Datto’s Rae: ‘Who Is Key In Digital Transformation? The Managed Service Provider’

‘The power that you guys have is not in your technology stack. It’s what’s in your head. It’s the knowledge and information and education that you guys have. It’s the fact that you take time out of your business to come to an event like this to learn more,’ says Datto’s Rob Rae at XChange+ 2021.

The COVID-19 coronavirus pandemic has proven that the business of providing managed services is only getting stronger as MSPs find new ways to help customers become more resilient.

That’s the word from Rob Rae (pictured), senior vice president of business development at Norwalk, Conn.-based MSP technology provider Datto, who told an audience of MSPs at this week’s XChange+ 2021 conference that they are in the middle of what he termed the “golden age” of managed services.

It is a period that was accelerated by the COVID-19 pandemic, with MSPs getting past an initial dip in business and then quickly recovering as they found new ways to help customers, Rae said.

[Related: COVID-19 Accelerating Digital Transformation: McKinsey]

“Very, very few MSPs went out of business during this time. ... The time is now to take advantage of this golden age,” he said.

While the first few weeks of the pandemic saw vendors, MSPs and customers panic and wonder what they could do to survive, in reality customer retention as an issue took a backseat to the agility, responsiveness and cross-functionalization customers now expect from MSPs, Rae said.

“They understand the value of what it is you are doing and that you are there for them when they need your help,” he said.

SMBs are increasingly looking to MSPs for guidance on security, education and where to invest in technology, Rae said.

“It’s pretty simple,” he said. “The power that you guys have is not in your technology stack. It’s what’s in your head. It’s the knowledge and information and education that you guys have. It’s the fact that you take time out of your business to come to an event like this to learn more. That’s what your end users are paying for.”

Datto recently surveyed MSPs about their business and found that 84 percent of MSP customers have between 20 and 200 employees and a majority of customers are paying between $5,000 and $15,000 per year on managed services, Rae said. The average MSP serves SMBs in five or six industries, he said.

About 67 percent of MSP revenue is now coming from recurring services, Rae said. “That number is up significantly [from] what it was in 2019,” he said. ”And a lot of that is because ... COVID is now forcing organizations to look at digital transformation. Who is key in digital transformation? The managed service provider.”

About 47 percent of MSPs saw a slight increase in revenue because of COVID compared with 18 percent that saw a slight drop, Rae said.

And 93 percent of MSPs believe it is a good time to be an MSP, he said. “That’s phenomenal, considering that we’re all supposed to be depressed and sitting at home,” he said.

The survey also pointed out several opportunities for MSPs going forward, Rae said.

About 99 percent of MSP customers are using the cloud in some capacity, and about 50 percent of MSP customers have shifted over half of their workloads to the cloud, he said. At the same time, however, the average ransomware attack takes up to 278 days to recover from, he said.

Rae identified three major opportunities important to MSP success going forward.

The first is cyber-resilience, which can be positioned quite easily for end users, he said.

Cyber-resilience is not all or nothing, and no one expects an MSP to promise that a customer will not be attacked, Rae said.

Cyber-resilience is a measurement of business strength in preparing for a cyberattack based on the National Institute of Standards and Technology framework, which can be broken down and presented to customers to show how MSPs are doing in five dimensions: identify, protect, detect, respond and recover, according to Rae.

“You take those five things, and then be able to position within each of those five little buckets what it is that you are doing in your organization to protect your end users,” he said. “And it’s not just the technology that’s in your stack. This is the part that we need to get the end users to understand. It’s not whether you’ve got Datto backup, or this particular anti-virus or this particular anti-spam or this particular threat [detection] or whatever. It’s also about the people, and what processes you have set up in your business.”

The second big MSP opportunity is the work-from-anywhere model, Rae said.

In the past, work from home was a hard topic to talk about because it was “less sexy” than other topics and few expected such a huge shift in where employees work, he said.

Now the big question is will employees move back to the office, he said. For a time it appeared there would be a migration, but now with the COVID-19 resurgence, that has been put on hold.

“Part of the problem here was we were all protecting the castle,” he said. ”And all your people were inside the castle. And you did everything you could to protect people, and you built the best castle that you possibly could. And then everybody had to leave the castle, and then they all had to run to their grass huts. And all the bad guys know the little piggies are in the grass huts and are not in the castle.”

It is now important to think about how people work, and MSPs are critical to this process, Rae said.

“You [must] have the ability to go to your end users and say, ‘You’re going back to the office? You’re going to [work] from the office? You’re going to travel? You’re going to work from home? It doesn’t matter what you do, I’ve got you,’” he said.

The third big opportunity is co-managed IT, particularly for midsize and large business that have in the past not adopted managed services to the degree that smaller businesses have, Rae said.

While many MSPs may be bringing managed services to a small part of larger businesses, the day will come when larger businesses realize the importance of co-managing IT, he said.

“One of the beautiful things about going upmarket and taking managed services not out of the SMB but adding in to the medium and large market is the fact that medium and large organizations value technology more, they have bigger budgets,” he said.

For instance, larger businesses are looking for ways to deal with a huge shortage of IT staff, an area where MSPs can easily step in, Rae said.

“Outsource it,” he said. “It just makes more sense. The key, though, is that it’s a different sale. You can’t go in and have a conversation with them the same way that you do with an SMB as a complete outsourcing [project]. You have to figure out how to have a conversation with the [top executives] as well as the in-house IT guy so that he or she doesn’t feel like you’re taking their job.”

Businesses including MSPs also need to make much-needed investments in security, Rae said.

Datto, for instance, in early 2017 hired Ryan Weeks as the company’s first CISO, or chief information security officer, Rae said. He said he questioned that decision in a conversation with former Datto CEO Austin McCord at the time.

“I said to him, ‘We don’t need a CISO. Why would you waste money on a CISO? We don’t sell security services.’ He goes, ‘It’s not for us. It’s not for you to go out and sell. It’s for us to make sure that we are doing everything possible within Datto to make sure our clients are protected, our partners are protected, their end users are protected.’”

Datto now has 30 full-time staff focused solely on internal security, Rae said.

“They’re not salespeople,” he said. “They’re not carrying quotas. They don’t get compensated based on top-line revenue or anything like that. They’re literally there to help find gaps and close those gaps.”

MSPs have indeed found new ways to serve customers in the face of the changes both as businesses first went through the COVID-19 coronavirus pandemic and now as they look to a post-pandemic recovery, said Richard Bramlett, president and CEO of Bramtech Solutions, a New Orleans-based MSP.

Bramlett said his company is seeing customers looking at multiple ways to change their business, ranging from downsizing their offices to adopting new hybrid on-premises and cloud approaches.

“We have one law client that originally occupied two floors, but now has only one floor,” he said. “The older lawyers are happy to work from home. For a lot of clients, however, they had a short work-from-home period, with many returning to the office in a couple months. For many, we assisted them with their move to the cloud so their employees can work from home or rent small office spaces away from the main office.”