Amid the uncertainty brought about by the coronavirus pandemic, some industry observers have been encouraging managed service providers (MSPs) to diversify their offerings across multiple industries to reduce business risks and make sure they can stay afloat in times of economic volatility. 

However, there is a strong argument for MSPs to stay in their lane and become an expert in one vertical, which allows them to move further up the IT/business value stack and reap greater rewards in the long run. 

Statistics show that managed services businesses who choose a verticalization strategy end up having enormous success. A study from IDC and Microsoft highlights the value of becoming verticalized, saying that 82% of partners believe a vertical focus is important or very important for their growth.

Verticals are not just about particular industries such as automotive, retail, banking and healthcare. Some MSPs find it advantageous to verticalize around specific technologies like cybersecurity, cloud computing, data analytics, artificial intelligence and big data.

As the cloud grows and matures, organisations are increasingly leaning on modern MSPs to be their strategic partners and trusted business and technology consultants. So MSPs should have specialised knowledge and thorough understanding of the industry they serve as well as the latest trends, technologies, regulations and standards to be able to provide valuable insights to their clients.

This article examines how MSPs are becoming more verticalized, what they have to consider when selecting a vertical and what steps they should take along the way to make their verticalization strategy a success.  

Technology verticalization

The pandemic lockdowns and the remote work revolution associated with them accelerated cloud adoption across almost all industries. The global cloud computing market size is forecast to grow from $445.3 billion in 2021 to $947.3 billion by 2026, at a compound annual growth rate of 16.3%.

As a result, the need for cloud and cybersecurity experts in particular has greatly increased. Therefore, MSPs need to specifically focus on developing their expertise in cloud computing and cybersecurity.

Increased domain expertise in cloud

By 2025, IT executives expect that 30% of business workloads will reside in the private cloud, with 28% forecast to be in the public cloud. However, the current lack of skilled IT workers is hindering the progress of cloud computing.   

Gartner, in its “2021-2023 Emerging Technology Roadmap” report, found that 64% of IT leaders feel talent availability is the largest challenge to deploying cloud-based technologies, compared with just 4% in 2020 and 14% in 2019.

Therefore, MSPs who invest in cloud certifications will position themselves for success. Forrester analysts say over 60% of B2B buyers gravitate toward providers that are knowledgeable and skilful enough to address their needs.

Increased domain expertise in cybersecurity

Cybersecurity was thrust into the spotlight over the past few years thanks to high-profile cyberattacks on MSPs and their customers, and it will continue to remain a priority.

A recent study has revealed that 92% of small and medium-sized businesses (SMBs) who are typical MSP customers would consider using or switching to a different service provider if they offered the “right” cybersecurity solutions. They are also ready to pay on average 34% more for that service provider.

Furthermore, due to the fact that SMBs, which are the target of almost half of all cyberattacks, have become increasingly dependent on managed services businesses, MSPs are now an attractive target for cybercriminals, too. That is why MSPs have to become experts in the cybersecurity space to better protect themselves and their clients.

With greater expertise in this area comes deeper knowledge of industry-specific regulations, compliance requirements, technology trends and tools that are purpose-built for that industry. This allows MSPs to provide more value, and customers today are more willing than ever to pay for it.

Industry verticalization

As industries become more niche and competitive, becoming verticalized around a specific industry will help MSPs rise to the top.

Extensive industry expertise enables them to identify their clients’ major pain points more accurately and develop holistic solutions tailored to their specific needs. It essentially helps managed services businesses speak the same industry language as their customers.

Experts argue that service providers who do not adopt an industry-driven approach may be ignoring a critical path to delivering sustainable value to their customers.

Georgia-based IT MSP Halski Systems, which was recently acquired by leading national MSP Logically, is a successful example of a service provider that has gained extensive expertise in healthcare—its largest vertical market.

Another example is Go Concepts Inc., an MSP based in Lebanon, Ohio. It had been a generalist since its founding in 1997 but realised later that it had considerable experience in working with local government agencies. In 2013, it started focusing on organisations and businesses serving people with disabilities and has emerged as the “clear leader” in IT solutions for the entire developmental disabilities organisation and business community throughout Ohio. 

How to select the best verticals   

In order to choose the best technology and industry verticals, MSPs have to take several factors and crucial steps into consideration.

They should establish which domains they have expertise in, analyse their current client base to see if a particular technology or industry domain is more prominent, consider the size of the market, determine if it is a viable one to gain traction in and what the opportunities for growth are.

MSPs would also benefit from building an ecosystem of tools, solutions, vendor partners and providers that can help address the specific needs of that vertical. This will enable them to provide a holistic solution for their customers—and in a speedier manner. Managed services businesses also need to verticalize all marketing and sales collateral to fit into the desired area. 

Most importantly, MSPs should be clear on where their passion lies because it is what keeps most of them going, especially when things get tough.

After deciding which vertical to focus on, managed services businesses are advised to train their staff and hire experts to increase domain expertise, cultivate relationships within that particular area to grow their customer base and develop vendor competencies to increase their expertise on technology solutions that solve problems for different tech and industry verticals.

The shift to verticalization in cloud

IT resellers and service providers have shifted from being renaissance men and women and are now obliged to serve as strategic partners with a specific focus or niche. This requires them to verticalize around a specific technology or industry and stop trying to become all things to all people and spreading themselves too thin.   

The main advantage of a vertical strategy is that the service provider becomes a very knowledgeable insider in a specific market. The deeper understanding drives both credibility and opportunity.

So MSPs who want to stay relevant and competitive are encouraged to become leading experts in specific industries or technologies and take the necessary steps to align their offerings as needed. 

Take your business further with CloudBlue PSA

Once you select and focus on your vertical, if you have not yet incorporated a professional services automation (PSA) solution into your managed services business, CloudBlue can help you modernise your business. 

Purpose-built for modern MSPs, our CloudBlue PSA solution streamlines business operations with intelligent automation, simplifies complex billing and financial processes, manages the sales cycle and integrates multiple purchasing sources. It provides full visibility of the entire business from quote to cash in a single-pane-of-glass view. CloudBlue PSA enables businesses to seamlessly transact with Ingram Micro and access 20+ additional integrations to increase efficiency by ensuring all tools are easily accessible in one place.

What’s more, CloudBlue PSA empowers MSPs to go global more easily by simplifying multi-country operations with built-in support for multiple languages, multi-currencies, date formats and decimals. The solution is also equipped with the ability to model VAT and sales tax systems.

CloudBlue PSA can help your managed services business operate more efficiently and increase your team’s productivity, while helping you monitor contract profitability and drive more revenue. For more information, contact us at PSA@CloudBlue.com.