Are MSPs Missing New Revenue and Customer Loyalty Solutions?
Cloud cost management may be the hottest topic in the MSP world today, given the dramatic acceleration of migration of nearly every IT service to the cloud. Bill shock has started to surface, and there is a lot of buzz around the true costs of cloud, but more importantly, cloud waste.
IT leaders, whether running MSPs or running their own businesses, have consistently cited reining in cloud expenses for well over seven years – and yet, the problem persists.
The lack of progress shines the light on the failure of the industry to get a hold of cloud expenses. At the same time, the looming recession and generally tough environment when it comes to attracting and keeping customers, fiscal realities are inspiring MSPs to figure out why their bills have skyrocketed, which they either absorb in their own bottom lines or pass along to their end customers. Those are uncomfortable conversations.
One startup based in Dublin has designed its cloud "calibration" and "confidence" platform to directly take the challenge, looking at what they bring to the market as a positive thing, including new MRR and the ability to protect its base as new FinOps consultancies are popping up all around the world, ready to feast on the money they make when they help organizations reduce costs.
This is not good news for MSPs. Founder and CEO Ben McGahon, whose team at Kalibr8 has been developing a multi-cloud optimization platform, says MSPs can start up their own FinOps practices and help their customers get more value out of cloud investments when they reduce waste and free up cash they can invest in new cloud services that will deliver better outcomes for their customers.
"We are seeing a disturbing trend, similar to what we saw in the telecom industry decades ago when Telecom Expense Management (TEM) companies became the bane of every telco's existence,” ," McMahon said. “The cool thing is that when MSPs introduce their own offering, they can get out in front of the enemies and improve their own bottom line while creating even more loyalty and trust with their SMB customers. If MSPs don't pay attention to this now, they will regret that decision in six months."
A recent SoftwareOne Holding study found 95% of the IT leaders want to boost their visibility and control over cloud costs. Eighty percent plan to increase their investment in FinOps, a cloud financial management discipline.
Another data point: Flexera's annual State of the Cloud study identified spend management as the top cloud challenge, surpassing even security. The poll of 750 IT managers revealed that cost management eclipsed security as the No. 1 concern. Flexera develops IT management tools, including cloud cost optimization products similar to Kalibr8 and a few other cloud containment companies.
"Remarkably, cloud vendors are pulling back on the big discounts offered during the pandemic, which is causing prices to skyrocket," McGahon said. "Those discounts are only going to shrink, and it's very important that MSP leaders understand that and stop relying on discounts and other incentives to fund their business. If they don't, they are going to suffer the consequences and may even become non-competitive against MSPs that are already changing their model."
The unpredictable economy isn't helping, and the FinOps trend McGahon references continue to show up as one of the top 2023 business trends.
"We've coined a new term here at Kalibr8 by combining the power of cost optimization with customization to help define an exciting new opportunity for MSPs to compete and win by bringing their customers' tailor-made opportunities to not only reduce their cloud spend but increase the value of cloud-based services that have an immediate impact on their customers' ability to grow and thrive with the perfect mix of cloud applications that won't break the bank," McGahon said.
"COVID-19 created pressures on businesses to reduce staff, and small and medium-sized businesses had to address the risks of trying to manage their own IT infrastructure, including cyber security as attacks surged during the pandemic," McGahon, who has run MSPs and been in the industry for over twenty years said. "The MSPs who rallied did extraordinarily well, and as we've seen it reported in the media, SaaS companies especially grew tremendously between 2019 and 2022 as organizations had no choice but to quickly subscribe to collaboration applications like Microsoft Teams. What we are seeing today is a hangover from moving so fast to replace traditional IT solutions with cloud-first and cloud-only options."
The best thing MSPs can do at times like these, and all the time, McGahon recommended, is to "focus on improving their operational efficiency, their margins, and their ability to respond quickly and constantly to change, and to become an even more deeply trusted partner, defending their base from switching to another MSP or, possibly worse, being talked into retaining one of the growing numbers of FinOps consultants who get paid for reducing costs which includes putting pressure on MSPs to lower the cost of their services."
The basis for Costimization is getting to the end customer first before the competition and the cost-cutter consultants start knocking on their doors. There is no need to have to respond to surprises and threats when your customers trust that their MSP is always on their side, advising them and bringing them new ways to get more value for less through a consultative approach. This has always been the case – driving long-term loyalty and avoiding having to unwind relationships and then find new ones to replace lost revenue.
"Being competitive means being able to bring every layer of the IT stack to MSP customers – not on-premises, but from the cloud," McGahnon continued. "When MSPs show how much money can be saved – and reinvested in powerful new cloud-based business applications and services – based on their customer's business needs. When that happens, they not only deepen relationships and increase MRR while retaining hard-won customer contracts, but become more attractive to prospects."
Analytical tools, including capturing pricing and spending data in real-time, and identifying waste, make it easy for MSPs to fight back and not become victimized by FinOps practitioners.
"Imagine if you were an SMB and your MSPs came to you with ways to save and reinvest, with an accurate accounting and visually simple way to illustrate exactly how they can afford new cloud-based services which will also be finely calibrated for years to come," McGahon said.
MSPs don't have to have all the answers – especially in often strange and uncertain times. What they need are strong partners who help them do more for less, who help them understand and navigate their offerings and economics, and who help them scale more profitably. Everybody wins. The struggle is real, but so is the solution.
Edited by Erik Linask