Technology solutions provider Datto saw good news for managed service providers (MSPs) early this year. At the start of 2020, it surveyed more than 1,800 MSPs and found companies expected double digit growth on average over the next three years. Then the pandemic hit.

"The entire world changed. Everybody's vertical changed. It didn't matter what you were doing for a living," Rob Rae, senior vice president of business development at Datto, told CIO Dive.

Since then, most companies have tamped down their enthusiasm, according to results from a follow-up Datto survey sent in mid-March. It sets up a rocky 2020 and 2021 — and potentially more consolidation — ahead. 

"The report indicates that almost everybody dropped their forecasts. But it's still single digit growth nonetheless," he said.

What MSPs do

MSPs either take the place of or bolster a company's IT department by providing IT infrastructure and end-user systems, usually on a subscription model.

That's why this can be a time for MSPs to shine, Carolyn April, senior director of industry analysis at CompTIA, told CIO Dive. The sudden transition to work from home has forced many companies to realize they didn't have resources in-house to manage that transition, and MSPs got that call.  

"I don't want this COVID[-19] thing to be happening and I don't want people to be sick. However, the reality is that in some ways, it has been an opportunity for MSPs," she said. "This mass turn to remote work, which happened basically overnight for a lot of companies, has turned to the importance and the acumen that MSPs have about managing multiple modes and millions of people on a network."   

What happened during the pandemic

In the original survey results, MSPs expected 17% growth on average over the next three years. But in the follow-up report, nearly 40% of MSPs responded they expected to reduce their growth projection by between 10% and 20%.

In addition, 23% of MSPs expect to remain or plan to reduce their plan by less than 10%. 

That's not a surprise given economic uncertainty — and lingering questions about how long this will last. But some MSPs are racing forward: Datto found 11% of MSPs revised their forecasts upward, according to the March report. This growth is in MSPs that support remote work, remote education, medical and healthcare operations, and those that keep state and local governments operating, Rae said.

Moving ahead in 2021

COVID-19 has pushed ahead the transition to the cloud, especially in North America where that transition had been slow, said Rae. He expects that to continue.

"Cloud became significantly more important, and we'll see more growth towards that just because the need is a lot more prevalent," he said. "People aren't necessarily going to go backwards. We hit the gas pedal."

Now that everybody's settled in and working in the new reality, he also expects security will come back to the forefront and drive growth for the rest of the year. 

"Now [companies] are looking at it more from a cloud perspective where before everything was just getting security tightened up," he said. 

Larger and more progressive MSPs will most likely take advantage of this moment, said April. Those companies "will try to drum up more business or take business away from somebody else," she said, and will add emerging technologies like machine learning, artificial intelligence, virtual reality and IoT to their roster. 

The same thing happened during the Great Recession of 2008, she said. While many companies just tried to tread water and not go out of business, others doubled down on investment. When the recession ended, companies that doubled down had a competitive advantage. 

"Those trying to stay alive didn't do anything wrong, but if you are in a position where you can continue to think strategically and continue to think about emerging technology as opposed to just catering to your existing base, you will be on the right side of business when things get better," April said. "And it really depends on your starting point whether you can do that or not." 

What happens next depends on how the pandemic progresses, Brett Sparks, senior director analyst in sourcing, procurement and vendor management at Gartner, told CIO Dive.

While many countries have managed to get COVID-19 outbreaks under control, the U.S. is still fighting to do so. He expects the pandemic to accelerate consolidation in the industry. "Many MSPs have been struggling to find a foothold and haven't gotten there," he said. That means "2021 is going to be the year you either have to get there or you're going to end up getting out."