Rivals Reflect On The ConnectWise-Continuum Merger: ‘They Have A Lot Of Good Pieces’

SolarWinds MSP, Kaseya, and Barracuda weigh in on what last week's major acquisition means for the industry, the influence of private equity, and ConnectWise’s new documentation tool.

The New Deal

Competition in the MSP platform space narrowed last week with ConnectWise’s acquisition of rival Continuum.

While the companies had the same private equity owner for nearly a year, the two operated independently, competing for the hearts and minds of customers to win share in the MSP platform space.

Weighing in on the new shape of the market, both SolarWinds MSP executive vice president and general manager John Pagliuca, and Kaseya CEO Fred Voccola echoed the sentiment that there are sure to be speed bumps ahead as ConnectWise and Continuum attempt to merge their two philosophies.

“I think the interesting thing there is you have two companies that have traditionally gone at servicing the market in different ways, so for me as a spectator it’s going to be interesting to see how they harmonize those two different approaches,” Pagliuca said. “The way they harmonize the management teams the different business models. I think they have a lot of good pieces there, as a spectator to see how they hand in glove these two approaches to the market.”

Meanwhile Brian Babineau, senior vice president and general manager, Managed Service Providers, Barracuda, addressed the difficulties in buy versus build when it comes to crafting solutions. The leaders also addressed differentiation in the market place, as well as the rise of documentation solutions as table stakes for anyone hoping to compete for MSP’s business.

Private Concerns About Private Equity

Many MSPs at IT Nation expressed reservations about the control private equity now wields over the competing platform products that are essential to their business. While not willing to publicly lob grievances at the owners of these tools, the theme was simple: the best decisions for customers don’t always provide an immediate return on investment.

Pagliuca said, while he understands where they are coming from, there are several kinds of private equity owners and Thoma Bravo, who owns the new combined ConnectWise and Continuum as well as a share of SolarWinds, is a patient one.

“This dark cloud that hangs over the term private equity is a little overblown and is rooted in a little bit of ignorance,” he said. “There are some private equity shops that are there to extract value by reducing cost, and headcount, and synergies, and squeeze the juice out of the fruit. But there are other private equity folks – and I think Silver Lake and Thoma Bravo are examples of this – who believe in growth and believe they will get the return by infusing growth. If that wasn’t the case, then I wouldn’t still be at SolarWinds, because they believe in the MSP market. They believe in the growth of the MSP market and the only way to do that is to invest in the people and invest in the partners and invest in the technologies.”

Voccola said all company owners are there to extract value from the business. He said the advantage of private equity is that it also provides the capital to give MSPs the tools and scale they need to run and grow their business. He added that those benefits can take time to materialize.

“Private equity firms optimize for profit, no more than if you and I started a company … When a private equity firm owns you, once it get stabilized, there’s money for R&D. The organization becomes professionally run, so you don’t miss product delivery dates, all those things that independent small companies suffer from … Here’s what happens very often in the first year or two private equity buys. They cut R&D, they cut costs, and the jack prices. That is very true. That happens for a period of about two years. Kaseya did that seven years ago. They have to fund the deal. So you’ll see that in the first couple years.”

Barracuda’s Babineau said the winner with private equity ownership is the MSP who will have better products with which to compete.

“Many will say how consolidation is great because it provides the proverbial one throat to choke; I see it differently in that it will drive competitive R&D which ultimately leads to better products,” he said in a statement.

Private Equity Today Means Venture Capital Tomorrow

Pagliuca said with private equity cash now in play, venture capital will begin targeting smaller technology startups, in the hopes of investing early and getting acquired by the owners of the major platforms.

“There should be an influx of venture capital money as a secondary impact of private equity. Now a venture capital company says ‘Hey, if I invest in an opportunity and a great entrepreneur who can then turn a product into something, I know there’s a buyer, an educated buyer who is backed by private equity, who can acquire them,’” he said. “I believe there will be more innovation, and more investment and more focus in the MSP space because venture capitalist are aware that there’s an educated buyer that can see their investments, and get a return on their investment.”

Differentiation Among Rivals

On stage, ConnectWise CEO Jason Magee said prior to acquiring Continuum, it could be hard for MSPs to understand the differences between his company and the competition. To some extent, Pagliuca agreed.

