Automation, analytics, and Internet of Things (IoT) adoption will drive the agenda for Australian channel providers over the next three years, according to a new survey that also found securing new edge environments remains critical for managed service providers (MSPs) whose customers are still some way from completing their digital transformations.
Those transformations have driven investments in a few key areas, according to the 102 Australian MSPs participating in the Australian Managed Service Provider Transformation Priorities 2023 survey, conducted by CRN and supported by Schneider Electric.
Cyber security was by far customers’ biggest priority during the COVID-19 pandemic – cited as critical by 78.4 per cent of respondents – while the other most critical areas of investment included remote working (60.8 per cent), cloud infrastructure (56.9 per cent), and productivity and employee experience (43.14 per cent).
Predictably, the MSP community shaped its service offerings to match that demand, with 64.7 per cent of respondents offering security as a service; others supported customers’ transformations with services including backup (offered by 53.9 per cent of respondents), unified communications (48 per cent), data storage (48 per cent), and email (47 per cent).
Significantly, increasingly important capabilities like identity and access management (IAM) were only offered by 37.3 per cent of surveyed MSPs – highlighting a potential growth opportunity given the increasing importance of IAM capabilities to support cyber security, remote working, and other customer objectives.
Analytics services were also thin on the ground, with just over one quarter of respondents saying they offered the data analytics services that customers increasingly require to make sense of the ever-growing mountains of data collected at the intelligent edge.
Not every MSP can offer and support every type of service, of course, but the figures suggest that many service providers are only getting started in offering the capabilities their customers will require moving forward.
Little wonder that MSPs reported that the majority of their customers – 44 per cent – were still at the second stage of the four-stage Cloud Maturity Model (CMM), in which they are still assigning transformation resources and addressing security concerns for their transformed environments.
Just 30 per cent had progressed to the third stage – Migration, in which a governance-backed transformation effort targets the migration of key applications – while fewer than 9 per cent had reached Optimisation, the highest CMM level, which is characterised by robust cost management, management of applications and services, and customer-focused service management.
Despite the widespread appetite for digital transformation stoked by the COVID-19 pandemic, the low overall levels of maturity confirm that the pandemic will continue to shape priorities for MSPs, and their customers, for years to come.
Shaping the channel opportunity
Surging customer expenditure on digital transformation was a boon for the Australian channel, the survey revealed, with 1 in 4 MSPs reporting that their overall revenues grew by more than 30 per cent during 2022 – presumably because they were offering a broad and deep enough portfolio of services that customers saw them as suppliers of choice.
A further 40.2 per cent of MSPs saw revenues increase by between 10 per cent and 30 per cent last year – healthy growth that reflects the heady pace of investment in technologies to support the intelligent edge.
Much of these revenues came as recurring revenues from service provision, with 44.1 per cent of respondents saying they currently derive half or more of their revenues from recurring services.
Such strong levels of revenue growth – and the long-term customer buy-in that comes with recurring subscription revenues – is particularly significant given that it outpaces forecasts for overall tech spending, which Gartner believes will ease across all categories but still grow by 5.8 per cent in Australia this year, to around $117.7 billion.
That’s down only slightly from 2022’s growth of 6.39 per cent, and more than twice as fast as predicted global growth of just 2.4 per cent this year – suggesting that Australian MSPs and their customers still have some significant IT investments to make before they start to pull back.
Fundamental drivers of IT spending remain sound and budget remains available where needed, noted John-David Lovelock, distinguished VP analyst at Gartner, who said that while many CIOs are “more hesitant, delay decisions or reorder priorities…. IT budgets are not driving these shifts and we continue to see local enterprises increase spending on digital business initiatives.”
Australian MSPs already report working with a number of core suppliers and partners – with one-third of respondents saying they have 2 to 4 partners, one-quarter working with 5 to 7 providers, and 18.5 per cent having between 8 and 15 relationships.
Yet fully one in six surveyed MSPs said they have more than 15 suppliers – highlighting the increasing need for the channel to bundle and integrate a diverse range of services to meet customers’ needs.
Based on the survey results, MSPs will continue to address customers’ increasing investments in as-a-service models by expanding their service base – with 49.2 per cent saying they will add a few more strategic partners in the next three years and 14.7 per cent saying they intend to add “a lot more”.
The predominance of such partnerships reflects the increasing value of joint go-to-market strategies, in which tightly integrated as-a-service bundles are proving appealing to customers that have become increasingly comfortable with moving core IT services into the cloud – and extending their infrastructure to the intelligent edge.
