Cloudistics whitepaper by Dr. Jai Menon, “Next Generation Clusterless Federation Design in the Cloudistics Cloud Platform”.
- The architecture is composable by design for ease of scalability, cost-efficiency and has built-in multi-tenancy to let MSPs maximize their capital investments. Learn how fast Cloudistics gets you back in the black by downloading our ROI calculator.
- Unlike other platforms, Cloudistics delivers a premium, customer-centric experience, built to deliver immediate value out-of-the-box with an architecture that delivers reliability, agility and versatility without compromise. Rapid deployment, flexibility and scalability give Cloudistics MSP partners the comfort of knowing they’re delivering the best repeatable experience for their customers to build brand loyalty and maximize staff expertise. Learn more about the Cloudistics MSP Partner Program here.
To request a demo or learn more about how the Cloudistics Ignite Private Cloud platform can help your MSP business profitability visit us at cloudistics.com.