Kaseya’s Fred Voccola Answers 10 Questions About MSPs In 2020

“Just because we’re ahead doesn’t mean we’re sitting on our butts. We need to continue to innovate. Innovate doesn’t mean ‘Just build cool products.’ Innovate means make Kaseya easier to do business with. Make Kaseya more financially appealing for our customers. Asking ourselves, ‘What can Kaseya do to make sure a Kaseya MSP is growing faster than the market?” Kaseya CEO Fred Voccola says.

“We are so damn lucky to be sitting in this industry”

Kaseya CEO Fred Voccola expects 2020 to be an explosive year for MSP revenue growth, with small-to-medium size end-customers now embarking on the same digital transformations that has driven a huge technology spend in the enterprise space over the previous decade.

“We are so damn lucky to be sitting in this industry at this time. Show me an industry that is growing at 20 to 30 percent a year that is as large as ours? This is happening globally,” Voccola told CRN. “We see it in Europe. We see it in Asia. We’re starting to see it in Latin America. Small businesses are making up a larger and larger percentage of GDP. What allows them to compete is technology. They don’t have enough size to have an internal IT department. They use an MSP. Technology needs are getting more and more sophisticated. The MSPs have to answer that in order to compete.”

Voccola shared his 2020 vision with CRN recently, outlining how and where his company plans to grow this year, and what the market looks like for the MSPs who use his products. With both RMM tools and their MSP users under constant attack by cyber criminals, the area that is gaining the most ground at Kaseya is security and compliance, Voccola said.

“Overall, IT spend is shooting up big time among the customers of our partners. The area we see the most growth are security and compliance,” he said. “The MSPs are doing a really good job of telling their customers, ‘It’s not a matter of if. It is a matter of when you will get hit by ransomware.’ That’s what we’re seeing and I think it’s going to continue.”

While security is always top of mind, he said, partner education, better partner communication, and making Kaseya easier to do business with are his goals for the rest of the year.

“I think we’re four years ahead (of the competition),” he said. “I think the math proves it. Just because we’re ahead doesn’t mean we’re sitting on our butts. We need to continue to innovate. Innovate doesn’t mean ‘Just build cool products.’ Innovate means make Kaseya easier to do business with. Make Kaseya more financially appealing for our customers. Asking ourselves, ‘What can Kaseya do to make sure a Kaseya MSP is growing faster than the market? Has better profit or EBIDTA margins than the market? That is what our goal is.”

What are you seeing in the market right now in early 2020?

We are like right smack dab in the middle of experiencing a massive business transformation. And that is small to mid-size businesses, companies of 1 to 1,000 employees are adopting technology at a rate that's never been seen before. It's very similar to what enterprise companies did from like 1990 to like 2010. They’re investment in IT and technology grew at about four to five times the rate of GDP growth in that time frame. That’s insane. We're seeing the same thing happening in the SMB space.

And the reason for it is because small companies -- a dental practice or an architecture firm -- they get so much value out of their technology investments, because technology can now be consumed by them. Whether it's by the MSP that’s delivering them their technology, or whether it's like the small little IT shop, with two three, four, five IT guys.

I think that trend is massively accelerating.

What does this trend look like to an MSP? How is this helping their growth?

The overall software investment that's been made over the last 20 years -- how much money has gone into software companies, how much money has been retained in earnings from like the Microsoft's and the EMC's -- the numbers are upwards of in the in the high hundreds of billions, if not trillions, most of that has gone to companies and for technologies that are enterprise facing.

Eight years ago, if you were going to invest a billion dollars, you’d invest in companies that are selling to Fidelity, not to companies that are selling to the five hundred tiny little banks.

Well, now the tiny little banks, or the MSPs that serve them, or the channel that supports them, whatever phrase you want to use, they're making up a larger growth in spending than the enterprises. So now the investment community -- not just venture and private equity guys -- but you know retained earnings of Cisco and people like that, they're saying, you know ‘We got to build products for that market.’

Well that market -- the market for SMBs, and the MSPs that serve them and the channel that serves them, those local partners that are delivering the technology for these small companies -- the biggest problem they face is that they have technology people like their service delivery folks, people that are delivering the tech to the to the small hospital or into the doctor's office, they're multifunctional. They're generalists. They do everything; answer the answer the calls from the customer, they'll do their backups, they'll do security. The products that have been built and invested in for 18 years are not purpose built for those guys. They’re purpose built for Fidelity. Where at Fidelity, the IT people do one thing each. If you do back up at Fidelity, that’s all you do.

