A fundamental shift is taking place in the MSP software landscape. MSP focussed vendors should be prepared to take an agile approach to their GTM and channel strategies. here, MSPX Editor-in-Chief Rick Yates gives his take on what could be next for the market.
Kaseya CEO Fred Voccola recently announced the launch of Kaseya 365—a low-cost, all-inclusive security product stack for Kaseya partners.
This bold strategic move aims to make Kaseya an indispensable choice for MSPs in a burgeoning security-focused market, striving to reclaim positive mind and market share following several high-profile service challenges, customer equity issues, and the Datto acquisition.
Analysis of Kaseya 365 and Market Impact
But there's more. Kaseya 365 could signify the firing of the starting pistol that instigates a chain reaction in the MSP security software space, potentially isolating single-category software vendors from the MSP market. As platform vendors vie for multi-category market share and more SMBs need security services, are we about to see a race to the bottom on price for unified security product stacks?
As is often the case, market moves like this raise more questions than answers. Kaseya 365 could be an anchoring point for the rest of the market, allowing competitors to decide their position. What will be the important consequences for the software market, and how should vendors deal with them?
What is Kaseya 365 and What Do MSPs Get?
Kaseya 365 bundles fundamental tools an MSP needs to offer a comprehensive security service for just $3.99 per user per month. It includes Unified RMM, EDR, Ransomware Detection, AV, ASM, MDR (at an extra cost with the Pro bundle), and Endpoint Backup.
Given that most MSPs globally are looking after SMBs and are unlikely to fully transition to become hardcore MSSPs, this is a smart move by Kaseya. Many MSP owners are managing multiple third-party security apps at an increased price point, so the attraction of winning back a significant piece of margin might motivate them to transition into the Kaseya ecosystem. The potential for single console management adds to the appeal.
Competitive Advantage is Always Temporary
While the arrival of Kaseya 365 is important, security software vendors shouldn't panic just yet. According to Canalys, Kaseya, ConnectWise, N-Able, and NinjaOne currently hold about 70% of the global RMM/platform market. Leadership at these companies has likely discussed internally whether they need to respond to Kaseya 365 with an offer of their own.
What we have on our hands is the possibility of a tidal industry shift in how we address the MSP cybersecurity market. All the big platforms have been pushing security for a while. However, ConnectWise and N-Able have leaned further into managed SOC and co-delivery with partners rather than a straight-up product offering. This approach helps MSPs win, and when MSPs win, the vendor wins too
How Does the Story Play Out?
Are we suddenly going to see 70% of the MSP market targeted with sales calls offering unbelievable deals on security? Not yet. Vendors can pick up revenue in several areas:
Net new partners
Organic growth of existing product usage with existing partners
Expansion into new product categories with existing partners
Renewals
The 70% is an existing customer base. It's unlikely that platform vendors will target all of them with an offer like this. They can't afford to chew away at existing margin, and too many existing customers will be upset if others get offered great deals on the products they are using at double the price. They will target new partners, pulling MSPs out of their existing RMM deals, which is not straightforward.
As annual renewals come along for the incumbent customer base, they will be offered great deals to stick around. This is when third-party security vendors need to worry, as the platform vendors will push the message that MSPs can get six products at a highly reduced rate under one platform. This is an attractive offer. At this point, the groundswell of commoditised security tools potentially starts to occur.
Caveats
Execution: The offer doesn't mean it will get to market quickly and efficiently. Platform vendors will need to mobilise and enfranchise their sales and operational teams globally.
Risk Aversion: Many MSPs will be sceptical about throwing all their eggs in one basket with a single vendor.
Sentiment: Offering many products to many MSPs can lead to issues with customer experience, billing, support, downtime, and product development. Past negative experiences may deter MSPs.
Cost of Delivery: Offering many products at a low price means there may be reduced investment in execution and delivery or potential price hikes.
Impact on Independent Software Vendors (ISVs)
We are in a motion where consolidation and a crowded vendor market mean access to the MSP market for vendors is becoming narrower - particularly in 2-tier distribution, and the vendor pool is getting bigger.
The platform vendors are striving to build complete security suite product and service portfolios. They have powerful sales and marketing functions, and often dedicated partner communities, and they hold 70% market share. Pax8 is expanding aggressively (including via acquisition) as the go-to MSP marketplace and has an extensive and highly competitive vendor list. Microsoft is also investing heavily in multi-category offerings, with a $20b R&D fund for security between now and 2026.
Are we going to end up in a 5 or 6 runner race? It's starting to look that way.
If that's the case, how do the other 400+ independent security software vendors get to market in a meaningful way? Even if every single vendor was to get onto each of the platforms (which isn't going to happen), it will typically be the top one or two vendors in each category who win.
The MSP market has been fair game for the last 10 years for vendors willing to invest in the right way. However, the market has evolved hugely and it is now sensible for vendors to think about diversification, of sorts.
The Rise of the Hybrid Channel
While vendors globally have focused on winning MSP market share, something else has been happening in the background. Hundreds of thousands of channel partners globally have been transitioning their businesses from a traditional perpetual product sales model to monthly billed subscription licensing.
"The Channel," as we all know it, exists thanks to hardware and geography. Distributors and resellers bridged the gaps between manufacturers and their customers by providing warehousing, logistics, credit control, and local partner networks. These partners, some formed 40 or 50 years ago, still exist today and have evolved from selling hardware to on-premise software, professional services, connectivity, and cloud software.
For many of these traditional partners, multi-tiered, multi-tenanted, consumption-billed, cloud-native software is a relatively new sales concept. They have struggled to organise their operational processes to accommodate subscription-based models because the market hasn't demanded it—until now. However, they recognise that if they can crack this model, they can access a more margin-rich, annuity-style software business.
This transition is not merely a reactive measure but a strategic evolution aimed at capturing the margin-rich, annuity-style revenue streams that cloud software offers. These traditional partners bring decades of experience, established networks, and a deep understanding of their customer bases.
The hybrid channel represents a significant opportunity for vendors targeting the MSP market. By engaging with these transitioning partners, vendors can tap into extensive networks and leverage established relationships to expand their reach and secure their foothold in a competitive market.
The Future of the Hybrid Channel
As the hybrid channel continues to mature, it will likely play an increasingly pivotal role in the distribution and sale of security software solutions. Vendors that proactively engage with and support these partners will be well-positioned to capture significant market share. The hybrid channel not only offers a pathway to new customers but also enables vendors to diversify their revenue streams and reduce dependence on any single market segment.
Why Engage with Rick?
Navigating the complexities of the hybrid channel requires expertise and a nuanced understanding of both the MSP and traditional channel landscapes. This is where I come in. With extensive experience in building and optimising channel strategies, I am well-equipped to help vendors transition into the hybrid channel. By leveraging my insights and industry connections, vendors can develop robust go-to-market strategies, foster strong partnerships, and achieve sustained growth in a competitive environment.
If you are a software vendor looking to expand your market reach and secure a competitive advantage, I invite you to reach out. Together, we can develop a comprehensive channel strategy that addresses immediate challenges and positions your company for long-term success. Let’s explore how we can turn the potential of the hybrid channel into tangible business growth. Contact me today to start the conversation.
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