The New MSP 501 2020 Methodology Explained

By | Managed Services News

Jan 28

The managed services market looks far different than when the MSP 501 debuted. Now, the methodology does, too.

Since the inception of the MSP 501 14 years ago, winners have been ranked on the previous year’s annual revenue. About five years ago, in light of changes in the market driven by cloud and SaaS applications, we revised the methodology to weight different revenue streams differently depending on their long-term strategic health.

But some interesting things happened with the 501 in 2019 as a result of new market forces driving the managed services industry. We had a 35% year-over-year increase in applications between 2018 and 2019 that reflected a new maturity in the MSP market and an explosion of enthusiasm and support from vendor communities.

The nature of the list itself also changed. Two in five companies on the 2019 list weren’t on the 2018 list, which was a surprising and very notable evolution. We had so many entries from nontraditional channels or new MSP applicants that the list looked far different than in previous years.

Many of our 2019 501ers are in the beginning of a strong pivot toward managed services, but one wouldn’t necessarily categorize them as a true MSP. Of the top 10 MSP 501 winners in 2018, seven identified as MSPs, two as VARs and one dubbed itself an IT service provider. Compare this to last year: Four are VARs, only three are pure-play MSPs, one is a telco service provider, one is an IT business consultant — and that same IT service provider.

This diversity of partner types isn’t a fluke. Many of these nontraditional MSPs are sophisticated, large businesses in their own “home” markets that are making a concerted and strategic effort to build out their managed service practices, form relationships in this space, and promote their solutions.

Since these businesses already have a great deal of maturity under their belts, their annual revenue is substantially higher than our average 501er of the past, which also greatly altered the list. Between 2018 and 2019, the average annual revenue for a 501er grew by about one-third, from $28.8 million to $42.3 million. Since the 501 rankings were still solely based on annual revenue, albeit with the weighted methodology, that meant these new, bigger companies pushed a lot of our longtime 501ers off the list.

We knew it was time to re-evaluate our methodology and align it with market trends. In order to do that, we had to answer two questions, and they just happen to be questions investors today are examining to determine if an MSP is a healthy long-term investment.

1. What Defines a Managed Service Provider?

Many of the companies on the 2019 MSP 501 list have robust, growing MSP practices within their businesses that will only get larger as time goes by. But it isn’t enough, just as a hypothetical example, for a VAR that makes 90% of its revenue from resale or project work to say it manages hardware warranties on an ongoing basis and is therefore a true MSP.

To keep the 501 a safe space for traditional MSPs to play, we’ve created a separate list under the MSP 501 umbrella for those companies, both large and small, with new, growing managed services practices seated within a non-MSP tech company like a telco provider, digital agency or VAR.

The NextGen 101 will recognize outstanding partners with recurring revenues that are less than 20% of their total annual revenue. No matter how big or small, we feel a special …

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