Five Reasons to Think Twice About Trimming Your Channel Spending
Is now a good time to tap the brakes on MSP channel-building?
Plenty of vendors appear to think so, and it’s easy enough to understand why. Interest rates are high and, for the moment at least, still climbing. That, along with recession anxiety and the recent collapse of Silicon Valley Bank (among others), has made private equity and venture capital firms more cautious about investing in vendors. Here’s a recent proof point: S&P Global Market Intelligence recorded 139 “infotech” M&A transactions totaling $9.15 billion in March of 2023, down sharply from the 231 deals worth $26.29 billion it tracked a year earlier.
Hyperscale cloud providers like Amazon Web Services and Microsoft are also feeling the effects of weak economic growth. Global cloud infrastructure service outlays increased 19% to $66.4 billion in the first quarter of this year, according to Canalys, and while that certainly sounds robust it’s the first time the analyst has ever reported quarterly growth below 20%.
So if the PE and VC firms that fund vendors are trimming their sails and the public cloud providers that host vendor applications are seeing their numbers come back down to earth, why shouldn’t the vendors themselves manage budgets a little more conservatively in response?
No answer applies equally well to everyone, of course, but here are five reasons why vendors that sell through MSPs might want to think twice about letting macroeconomic concerns slow their channel spending:
1. The cloud market is still strong. Lower growth isn’t no growth. SaaS revenue will climb 17.9% to $197 billion worldwide in 2023, according to Gartner, which expects spending on cloud management and security services from MSPs and others to rise 22.3%. Both figures look pretty good next to the 5.5% growth Gartner forecasts for IT spending overall this year.
Gartner isn’t backing off its long-term outlook on cloud adoption either. It still expects 75% of organizations worldwide to have a cloud-based “digital transformation model” in place by 2026.
2. Economic jitters are inspiring more cloud growth, not less. Indeed, 98% of businesses polled by SD-WAN/SASE vendor Aryaka recently plan to spend more on cloud services this year, and 47% say they’re accelerating their adoption of cloud infrastructure and services directly in response to economic conditions. This should come as no surprise to anyone who was in the cloud business three years ago when the sudden arrival of COVID-19 led to plummeting GDP but accelerated SaaS subscriptions. Many businesses spend more on efficiency-boosting IT products and services like cloud solutions in tough times when cash is truly king.
3. MSPs are healthy and optimistic. Just under half of MSPs grew MRR 11% or more last year, and an identical percentage predicts the same for this year, according to Kaseya’s 2023 Global MSP Benchmark Survey Report. Fully 82% of MSPs surveyed by Kaseya unit Datto for its latest Global State of the MSP Report expect revenue to increase over the next three years.
4. MSPs are especially upbeat about cloud computing. And with good reason, according to that Kaseya study, in which MSPs labeled cloud migration the most requested service among their clients in the past year, ahead of email security and business continuity.
According to Datto’s research, moreover, roughly half of MSPs expect more than three-quarters of the workloads they manage to be in the public cloud within three years, up from 25% in the prior year’s survey.
5. End users are growing more demanding of cloud vendors. Businesses may be spending more on cloud services, but they appear to be focusing those outlays on a smaller set of applications offering indisputable value. Per data from SaaS analytics provider ChartMogul, over half of SaaS vendors saw subscriber retention rates drop in 2022, a steep decline from the nearly 70% of vendors who saw retention rates increase a year earlier.
By implication, at least, fiscally wary SaaS buyers are putting more weight on ROI when evaluating cloud budgets, suggesting by extension that now’s not the time to cut back on enablement programs that help MSPs ensure cloud investments pay off for end users.
Look, we get it here at Channel Mastered. The temptation to do less rather than more is at its greatest when the future is least clear and funding is least certain. We just encourage you to consider the possibility that what looks like playing it safe might ultimately prove to be the riskiest course you can take.