AWS' Next-Gen MSP Partners: Traditional MSPs May Go The Way Of Blockbuster Video If They Don't Shift Gears Now

A new breed of managed service provider is redefining exactly what it means to be an MSP today. These next-generation companies include the cloud, Software-as-a-Service and DevOps as key components of their managed service business models and go-to-market strategies.

The new MSP model was brought to the forefront last month as Amazon Web Services named six flagship partners to its new cloud partner program for MSPs: 2nd Watch, Cascadeo, Datapipe, Day1 Solutions, RightBrain Networks and Smartronix.

"I'm trying to completely redefine what it means to be an MSP. It's undeniable that the industry is moving to the cloud and MSPs have to adapt," said Jamie Begin, founder and CEO of Ann Arbor, Mich.-based RightBrain Networks. "I consider ourselves a few steps ahead of that. ... The industry as a whole hasn't caught on yet."

[Related: Meet The New MSPs: 6 AWS Partners Changing The Game]

Jeff Aden, founder and executive vice president of Seattle-based 2nd Watch, calls the model "software-powered managed services," where instead of using traditional tools and processes, the company develops its own software, automation and management tools for higher-performance computing as a managed service offering. Those capabilities allow the companies to provide full support up and down the stack, all the way to the application level, instead of ending support at the server or OS.

The new model is the difference between "managed services" and "managed servers," Begin said. Even the pricing model is different, he said, as MSPs have to change from pricing per server or per end user to cloud consumption. The end result is a hybrid model that combines the best pieces of an MSP, systems integrator and VAR business model, said Day1 Solutions founder and CEO Luis Benavides.

"The customer is looking for more than just an MSP. They're looking for more than just an integrator. They're looking for more than just a reseller. Where the hockey puck is going is they're looking for all of that in one house. ... That's far more capabilities than usually any one company has alone, especially when you look at traditional MSP models," Benavides said. "The model is far-higher-engaged with the client. ... I don't need to wait several months, as architectures and systems change. The traditional MSP model struggles to keep up with it. Next-generation models like ours are very agile, just like the customer is looking for."

Terry Wise, vice president of Worldwide Partner Ecosystem at Amazon Web Services, said in an email to CRN, "Our AWS Managed Service Partner Program, which includes a rigorous third-party validation audit, is designed to equip the next-generation of cloud service providers with the tools they need to deliver continuous innovation to customers around DevOps, proactive monitoring, security, and management of their customers’ environment. The new approach builds on the expertise MSPs have developed over the past decades, and helps them evolve and innovate by using AWS as their cloud provider."

In interviews with CRN, executives from each of the six MSPs said the news of their inclusion in the new AWS partner program, in addition to strong growth numbers, proves their business model works and gives them an edge as they go to market.

"We see it as a validation of our model," said Mike Bradicich, vice president of cloud managed services at McLean, Va.-based Day1 Solutions. "We've been building infrastructure along these lines for years. To now have that validated by AWS really indicated that we've been going in the right direction all these years."

"It's a great stamp of approval," Benavides added.

Even without the AWS validation, the new model is paying off big time for the six MSPs. 2nd Watch's most recent earnings report revealed growth of 300 percent in quarter-over-quarter bookings. Smartronix saw its cloud business double in 2013; in 2014 and CFO and EVP of Emerging Programs Joseph Gerczak said he expects it to double again this year. The rest of business is "healthy," he said, with single-digit growth. RightBrain Networks said the company is in "growth mode" and has been actively hiring new employees.

The companies don't expect that growth to slow any time soon, even as more competitors jump on the cloud opportunity.

"I think everybody and their brother will jump into the market," Gerczak said. "As other cloud providers come in, definitely the market will change a little. It's still early, but over time as the growth slows down, which won't be for the foreseeable future, it's just going to be growth. It's going to continue to be more competitive as people jump onto the cloud bandwagon."

That growth is driven in large part, the six MSPs said, by demands from the customers themselves. End users have grown accustomed to updating apps on their phones, 2nd Watch's Aden said, and are starting to demand that same immediacy in the workplace. As a result, businesses have to move more aggressively toward digital, and they need a new breed of MSP to help them, Day1 Solutions' Benavides said.

For those who aren't quite ready to buy in, RightBrain Networks' Begin said he gets really excited about teaching them the possibilities and "cool new things you can do." That's an excitement that stretches "from the technical guys pulling cables ... all the way up to the CFO." However, there will always be customers who aren't ready, Begin said.

"I don't sell to people who don't want to buy. I'm here to show people who get it and are the people I want to help. Like any new technology, there are going to be detractors and they're going to have to adapt or go away," Begin said. Though, he added, "There's more and more smart ones every day."

However, just because demand is starting to accelerate doesn't mean the transition will be any easier for traditional MSPs looking to adapt, Day1 Solutions' Bradicich said.

"We do see MSPs, a lot of traditional MSP organizations, are having a hard time making the switch to the cloud," Bradicich said. "The business is boots on the ground, folks out to the customer site to manage on-premise environments. It's a completely different model. A lot of changes in how you're managing staff, how you're managing incidents and how you're responding. ... It's all completely different."

While traditional MSPs have started to get their toes wet by embracing some cloud technologies in their offerings, the AWS MSPs all agreed that it won't be enough in the long run.

"Companies will either adjust, or they will be the Blockbusters of the MSP world," 2nd Watch's Aden said. "Some will build, others will innovate and start their own and that's where we see our tools can be leveraged down the road from other managed services."

The first hurdle for many MSPs, RightBrain Networks' Begin said, is that the cloud can still be very unfamiliar territory. But, beyond that, the bigger challenges becomes that applications will have to be rebuilt to be effective. Cascadeo CEO Michael Norring agreed, saying that the "rules change" when dealing with cloud-based environments, such as AWS. Instead of managing hardware and networks, companies such as Cascadeo are dealing with dynamic cloud environments, with short-lived applications, auto-scaling and fast-changing server requirements.

"The rules are changing and I think that's a big part of the driver when we talk about the next generation of managed service provider. You're not managing a fixed set of assets, you're managing automation and a fleet of components that works together and you have to continue to manage it," Norring said.

The good news for these six MSPs is that, if this is the next generation of managed services, they have first mover's advantage, Datapipe CMO Craig Sowell said.

"I think we're in the midst of that. I think we're seeing a pretty significant transformation happening and it's accelerating pretty aggressively," Sowell said. "They will [follow our model.] They have to. If they don't, they won't have much of a future as a managed service provider. The benefit for us -- this takes time," he continued.

For everyone else, Norring said there ultimately is "room for everyone" in the market, including both traditional MSPs and the next-generation AWS MSPs. The difference, he said, will be the rate of growth those two groups will see.

"I think everyone has unique needs," Norring said. "However, if you want to put products and services in the cloud and take advantage of the scalability in the cloud, then you will have to change your rules as a managed service provider. I don't think they're in trouble, I think there's another iteration of the market."

This article originally appeared as an exclusive on the CRN Tech News App for iOS and Windows 8.