MSP profitability: Market splits as some MSPs stagnate — Jessica Davis, Omdia

Dave Sobel (0:00)

Shaq here, what's it like to buy a car from Caravana 100% online and get it delivered to your door?

Jessica Davis (0:05)

Let me tell you.

Dave Sobel (0:06)

Your car is here, Mr. Shaq.

Jessica Davis (0:08)

Thank you, Mr. Caravana guy. Can't wait to take it for a spin. Only the best for you, Mr. Shaq.

Dave Sobel (0:13)

Hey, have you always been so big, tall and handsome? Not always, I was 6'10 once. Seven days delivered or returned, Mr. Shaq?

Jessica Davis (0:21)

Not that I would, you never do. No, I never do.

Dave Sobel (0:25)

So buy your car today on Caravana. Delivery fees may apply.

Jessica Davis (0:28)

See our 7-day return policy at caravana.com.

Dave Sobel (0:45)

44% of channel partners told Omnia last month they expect their revenue to fall this quarter. 41% said it would grow.

That isn't a market in recession. Managed services are still growing, 6% to 10% this year. It's a market splitting in two, in which half you land in depends on decisions most MSPs haven't made yet. I've lived through one of these. Between 2008 and 2012, the industry moved from break-fix to recurring revenue, and I sold my MSP at the end of it. My guest thinks we may be at the start of the next one. Welcome to the Business of Tech Lounge. This is where we break down what's changing in the IT services market, what it means for providers and vendors, and what to actually do about it. If you're running or supporting an MSP, this is about making sense of the environment you're operating in, not just the headlines. Now, to make this conversation possible, a message from our sponsor.

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Jessica Davis is Principal Analyst for Managed Services at Omnia, where she tracks MSP M&A, investment, and how providers adopt AI and security. Before that, she spent nearly 30 years as a technology journalist, including leading the MSP 501, which is where we first met and started working together. Jessica, welcome back to the show.

Jessica Davis (2:40)

Yeah, thank you so much, Dave, for having me on again. And I would point out that back in my early days, when I was working at Channel Insider, you were a columnist and an MSP, or one of our only MSP columnists at the time. So that was fun.

Dave Sobel (2:58)

And amusingly, we're going to get to some of those columns because you unearthed them as in preparation for this. So I'm looking forward to that.

But right now I want to start with some of the quarterly sentiment polls that Omdia ran across the channel partners. In September, that 44% number are expecting third quarter revenue to decline year over year and 41% expected growth. On profit, it's 48 down, 35 up, and more than a third expected drops bigger than 10%.

Meanwhile, the market overall is still growing just slower, with rates are still high, traditional services under pressure, client headcounts stopping, expanding and new competitors moving in. So the question isn't necessarily whether the industry is healthy, it's who's sitting where. And I want to get your take on that 44 down, 41 up. When you cut that by partner type and size, is the split the same, or does one type of partner sit in a particular decline column? Like when we dig into the numbers, what's it look like?

Jessica Davis (3:59)

Yeah, so it does include all types of channel partners.

But when I broke down the numbers and I don't have them in front of me, sorry about that. When I broke down the numbers, the MSP numbers looked about what the general numbers look like. So pretty close to what the overall channel partners were saying. And the interesting part to me exactly was the split between the people who were expecting declines versus the people who were expecting growth.

Dave Sobel (4:32)

Well, that's what's interesting to me too. Now, let's compare the markets a little bit. Are the MSPs different from resellers, distributors, like the other categories? You said they were kind of overall with the norm. Are there other variances that are a factor here?

Jessica Davis (4:47)

Not that I saw, not that I saw. But and I would love to have it broken down by size of MSP too, because that would be really interesting. But this is this is a quick poll, that quick sentiment poll that we put out in the market on a quarterly basis, kind of to just assess how partners are feeling about the current economic conditions and how their businesses, they expect their businesses to perform.