Hyperscalers Continue to Consolidate: What MSPs Must Know

Rahul Bhavsar

The big three hyperscalers today, Amazon AWS, Google GCP and Microsoft Azure, loom large over the cloud market. Already with a combined market share of 64%, they collectively continue to expand their presence by about one percentage point per quarter.

The trend has become clear: these public cloud providers continue to pursue a consolidation strategy, seeking to acquire smaller cloud providers and independent software vendors (ISVs) to expand their platforms. In doing so, they will further increase their revenue share in the $89 billion cloud infrastructure industry, a market expected to double in the next three years.

As hyperscalers continue to expand their market influence and sell their services directly to customers, it’s fair to consider whether their growth could take business away from MSPs. Recognizing this possibility, it’s worth asking how MSPs can best adapt to these market shifts?

Expanding Cloud Market Challenges

Let’s look at the three biggest challenges and opportunities the expanding cloud market holds for MSPs.

Finding the next niche: There’s increasing competition among the three large hyperscalers over control of the retail market. As each attempted to expand their market gain through single-cloud retail collaborations with Walmart, retailer ASOS and PayPal, these tensions also indicated a change in their consolidation strategy. The big three will now target entirely new industries. They will also increasingly focus on improving their direct-to-consumer (D2C) marketplaces to make their services more attractive for the big brands they want on board.

To stay competitive in this new environment, MSPs will need to figure out how to leverage industry-specific knowledge. Savvy MSPs must remember that hyperscalers are excellent infrastructure providers capable of landing retail giants like Walmart and Walgreens. At the same time, however, they’re too big to waste their time looking for small and medium-sized businesses (SMBs) in the $50 million range. As most MSPs can serve companies of this size comfortably, they should find ways to deepen their expertise and carve out deeper niches.

For instance, an insurance provider in the health care market will initially be interested in connecting with specific MSPs that serve that health care segment. These providers know how insurance companies operate, are familiar with common applications and regularly work with connectivity providers that serve this market segment. This synergy between niche industries and MSPs is a unique competitive advantage they have over hyperscalers. The ability to deploy, integrate and educate the end customer on infrastructure-as-a-service (IaaS) offerings that fit their industry must become part of the new value proposition of MSPs.

MSPs must switch their revenue mindset: Today’s MSPs evolved out of value-added resellers (VARs), who made their profits from reselling technology products. However, the days of wholesaling computer monitors and LAN networks are long gone. Over the past decade, VARs have evolved into managed service providers (MSPs) by offering IT services, including the integration, management and support for IT products. This has allowed them to generate recurring revenue beyond the margins from reselling hardware or technology alone. But with the ongoing market shifts, it’s time for the next stage of MSP development.

Cloud infrastructure marketplaces have emerged, and the big three also invest in a direct-to-consumer sales strategy. As a result, MSPs need to change their mindset from focusing on reseller margins to …