If you are an MSP serving 50 small banks you’re doing backup, answering the phone, and helpdesk and security.

These small companies are investing more and more of their revenue into technology. So, first and foremost we’re going to see the partner community: resellers, VARs, MSPs, … in aggregate they’re growing at 17 percent a year. It’s really good. We’re going to see that trend continuing. Surveys that we do with MSPs within the customer community, we expect that number to approach 20 percent in small to midsize business spending on technology year over year. That’s massive.

You see a big opportunity in the mid-size space for MSPs?

The nice part about it is, the big guys like Tata, IBM, Deloitte, they just can’t come downstream to a 1,000 a month customer or a 20,000 a month customer. But the MSPs are going to be continuing to explode. Where we’re going to start to see changing in 2020 is mid-sized businesses. I don’t mean Fortune 500. I mean companies that have between one thousand and five thousands employees, we’re going to see an acceleration of them engaging with MSPs to start taking on security, compliance, backup, network management, because it’s just too much for a small internal IT department. This will start to accelerate the outsourcing of mid-sized business IT to the MSP channel, and that is going to completely transform the MSP channel over the next several years.

Small to midsized businesses … can’t continue to hire internal IT people, because the IT needs are becoming more and more specialized. They need to outsource those to the MSPs. We see it all the time because we sell software to people who do that. We see it all the time. We have the data. It’s a huge trend. Those projects are great for an MSP because the customer is in IT. It’s not a business owner. You are dealing with a tech knowledgeable customer. Secondly the contracts are longer term and they’re larger. Average contracts there are $10, $15, $20,000 a month. That’s a great contract for an MSP.

What would you like to see out of your MSP partners in 2020? What are ways they can improve their business to meet these opportunities that you have talked about?

Some MSPs are looking to grow, and some MSPs are looking to continue in their current state. It’s a lifestyle business. They’re more interested in their lifestyle than making the extra million dollars. In both cases, it would be helpful for them, if they take the time to understand what the changing security and regulatory compliance landscape is going to affect their customers.

If they don’t understand that, they will lose their customers. That’s that. It’s really hard to acquire a new customer as an MSP. It’s easier to grow a current customer than acqwuire a new one. Everyone in the world, including my mother, is aware that IT security and to a lesser extent compliance, they’re all synonyms.

Where are you seeing the spend?

Security is a big area. The other part is compliance. Security and compliance you can make and argument that they’re close cousins. Most compliance regulations have a lot to do with security and proving that you're taking the steps to be secure and securing data, but small businesses now have to adhere to a lot of laws. The states of New York, of Californi, GDPR in Europe, HIPPA in our country, they're now no longer only enforced at the large company level, they are enforced at the small business level. Small businesses have to take on the burden of proving that they're compliant to the various regulations that they must comply with. Who are they turning to, to do that for them? Their partners. The MSPs, the VARs, the resellers, That’s a huge market. Huge.

How does Kaseya fit into that?
We have a big compliance business. We have a product called Kaseya Compliance Manager. What we do for the MSP, is the technology allows the MSP to monitor the compliance of their customer, produces a report saying, ‘Are you in compliance or are you out? And, if you're out of compliance, where and what needs to be done to address it?’ So the MSP now charges their doctor's office, $500 a month, $1,000 a month to manage their HIPPA compliance. Or a restaurant charges them $200 a month to manage their PCI (Payment Card Industry Data Security Standard) compliance.
Our product automates that process for the MSP. It let's them build a compliance business around, you know around the regulations that are there. That's the fastest growing business at Kaseya. We added about 1,000 MSPs into our compliance business in 2019. In terms of the revenue number. Revenue grew at 800 percent. Now, when we see that kind of growth, what that tells us is that as good as our products, our sales team, our marketing team, may be, the market is pulling it. They’re finding us. They’re demanding it.

When you talk about the digital transformation that is happening among SMBs, is Kaseya well positioned to capture a portion of that?

