IT’S A GREAT TIME to be a channel pro.
OK, we’re hardly the first to make that observation. Yet after two years of coronavirus variants, topsy-turvy GDP, supply chain gridlock, and more, we simply can’t resist the urge to say it one more time. Or even two.
It’s a great time to be a channel pro.
Our latest State of the Channel report is packed with evidence. Where the study we published a year ago, based mostly on data collected late in 2020, offered hopeful signs of brighter days ahead for MSPs, VARs, and solution providers, this year’s data suggests that the indisputably indispensable role technology now plays in the world of hybrid work and digital everything has translated to boom times for ChannelPro readers, many of whom see even boomier times ahead.
That, anyway, is the good news. Dig into the numbers a bit and you’ll find hints that not everyone is sharing equally in that success. Dig even further, moreover, and you’ll encounter a few intriguing surprises in what’s helping growing channel pros grow.
Better Financials, Brighter Outlook
Let’s start with that growth. Forty percent of participants in our 2022 survey had higher revenue last year, and 42% had higher profits. That’s down from heady pre-pandemic 2019, when 53% of channel pros collected more revenue than the prior year and 50% recorded more profit, but meaningfully better than the 35% who said revenue was up and 37% who said profits were up in our 2021 report.
Most of you are bullish about the future too. Fully 64% of respondents to our latest poll anticipate greater revenue in 2022 and 60% predict greater profit, up from the already upbeat 51% each who predicted higher revenue and profit a year ago.
Market expectations among channel pros reflect further optimism. While 38% of readers, with inflation possibly on their minds, believe conditions will be the same or worse in 2022 for the economy as a whole, 69% believe they’ll be better for their own company and 35% think they’ll be much better. That last figure is up from 22% a year earlier. A hefty 73% of readers predict higher IT spending by their customers this year, too, versus 56% in our 2021 survey.
More money means more work, which in turn requires more people. As a result, while 44% of you expect headcount to remain about the same in 2022 (down from 53% in 2021), 50% expect it to grow (up from 41%).
With tech sector unemployment down to just 1.7%, according to February data from CompTIA, channel pros are well aware that they’ll have to pay those new hires, not to mention existing staff, more generously this year. Indeed, half of you expect to pay technicians more in 2022 (versus 31% in last year’s survey), 44% expect to pay salespeople more, and 30% expect to pay administrative staff more. On the plus side, 46% of you believe your personal income will be up in 2022 as well (versus 30% a year ago).
Yet for all the glad tidings in this year’s data, there are some troubling results as well. In particular, while higher percentages of channel pros saw revenue and profits rise last year versus the year before, 20% saw revenue decline in 2021 and 22% saw profit drop. Those figures are down from the 25% who reported lower revenue and profits in our previous State of the Channel report covering 2020, but still way up from the mere 6% of readers who experienced lower revenue in 2019 and 5% who pocketed lower profits back then.
Ups and Downs in Managed Services
That pattern, though not exclusive to MSPs, lines up all too well with an observation that Gary Pica, president of MSP advisory firm TruMethods, shared with ChannelPro earlier this year: While mature MSPs in the industry’s top 25%—who have efficient, standardized business processes and carefully designed services packages—are growing like gangbusters right now, the bottom 50% are struggling to keep up, and will continue to do so going forward.
“I’m not suggesting that those small or less mature MSPs are going to go away,” Pica says, “but they’re going to have to decide more specifically, what is my niche?”
That suggests a lot of you have some serious thinking to do, because there are more MSPs in the SMB channel than ever. In fact, fully 73% of participants in this year’s study provide at least some managed services, versus 64% of respondents to last year’s edition. A sizable 57% offer managed security specifically, versus 46% a year ago.
Managed services figure more prominently among the channel’s revenue sources as well. Some 34% of readers get half or more of their revenue from such offerings at present, up from 20% just a year ago. What’s more, a touch over half of readers (51%) expect even more of their revenue to come from managed services in 2022. By contrast, 43% of respondents said the same in last year’s study.
No wonder. The managed services market is on a tear, according to Technavio, which expects global outlays to climb at a 9.45% CAGR through 2025, adding nearly $126.5 billion worth of billings. To put that in context, fellow analyst IDC’s forecast has worldwide spending on IT and business services overall growing 3.4% in 2022 and 3.8% in 2023.
