Will the Managed Service Provider Market Consolidate?

Public clouds today bring far more complexity than many enterprises can handle. Cloud costs, management, security, etc. constantly change with new technologies, threats, and competition. Thankfully, managed service providers have redefined the public cloud computing space. Rather than place all the responsibility of cloud management on an internal team, enterprises gain access to certified engineers with specialties in AWS, Azure, or GCP.

To gain new insights on the managed services market, we spoke with Continuum CEO, Michael George.

The Top 20 Percent of MSPs will own the market

The Pareto Principle suggests 80 percent of the MSP wealth rests at the 20 percent of the market. A combination of market forces has created the perfect storm for this to emerge in the managed services marketplace. By 2020, just 8,000 out of 40,000 MSPs in the United States will dominate most of the available revenue.

The first of these market forces is a reduction in the workforce of up to 40 percent due to retirement, as predicted by CompTIA, which could leave many providers without successors to lead the businesses and hamper growth.

Second is the trend of mass market consolidation through merger and acquisition, now that private equity firms and major office equipment dealers have realized the opportunity that awaits them by investing in or acquiring managed services businesses. That is likely to result in increasingly challenging environments for smaller players unable to seek an exit as their competition grows larger and stronger.

To prepare for these first two market forces, providers must reduce their reliance on increasingly scarce labor and focus instead on delivering valuable services to clients, efficiently. And, to compete in a consolidating marketplace, business owners should be taking a close and urgent look at their exit plan, whether through merger, acquisition, or scale.

Finally, the dominance of large-scale MSPs in the major metropolitan areas across five key verticals will make it difficult for smaller providers to compete. Providers should focus on areas outside the 107 metropolitans in the United States or the five verticals (financial services, healthcare, construction, non-profit and legal) to stand a chance of succeeding.