Editor's note: After releasing the 2016 MSP 501 list and report in May, MSPmentor became aware of an inadvertent error in the submission of Windstream, one of the companies on the list. The submission was therefore disqualified, and the 2016 MSP 501 and accompanying story have been updated.
The MSPmentor 501 is our ranking of the world's top managed services providers.
Designed to be nimble. Adapted over time. Built for speed.
This sums up the companies that comprise the 2016 MSP 501 list and study, which debuts today, Thursday, May 19, 2016.
After months of research, data collection and analysis, MSPmentor is proud to offer the latest iteration of our annual ranking, which has roots dating to 2007. This year’s edition is the 9th MSP 501 ranking, which is the IT channel’s largest and most comprehensive list of leading managed service provider (MSP) organizations worldwide. This year, the editors at MSPmentor set out to raise the bar in terms of quality, transparency and applicability. It took us a bit longer to amass and tabulate our results, but we believe you’ll appreciate the improvements.
Take transparency. While respected if not revered among top MSPs, the annual MSP 501 list was a bit of a mystery to companies that applied for inclusion. Why one company was rated above another wasn’t exactly clear. No more. This year for the first time, MSPmentor is revealing the methodology used to rank individual companies.
As before, we have also examined the business models, technologies, vertical markets and customer segments that MSP companies engage most. In this executive summary we provide a snapshot of our findings with some additional analysis. In the coming weeks and months, the editors at MSPmentor will follow up with additional features, news stories, profiles and more that flesh out our findings, which number far too many to fully examine herein.
Taken as a whole, the companies on the 2016 MSP 501 list amassed a combined $6.49 billion in recurring revenue (based on 2015 results). For comparison, that’s roughly as much money as the global ridesharing market is expected to be by 2020.
Between 2014 and 2015, MSP 501 companies collectively increased the overall number of users they manage worldwide by nearly 16 percent. What is more, they increased the number of devices they oversee by nearly 30 percent. (If you’re wondering how they charge to oversee their empires, 42 percent rely on a hybrid user/device model, 24 percent charge on a per-user basis and 23 percent use a per-device rate.)
About the Methodology
To qualify for the 2016 MSP 501, MSPs were asked to submit confidential applications complete with their 2015 financial results. To qualify for ranking, MSPs were also asked for revenue verification from a certified financial professional for the first time. Data were collected between Feb. 26, 2016 and April 22, 2016.
To achieve greater accuracy and thoroughness, Penton Technology also partnered with Clarity Channel Advisors to help produce the 2016 MSP 501 ranking and study. Clarity is a Quincy, Mass.-based market consultancy and technology development company that has built the Clarity Intelligence Platform (CIP), which provides data-driven insights to MSPs. Leveraging insights gleaned from real-world customer interactions and more than a decade of experience working in and around the MSP community, MSPmentor and Clarity developed the 2016 MSP 501 methodology.
The methodology relies on an algorithm that assesses company strength based on revenue contributions from key go-to-market activities. Because not every dollar of revenue produces the same return, revenue from specific activities is weighted differently than others. Revenue from true managed services, for example, is not only more sustainable than revenue generated from hardware reselling, it is also more profitable. This is why valuations of MSP entities vary greatly, and why some business models endure market upheaval better than others.
When determining a candidate’s ranking for the 2016 MSP 501 study, MSPmentor and Clarity put the highest value on revenue generated from true managed and cloud services. Revenue from professional services was given a somewhat lower weighting, followed by revenue generated from consulting and finally hardware and software reselling. (See accompanying sidebar, “How The 2016 MSP 501 Stacks Up,” for further details).
In addition to the MSP 501 ranking, MSPmentor looked to Clarity for another value-added metric. This is the Total Service Provider (TSP) Index that Clarity has developed over the past several years.
“The Clarity TSP Index is an evolutionary score based on the quality of revenue that MSPs generate in five main buckets, plus a revenue-per-employee component that helps assess an organization’s overall productivity and capacity,” said Jim Lippie, founder and CEO at Clarity Channel Advisors. “When you combine the two algorithms, you get a world view of the MSP market like nothing else available.”
(For more on the Clarity TSP Index, see, “TSP 2020: A New Way to Look at the MSP and VAR Market”).
The 2016 MSP 501 includes a diverse array of companies. At the top of the MSP 501 are robust services providers than span multiple geographies, product categories and technological capabilities. While some of this breadth was achieved through organic growth, a significant portion was achieved through merger and acquisition. Take No. 7 on the 2016 MSP 501 list, OneNeck IT Solutions of Scottsdale, Ariz.
OneNeck is emblematic of many companies near the top of the MSP 501 list. It offers a diverse portfolio of products and services including cloud and hosting solutions, managed services, ERP application management, professional services, IT hardware and more. The company employs nearly 550 people throughout the U.S., and operates Tier 3-level data centers in Arizona, Colorado, Iowa, Minnesota, Oregon and Wisconsin. Like a growing number of big-name MSP companies, it joined forces with another technology company to realize greater scale and synergies. (OneNeck was bought by publicly traded Telephone and Data Systems in 2011.)
