The podcast is hosted by Dave Sobel The business of technology and co-host of the podcast kill it. Also, he wrote Virtualization: Defined. Sobel is recognized as a leading expert in the delivery of technology services with extensive experience in technology and business.
In this video, Sobel revisits a prediction he made in 2020 that Datto would claim the MSP stock ticker after the company filed its initial public offering (IPO). However, more than a year since this filing, Kaseya acquired Datto and will take the company private. The Datto acquisition showed that MSPs cannot rely solely on the value of managed services to drive their growth. MSPs need to invest in other technology areas – such as Robotic process automation (RPA) and hyperscalers – to achieve explosive growth beyond 11%.
Transcript follows below. Minor changes have been made for brevity and clarity.
David Sobel: I’ve been thinking about predictions, and I’ve been thinking about one I was wrong about.
in the my piece In October 2020, I called Datto about claiming the MSP stock ticker. My prediction was that Datto would take the marketing value from MSP and pass it on to them as a business.
I said the following:
“Every Google search for MSP points to Datto. Every Managed Services request leads to Datto. Every investor inquiry, every market analysis, every client search, every consideration of what an MSP is, all paths now lead to Datto, the publicly traded company with the stock ticker name.’
I think my reasoning here is perfectly logical. The move was very focused on gaining Mindshare. It’s just that the capture didn’t happen. There is no single MSP to Datto conquest of the MSP market. No rush of interest from the market being conquered.
Here’s what I did wrong. The mindshare and the market are not there. Wall Street traders yawned. The stock is priced at $29 and has never traded that high, except for an initial bang. It’s up slightly at the moment on rumors that it’s going to be privatized, but this is a company whose shares are falling.
Here my reasoning was wrong. I took their bet that the market would rate MSP that the market would rate MSP that the interest they were claiming was there.
Frankly, people I thought were smarter than me when it came to stock market valuations turned out to be correct: those investors and financial leaders who studied the market understood its value and would go public and have a successful launch and increase the value.
Well, down and right isn’t the direction you want the stock ticker to go. The term for what happened is a failed IPO, where the company’s value is below the original public offering value for over 18 months. To be fair, it hasn’t been 18 months yet. We’re just shy about it, and a failed IPO is generally considered a failure 18 months after launch. Barring a miracle, it’s a failed IPO.
I was wrong in predicting that Datto would take the marketing value with the stock ticker MSP and take the value from its customers because the value they demonstrated would not be as valuable as a public company. The market wasn’t there. The Emperor doesn’t have any clothes, and I’m a little surprised no one has said so yet. This is a failure. If you are a retail investor in this organization, you have not been rewarded.
The reason I thought about the value of the MSP market is because of a comment by Jay McBain in an interview I did it with him recently.
“Every MSP should look at this market. We track 250 technology categories, and you should stare at this list from the biggest growth numbers to the smallest. We talked about RPA two years ago, robotic process automation growing 73%. UiPath went public and was worth $30 billion the next day. This 73% growth is more than the 11% growth that MSPs are driving on average in their organizations. We’re watching the hyperscalers report another quarter last week, their seventh consecutive quarter of 50% growth. They grow 50% to 50% to 50%. MSPs grow 11%. So I would ask Microsoft, AWS, and Google more questions about where that growth is and how each of those dollars is kicking off $5 or $6 for us. But it’s collected by other people, system integrators, ISVs, everyone comes in. We have millions of people coming into our area, but they accumulate these big multipliers and they make 70% margin for every dollar of that multiplier. Those are the questions I would ask. For any industry or product growing faster than 11%, I would look at how close that is to me. Can I expand our business practice? Can I build some skills? Can I maybe make a small purchase? How would I go and seize this opportunity?’
Think about what Jay says. Among all technology categories, there are many that are growing really well. Jay mentions two – Robotic Process Automation and Hyperscaler – with 73% growth and 50% growth, respectively. And he cites 11% MSP growth.
Now what lesson is there to be learned. If you want to grow your business by more than 11%, you need to operate in a technology market beyond managed services. The technology area aligned to the core infrastructure of managed services is not the one that will drive the explosive growth of your business. You’re going to have to be in something else.
Well, I happen to think that’s an ‘and’, not an ‘or’. If you are an established organization – which means you need to be in Managed Services and something else: Managed Services and Robotic Process Automation, Managed Services and Business Process Improvement, Managed Services and Industry Specialization. If you’re new – and think of my ‘if I started an MSP today‘ Reasoning — You can choose whether this should be an ‘or’. You only get to the business process improvement. They start a practice that revolves solely around an industry and the technologies it requires. For the incumbents, don’t lose sight of the fact that you may have new competitors in this space who don’t value what you consider your core business. They don’t value it. let that sink
My biggest mistake in my prediction was assuming that Datto’s investors were right about the value they placed on their company — that the market was looking at a company with revenue growth of around 18% from Q4 2020 through Q4. quarter of 2021 would be interested, 9%. partner growth. No, it wasn’t enough for Wall Street, and with it the lesson: This is not considered a valuable market.
Don’t get me wrong, I’m generally optimistic about the services market. Jay’s comment refocuses our attention and poses questions to Microsoft, AWS and Google about where the growth really lies that is kicking five or six bucks to their partners for every buck they bring with them.
Look for companies that are growing at a 30%, 40%, 50%, 70%, 100% growth rate and determine what services are associated with those products. There are obvious players like the Cloud Players or less obvious ones like Allscripts that are seeing big year-on-year growth in their rating. What is there? practice management and electronic medical records or end technology creating electronic payment and billing solutions for businesses, financial institutions and banks; CSG Systems, which produces software and services for support systems for the telecommunications industry; Innovative solutions and support focused on flight guidance, autothrottle and cockpit display systems.
Well what was I looking for? Companies whose stock prices hit a 52-week high. What is the theme? They all live on the work shift that gets the job done and are directly tied to their own clients’ earnings.
The market yawned because infrastructure is not enough. Learn from the mistake and find out what value you can offer your customers that is directly related to their business.
About the author
The podcast is hosted by Dave Sobel The business of technologyPodcast co-host kill it and wrote the book Virtualization: Defined. Sobel is recognized as a leading expert in the delivery of technology services with extensive experience in technology and business. He has owned and operated an IT solutions provider and MSP for more than a decade and has worked for providers such as Level Platforms, GFI, LOGICnow and SolarWinds, leading community, events, marketing and product strategies and M&A activities. Sobel has received multiple industry awards including CRN Channel Chief, CRN UK A-List, Channel Futures Circle of Excellence Winner, Channel Pro’s 20/20 Visionaries and MSPmentor 250.
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