With numerous technologies helping delineate that edge, MSPs indicated that the next three years will be focused on enabling technologies including automation – named by 62.8 per cent of respondents – as well as analytics (48.0 per cent) and the Internet of Things (IoT) (40.2 per cent).
Despite the hype around technologies like artificial intelligence (AI) and machine learning (ML), just 28.4 per cent of MSPs said those technologies would be relevant to their business moving forward – suggesting that many service providers are perfectly content continuing to support and slowly augment customers’ existing solutions.
Secure Access Secure Edge (SASE) technologies were equally marginalised, with just 30.3 per cent of respondents saying that SASE solutions would be relevant to their business over the next three years.
Given the strong customer and MSP focus on cybersecurity overall, the relatively low focus on SASE suggests that many MSPs are still coming to grips with the relatively new concept, much less comfortable with how to implement it for their customers.
Picking the right partner for growth
Ultimately, MSPs seeking to stay ahead of the market will tap into new opportunities by choosing the right partners – but what does ‘the right partner’ mean?
Ongoing support from the vendor, naturally, is significant, named as a priority by 60.8 per cent of respondents.
Having a partner that can help identify new sales opportunities is also critical – named by 56.9 per cent of respondents – while 52.9 per cent of respondents said they evaluated new partner programs based on whether it can help them accelerate business growth.
Access to technical experts is important for 42.2 per cent of respondents, while around 1 in 4 said they are looking for partner programs that can help them access new markets across Australia and New Zealand.
Respondents were consistent in terms of the benefits they want to see in partner programs, with 54.9 per cent expecting priority customer support, 53.9 per cent wanting discounts, and 51.0 per cent preferring partner programs that offer early access to new technologies.
Significantly, only 38.2 per cent of respondents said they wanted partner programs that offer face-to-face training opportunities – well behind the 52.0 per cent that value online training opportunities.
This last figure is likely a holdover from the pandemic, during which time MSP specialists learned first-hand the value of remote support, training, administration, and other practices that offer enduring value for the long term.
Making a sustainable choice
In line with many customers’ growing expectations that MSPs operate sustainably, those same MSPs are now looking for potential partners that can demonstrate their own sustainable business practices.
“Being sustainable not only saves energy and costs for organisations – it is also a business opportunity,” said Astrid Groves, general manager for channels, alliances, and operations with Schneider Electric, who noted that the World Economic Forum and Boston Consulting Group have shown up to 25 percent growth in companies that develop green products.
Companies focussed on sustainability have an easier time attracting investors and talent, Groves added, noting research in which 79% of respondents agreed that digital is playing a key role in achieving their sustainability goals.
“This is where Schneider and their partners can help to digitally transform and automate their business,” said Groves.
Fully 1 in 4 respondents said that sustainable business practices are very important to their choice of suppliers, while 38.2 per cent said that sustainable practices are moderately important – and just 10.8 per cent said such practices are not important at all.
Clearly, MSPs must choose partners with sustainability in mind – yet many admit that their own sustainability programs are still in their early days.
Fully 38.2 per cent of survey respondents said they are still evaluating their sustainability goals, while 31.4 per cent have started implementing sustainability practices.
Only 19.6 per cent of respondents said they had achieved a few of their sustainability targets, while just 1 company said it had achieved its sustainability targets so far.
Such figures highlight the work that remains to be done for sustainability efforts to reach their transformative potential – and the competitive edge that companies can obtain when they successfully tap a range of technologies to improve the sustainability of their infrastructure and operations.
The findings echo the results of Schneider Electric’s recent Sustainability Index 2022, which found that most companies are struggling to build momentum behind decarbonisation efforts – despite more than 1 in 3 companies naming climate change as the biggest risk to their energy and resource supply.
In that study, just 14 per cent of surveyed companies said they had developed and published an action plan to reduce the potential impact of climate change – creating new opportunities for MSPs that can establish sustainability capabilities to bring into their own customer engagements.
With so many areas proving crucial to the overall customer engagement, making the most of the new operating environment will require MSPs to review their areas of competency and look at where they can add additional value to the overall relationship.
By combining technical know-how with business process expertise in areas such as governance and sustainability, MSPs can consolidate their importance as arbiters of new technologies – and custodians of old ones. Walking that balance will prove critical for success in the new, digitally transformed operating environment.
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