With scale, diversity and operational efficiency, OneNeck is putting distance between it and other companies in the market. And so are a lot of 2016 MSP 501 companies. Despite their size, companies at the top of the 2016 MSP 501 are growing rapidly. Twelve of the top 15 2016 MSP 501 companies grew revenue in 2015—most by double digits.
Not only are MSP 501 companies rapidly growing, they are also making gains in the right areas. Ease Technologies Inc., No. 161 on this year’s list, doubled its recurring revenue in 2015 by focusing on higher-profit service opportunities.
In the main, service-minded companies are growing faster than hardware-oriented ones. For example, MSP 501 companies that generate at least 50 percent of their revenue from services grew, on average, by 20-plus percent in 2015. In contrast, MSPs with large hardware reselling divisions that account for more than 50 percent of their revenue grew, on average, at only one-third this rate.
“There’s definitely a rush to quality and scale, which has resulted in the strong getting stronger, and the weak falling behind,” said Lippie. Not surprisingly, he added, “We also see a de-emphasis on hardware sales and an embrace of all things cloud.”
By The Numbers
The companies on the MSP 501 list collectively sell a broad array of services but cluster around a key few. To wit, 95 percent of the companies on the 2016 MSP 501 list offer cloud-based backup and disaster recovery (BDR) services to their customers. Nearly as many offer help and/or service desk support, while 93 percent offer network, server, desktop and/or laptop remote monitoring and management (RMM). (That more MSP 501 companies offer BDR services than RMM services to customers is a testament to the success that companies like Datto have had with partner marketing and recruitment in the past two years. Datto’s cloud services, for example, are sold by one-third of all MSP 501 companies.)
Another popular platform sold by MSP companies is Microsoft Office 365. Today, 80-plus percent of all 2016 MSP 501 companies sell Office 365 solutions—and with confidence. Sixty-one percent of these organizations believe Office 365 represents a growth opportunity for them in 2016—nearly the same number that believe security represents a significant opportunity. This compares to just 2.4 percent of MSP 501 companies that believe Google Apps represent significant opportunity for them this year. This could change, of course, especially now that Google has launched a concerted effort to get closer to MSPs, especially smaller ones that focus on the SMB market. Today, just 16 percent of MSP 501 companies offer Google Apps to their customers, according to our survey.
As per geography, 86 percent of companies on the list this year hail from North America. Another 10 percent are based in Europe, the Middle East or Africa (EMEA), and another 4 percent are from Asia, Australia and New Zealand (AANZ).
When it comes to customers, nine out of 10 MSP 501 companies sell to small organizations with fewer than 100 employees. While small business remains a mainstay of many MSPs, 70 percent also sell to companies with as many as 1,000 employees, and nearly one in five MSP 501 companies sell to enterprise customers with at least 1,000 or more employees.
Collectively, the companies that account for the 2016 MSP 501 sell to almost every vertical market imaginable. This includes manufacturing, energy, retail, education and residential consumers, just to name a few. A majority of MSPs sell to multiple vertical markets. The top three vertical targeted markets are professional services, healthcare, and legal. Today, 61 percent of MSP 501 companies target the professional services market while 56 percent sell to the healthcare sector and the legal market.
How the Market Is Changing
Given the number of companies pursuing similar vertical, horizontal and technological opportunities, there is no wonder that more than 70 percent of MSP 501 organizations report that they feel “moderate-to-high” pressure on margins.
In interviews with MSPs, it is also clear that more 501 companies, especially smaller ones, are growing increasingly concerned about account control. They are wary of vendors that refuse them the option of direct billing and of fellow MSP 501 companies that have gained strength through acquisition and market expansion. Ask any small MSP who specializes in print services along the East Coast of the U.S. if he or she is wary of mindSHIFT Technologies Inc., now a division of Ricoh, and the answer will undoubtedly be “yes.”
Research from Lippie and third parties including CompTIA, which will soon publish its own annual study of the managed services market, indicates that MSPs that have invested in professional tools and best practices are putting distance between they and their competition. This includes MSPs such as mindSHIFT, which, despite its size, is outpacing the growth of many smaller MSP companies.
In reaction to market shifts, MSP 501 companies are pursuing new areas of growth including the Internet of Things (IoT) and Big Data, and increasing the professional management of their organizations. (Nearly 70 percent of MSP 501 companies rely on ConnectWise tools to help manage their businesses, for example.) And the results speak for themselves.
“Three quarters of respondents to our forthcoming MSP annual study describe the overall operational efficiency of their MSP businesses as ‘a very efficient/well-oiled machine,’” said Carolyn April, senior director of industry research and analysis at CompTIA. “Four years ago, only one-third demonstrated that level of confidence.”
When viewed as a whole, the takeaways from this year’s MSP 501 study are clear. The “haves” and “have nots” are emerging. The haves, of course, are those with a healthy mix of cloud and managed services, professional management and best practices.
These companies are outpacing organizations with a heavy dependency on hardware, which seem to be running out of time to evolve their businesses—notable exceptions like Insight and CDW, notwithstanding.
As always, keep watching MSPmentor for more on the most progressive and innovative companies in the MSP market today.
To view the entire 2016 MSP 501 list, click here.
Correction: A previous version of this story misstated the amount of annual recurring revenue generated in 2015 by the companies listed on the MSP501 ranking. The correct amount is $6.49 billion.