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3 min read

MSP Commodity Trap

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Not surprisingly both industry leading researchers - Kaseya’s 2021 MSP Benchmark Survey Report: MSP Industry Trends and Datto’s Global State of the MSP Report 2021 - listed ‘Acquiring customers’, ‘Competition’ and ‘Profitability’ as the most pressing challenges for MSPs around the world. These are the main symptoms of a market being commoditized, meaning the provider’s service loses its uniqueness in the market; when a service is widely available and interchangeable with those provided by other companies.

Let’s see why typical MSP services are becoming a commodity in client’s eyes and what to do about it.

 

Schedule a Future-Proof MSP Strategy Call

 

Are you in a commodity trap?

Commoditization is a very slow process that takes years to unfold, so we need to determine whether a trend is real and see when the trend reaches a threshold that hurts the business.

You can read industry research but the question in real time is whether you see the symptoms growing in your local market or if they’re affecting your business. If you answer yes to one or more of the questions below that means your business is getting more challenging to operate and grow:

  • I am one of the multiple service providers during the sales process
  • I feel more price pressure when negotiating with new prospects than before
  • There are multiple low-price new players popping up in my market
  • I find it increasingly difficult to demonstrate my unique value proposition to prospects
  • New prospects are getting to the price conversation quicker and compare prices readily
  • I see more threat of losing a client against a potential low-priced service provider
  • More clients are trying to negotiate existing agreements to get lower prices

 

Three Common Strategies to beat the commodity trap

There are three common strategies to apply when commoditization happens.

  • Go low - Use the commoditization as an advantage and capture the market with low-priced services. When clients are looking at prices you can generate super-standard services, with lower touchpoints and very well-standardized operation. That means you can lower your prices below your competition. The drawback is that for most forward-thinking MSPs this strategy means lowering the perceived value of the services and attracting less than ideal customers.
  • Go premium - The second strategy is to offer premium services. Add more high-end services such as vCIO, Account Management, Cybersecurity, Cloud or Policy and Compliance and bundle those into high-priced services offerings the competition cannot offer. The challenge is that even some higher maturity clients don't value those services, so the price premium is too high to maintain a profitable margin on those services.
  • Redefine the market - Stop being disrupted and be a disruptor, redefining the market and how clients purchase services. The service provider can redefine the value from solving technical challenges (deploy MS Teams) to solving a business problem (better collaboration). That elevates their status from a technology provider (commodity) to a business partner (unique value) where more margins can be added to the technology projects and additional revenue can be captured with professional services. The challenge is that it requires a very comprehensive messaging, product definition, and standardization to be able to deliver to that promise in a scalable and profitable way.

 

How to redefine a market and achieve a local monopoly

The commoditization is not happening because the clients have less technical challenges and they are abandoning technologies. The exact opposite is true. They have growing business challenges with technologies and they adopt more and more applications and systems every day. They all go through a slow Digital Evolution (De) or a rapid Digital Transformation (Dx) with all the challenges.

Let’s see an example how an MSP can make this happen.

  • Digital Transformation Products - Developing standard services for planning strategies, managing projects and offering constant management services are vital to productize these activities. There are ways to deliver professional services around technology projects and services in a sustainable and standard way. Most of the SMB client’s digital transformation are generally around cloud migration, cybersecurity, application implementations or information. That means standardized programs can be developed to deliver the services with affordable resources.
  • Add Value to Existing Services - Making the transition is easy if these services can be added to existing services. For example, if the client needs a new accounting system, a complex modernization or a team collaboration solution these services can be added “separately” to the technology projects. This way the client makes a decision to have “only the technology piece” or the “complete solution” from you. That helps to monetize on the professional services AND prevent overserving (losing margin) from small, less mature clients.
  • Demonstrate the difference - Making the professional services easy to purchase, getting in front of new prospects and being distinct are all key. That is why a “certification” of professionals, “certification” as a solution provider and a support of a “brand” is important. The certifications play a key role in demonstrating the differentiation.

 

On a bumper sticker

If an MSP can become certified for digital transformation services, and communicate the value with branded materials, add these additional services to high stakes technology projects, be in front of new prospects with centralized lead generation, be part of a forward-thinking community, share expertise and resources among non-competing members, that MSP beats the commodity trap and creates differentiation for years to come.

 

Schedule a Future-Proof MSP Strategy Call

 

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