The Future of Infrastructure-as-a-Service and the Impact on MSPs

The Future of Infrastructure-as-a-Service and the Impact on MSPs

By Matthew Vulpis

Digital transformation has changed the world as we know it and has greatly shifted the business sector toward technology. The variety of new devices and applications has added ease and optimization into a variety of daily processes, and also adjusted enterprise priorities, emphasizing the need for an IT-skilled workforce. This emphasis on technological know-how has allowed new industries to prosper amidst digital transformation, with the most notable growth coming from the managed service provider (MSP) sector.

MSPs today have evolved to become IT experts, across all functional areas, including trials, project management, installation, training, monitoring, maintenance, upgrades, and customer support. Delivering services, such as network, application, infrastructure, and security, via ongoing and regular support, MSPs are now relied upon by numerous industries to aid with choosing, implementing, and correctly leveraging innovative technology.

Thanks to the explosion of technology, as well as a variety of industries adopting digital transformation, the MSP industry has become one of the fastest growing today. The global managed services market was valued at $161.37 billion in 2021, and it is expected to reach $311.32 billion by 2027, registering a CAGR of 12.44 percent.

However, like many industries, MSPs are always looking for ways to enhance their offerings in order to sustain the newfound growth. Nowadays, this is usually done through the adoption of new technologies, allowing MSPs to offer a broader portfolio of applications, covering more industries and sectors.

The next big revenue possibilities for MSPs could come from Infrastructure-as-a-Service (IaaS) solutions, according to a whitepaper by Pax8, a global cloud commerce marketplace that simplifies the way organizations buy, sell, and manage cloud solutions.

IaaS is a form of cloud computing that provides virtualized computing resources over the internet, and is one of the three main categories of cloud computing services, alongside software as a service (SaaS) and platform as a service (PaaS). In the IaaS model, the cloud provider manages IT infrastructures, such as storage, server and networking resources, and delivers them to subscriber organizations via virtual machines accessible through the internet.

As online services and use of the cloud among enterprises grows, the adoption of IaaS solutions rises as well. The global IaaS market is expected to grow from $65.87 billion in 2021 to $82.93 billion in 2022. On top of this, the market is expected to grow at a CAGR of 24 percent moving forward beyond 2022, with experts estimating a market value of $195.81 billion by 2026.

As for MSPs, the adoption and use of IaaS solutions is somewhat of a new trend, as according to the whitepaper, IaaS solutions have been a challenge for MSPs.

“Providing IaaS to the end customer can be extraordinarily complex (Azure has over 20,000 distinct SKUs), and the usage-based billing model can often provide challenges for managed service providers (MSPs), including slim margins, unpredictable bills that are multiple months behind, and more,” Pax8 says. The paper goes on to discuss how some MSPs have recently found ways to add IaaS solutions to their offerings advantageously.

“MSPs focusing on the SMB market are finding increased success in moving their business to the cloud,” said Nick Heddy, Pax8 Chief Commerce Officer.  “The market opportunity is expected to triple between 2022 and 2026, given the inherent flexibility, stability, scalability, and incredibly fast turnaround time of IaaS compared to traditional approaches.”

While these benefits like flexibility and scalability, among others, are usually what MSPs consider helpful, the Pax8 argues that, to truly unlock the potential revenue of IaaS, MSPs must look at billing charges, as well as overages, associated with the technology.

“This impacts the business model and profitability for MSPs,” Heddy said. “By considering a change from an arrears/usage based model to a simpler, bill-ahead, monthly recurring service, MSPs can improve long-term profits. With this model, as time goes on, a recurring cost to the client yields an ever-increasing profit margin. The fixed-rate schedule provides other benefits as well. By offering a fixed price to your client, you create a pattern of predictability in your clients’ invoices, easing the transition to IaaS. This allows clients to better plan their own finances, and it generally raises their comfort level.”

Furthermore, the whitepaper discusses the potential overages can hold for MSPs when offering IaaS solutions. When setting up client agreements, MSPs should establish that their flat fee comes with some caps, just like a cellphone data plan. If the client uses more than they are allotted, MSPs can then charge a one-time overage fee to recoup those costs.

“We developed this new whitepaper to share winning strategies for our MSP partners,” Heddy explained. “Overages, for example, provide an opportunity to move customers into a more substantial service to fit the client’s future needs. Waiving overage charges when moving to a higher price tier can be an opportunity to strengthen the client relationship and grow long-term revenue. Think of IaaS billing as an environment where the client usage fluctuates, but each spike provides the MSP an opportunity to raise the level of service provided.”

Overall, the age of “Everything-as-a-Service” is fully upon us, and MSPs must recognize the potential that IaaS solutions have to offer to sustain their current growth. Combining simplicity, scalability, and flexibility in one cost-effective package, IaaS can deliver all the tools an MSP needs to gain a competitive edge. Moreover, while these benefits make their offerings more enticing to clientele, the use of monthly billing models and overages can provide MSPs with the revenue generation necessary to continue growing as an industry.

Edited by Erik Linask
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