“The nouns and the adjectives look very similar from shop to shop. So we talk about RMM. We talk about backup. We talk about PSA. We talk about growing our MSPs,” he said. “At the surface, I think there’s a lot of similarities. We believe we differentiate ourselves in a couple different ways. One on the monitoring front. From a monitoring point of view we believe we’ll be able to go deeper and wider. So I have a push in 2020, really on monitoring everything. That’s stuff in the network, stuff in the cloud, whether it’s in Azure or AWS or whatever. We think we have an advantage there to leverage our big brother, so to speak in SolarWinds.”

Voccola said Kaseya has been a one-stop-shop for MSP platform tools for a while and told CRN the competition is only now “catching up.”

“I’m glad to see the other companies following Kaseya’s path. We’ve been putting together an integrated platform with all the different functionality that an MSP needs. We’ve been doing it for four years. We have the largest security practice in the MSP space. We bought ID Agent. We have a very, very successful intrusion detection. We have external and internal threat detection from RapidFire Tools. Our security business is about five times as big as the security business at Continuum. It’s good to see that ConnectWise is trying to get that. We have a compliance business that’s over $25 million a year. I’m glad to see our competitors are finally starting to catch up. But I’m jazzed. It’s cool to be in this space. I’m super jazzed.”

Babineau said Barracuda has taken a bit of a different approach by applying “battled-tested” security offerings to critical MSP operational tools.

“Having a heritage in security matters a whole lot to MSPs who are just getting into it,” he said. “Both ConnectWise and Continuum are just getting started in security. This combination gives them an opportunity to scale their overall business. Scaling a security-centric portfolio on the other hand is a different beast.”

Competitors Take Note Of ‘Documentation’

After last week, the three major MSP platform providers now all offer MSPs a documentation tool to keep their customers most important records consistent and up to date. Kaseya announced that it purchased IT Glue in December 2018. SolarWinds MSP bought PassPortal in April, and last week Magee announced that documentation tool maker ITBoost was purchased by ConnectWise.

Voccola was pointed in his criticism of ITBoost.

“ITBoost is an immature product with limited features and capabilities and only a handful of customers,” he said in a statement. “Partners should be concerned about putting critical data and passwords into a product with no security certifications, no encryption controls for admins and one that is built offshore in Pakistan.”

Meanwhile, at SolarWinds MSP, Passportal creator Colin Knox was diplomatic about ITBoost, and expressed none of Voccola’s reservations.

“I think they’ve taken a creative approach to the market. They have been working on it for sometime now. They’ve spent a fair amount of time in a public alpha program, into beta, program and eventually launching a full release,” he said. “I think like any start up in the technology space, they’ve battled with an ability to focus on what it is that they really want to take to market. It was a bit of a combined solution, with not just documentation, but a few other components, which some of the market jumped on and saw a good opportunity with, and others were maybe confused. I think it will be interesting to see which direction it goes under the guidance of ConnectWise. I think it’s a product that has some potential.”

SolarWinds And Kaseya Agree, That For MSPs, The Future Is Bright

Voccola said the digital transformations that happened in the enterprise are now happening in the mid-sized and SMB space. He said these journeys will continue to fuel growth for MSP practices of all sizes for years to come.

“There has never been a better time to be an MSP than right now,” he said. “If you’re an MSP, business is hard, because business is always hard. What we are seeing is small to mid-size businesses, their adoption of technology mirrors what was happening in the enterprise space, 15 to 20 years ago. If you look at a dentist’s office. A dentist office today is now 100-percent reliant on technology. That wave of small to mid-sized businesses spending a larger portion of their revenue on technology, we’re in the middle of that. They have to in order to be competitive.”

Pagliuca said the money that is pouring into the MSP space from private equity will only grow and lead to a stronger market for all providers.

“We’re unleashing the power of this market right now. The private equity guys were one of the linch pins to unlock that. We’ll see more visionaries getting involved in that space as a result of that. That’s the real unleashing of the market,” he said. “I think we’ll see more venture capital paying attention to our space and understanding of the huge opportunity that’s in the MSP space as these MSPs provide managed services and security offerings to the SMB.”