Good News, Bad News on Security
That just-noted jump in the number of channel pros offering managed security is no outlier. A massive 80% of companies in this year’s report offer anti-virus, anti-spam, network protection, or other security services, a big increase over the 63% who were doing that a year earlier.
Profits are up some on security too. While 18% of surveyed channel pros called margins on security services high in our previous report, that figure now stands at 23%, and 45% anticipate higher margins still in the future. Just 7% predict lower margins.
Maybe that’s because the security landscape has readers even more spooked than before. The percentage of them who rate their level of concern over cyberthreats at 10 on a 1–10 scale is now 48%, versus an already high 38% a year earlier. Worse yet, channel pros are somewhat less confident than before in their ability to shield customers from attack. Some 36% rate their confidence either 9 or 10 on the same 1–10 scale, down from 41% in 2021.
Cashing in on the Cloud
Thanks largely to the hazards of what’s likely to be the pandemic’s most enduring IT legacy, remote work, worldwide spending on information security and risk management will grow at an 8.7% CAGR through 2025 to $213.7 billion, according to Gartner. The same analyst expects global revenue from that other big component of work-from-home (WFH) computing—public cloud services—to soar at an even steeper 21.7% CAGR over the same period.
That growing mountain of cash has drawn poll respondents to WFH services generally (77% now offer them, versus 67% a year before) and cloud services specifically. Indeed, 61% of surveyed readers now offer Microsoft 365 licensing, a double-digit uptick over 2021, and 62% provide cloud consulting, deployment, and migration assistance, up a bit from 58% last year.
Half of channel pros now offer desktop virtualization, meanwhile, as opposed to 44% a year ago, likely due to the growing popularity of Microsoft’s cloud-based Azure Virtual Desktop solution and the introduction more recently of the Windows 365 cloud PC platform. An even bigger 55% of readers provide VoIP and unified communications (up from 46%) and videoconferencing (up from 38%).
Is any of that profitable? Not especially, readers say. Just a quarter of them call the margins on cloud consulting, deployment, and migration high, for example. Only 18% say the same of unified communications/VoIP, and a slender 7% say the same of videoconferencing and Microsoft 365 licensing.
Cloud services continue to contribute little to the top line as well. Fully three-quarters of surveyed readers, in fact, get less than 25% of their revenue from the cloud, a figure that’s actually gone up in the last year.
On the other hand, 56% of channel pros expect cloud offerings to account for a greater share of billings this year. In addition, 40% of poll participants forecast higher margins ahead on cloud consulting, deployment, and migration, while modest but growing percentages share the same upbeat outlook on unified communications/VoIP, videoconferencing, and even Microsoft 365 licensing.
Momentum in Unexpected Places
Some trends in this year’s data might surprise you. Who would’ve guessed, for instance, that the number of channel pros providing break-fix services has gone up in the last year, from 55% to 61%? Furthermore, 27% of survey participants now call break-fix a high-margin offering (as opposed to 18% in 2021), 22% expect margins to improve in the future, and 55% believe that doing break-fix has a positive effect on competitive advantage relative to peers. Just 35% of our poll sample made that last assertion in 2021.
For all the excitement about the cloud, meanwhile, the share of channel pros offering hardware is headed up rather than down. Some 72% of readers we polled now sell servers, for example, versus 61% a year ago, and 73% now offer PCs and peripherals, versus 64% last year. Heck, 39% continue to sell custom business PCs and 28% offer custom gaming PCs even though just 9% call margins on custom hardware high.
Does 9% sound low? Only 7% of respondents consider margins on PCs and peripherals high. And while 7% also describe margins on print imaging and managed print services as high, 29% (versus 24% in 2021) continue to offer it. Servers, it appears, are the closest thing to profitable when it comes to hardware—a whopping 16% of channel pros call server margins high.
That’s OK, though. There’s plenty to be happy about in the SMB channel these days, which is a delightful change from a year ago. Here’s hoping we’re still smiling next year.
Methodology and Demographics
The 2022 ChannelPro State of the Channel survey was conducted online from September to October 2021, and was open to everyone in our email database. About 66% of the 872 respondents are MSPs, 49% say they’re primarily VARs, and 17% are custom system builders. Fifty-three percent hold executive management titles such as CEO, owner, and president; about 20% work in unspecified technical management roles; and about 16% are sales or marketing managers. Approximately 38% work at companies with one to four employees, while roughly 17%, 26%, and 20%, respectively, are affiliated with firms that have five to nine, 10 to 49, and 50-plus people on staff.