Do I think we’re well positioned? Well, we’re growing faster than all of our competitors. That being said, there’s a million things we need to do better. If you look at what ConnectWise has done, if you look at what Datto has done, or Thoma Bravo and Vista respectively, they’ve kind of mimicked what Kaseya’s strategy has been for the last four years. That has been to try to put together a comprehensive platform that is workflow integrated, with big security assets, big compliance assets, big back up assets, all of these things under a single pane of glass so the MSP, the technicians of an MSP don’t have to deal with 500 different things from 500 different people. I think we’re four years ahead. I think the math proves it. Just because we’re ahead doesn’t mean we’re sitting on our butts. We need to continue to innovate. Innovate doesn’t mean just build cool products. Innovate means make Kaseya easier to do business with. Make Kaseya more financially appealing for our customers. Asking ourselves, ‘What can Kaseya do to make sure a Kaseya MSP is growing faster than the market. Has better profit or EBIDTA margins than the market. That is what our goal is.

We believe MSPs powered by IT Complete (Kaseya’s suite of MSP products) do better. We have data that says they do, but that is our objective. I think we’re doing well.

Could we do better? Hell yeah. We could do a lot better. We need to be much better at communicating with our customers. We don’t do it perfectly. We have to be better at proactively understanding when a customer needs help. That’s a big thing.

He or she doesn’t necessarily know what they don’t know, or they don’t know when to ask for help, or what help is available. We need to be better at proactively recognizing that. That comes from better telemetry in the product. Seeing how people are using our technology. Seeing if they’re using it in an optimal way. Understanding what things we can proactively assert to them to help them do their jobs better,. That’s a big initiative. It’s not easy, but it’s important.

So understanding what our customers need. That’s a big focal point. We have to get better at that. I think the whole industry does, but we’re no exception.

Security has been a huge market, where are you seeing the spend there?

It’s a great time to be an MSP right now. All of these real-life incidents (around cybercrime) are happening to the local dentist’s office. One of the biggest drivers around backup growth is security. Because having a backup solution is your only hope if you get ransomed. If ransomware hits, you can either pay the ransom or you can say to the people who ransomed you, “Go to hell,” and hit ‘back up’ right away. Our back up business is growing hand over fist. It’s not just the continuity, it’s the back-up piece that’s doing it. The MSPs are doing a really good job of telling their customers, ‘It’s not a matter of if. It is a matter of when you will get hit by ransomware.’ That’s what we’re seeing and I think it’s going to continue.

What has changed for Kaseya in terms of how you approach security in 2020?

With regards to ransomware, I would say the concept of that hasn’t changed. There’s going be 100 fold more attempts at it. There are software platforms out there where any tom, dick, or harry can go, feed a bunch of emails into it, and start collecting ransoms.

Our security business was around $60 million in recurring revenue in 2019. We do a fair amount of business in security. I think you’ll see us making acquisitions in the space. No huge companies. There’s a lot of specific areas in security that we believe our MSPs want to leverage and that their customers want. So you’ll see us making a couple of acquisitions there.

But we’re focusing a lot on education. Educating our MSPs, not only on what these security threats are, but more importantly, how they can educate their customers. So , if you’re an

MSP, and you have a basic offering and an offering with advanced security. The customer decides to go with the basic offering and they get breached somehow, they’re going to yell at the MSP and fire the MSP maybe. The MSP is going to say “I told you to buy the advanced security stuff, but you didn’t do it!’

It’s important to us that our MSPs are good at delivering the message to their customers about why they need advanced security. We teach them how to do it, because it preserves the ability for that MSP to deliver services to that customer for years. This is the feedback we’ve gotten from our customers.

Can you talk about Powered Services at Kaseya?

What powered services is, is a group of about two dozen ex-MSP professionals. That group, in a non-arrogant way, we teach MSPs how to position, price, package, sell and deliver client’s security and back up to their customers. It’s a big investment. We have 20 or so people, and these people aren’t cheap. These are people who held senior positions at MSPs. It’s been incredibly helpful. It’s a big, big focus of our security efforts.

As far as MSPs, this business is how they pay for their kids college. So if we can help them make an extra $5,000 or save an extra $5,000, that’s real. If you help Citibank save $5,000 they won’t care. If the MSP does $400,000 in revenue and $100,000 in profit, and you save them $7,000 that’s real.