If we look at Porter’s 5 forces model we see the following values:
Bargaining Power of Suppliers – BIG
Bargaining Power of Buyers – SMALL
Threat of Substitutes – SMALL
Threat of New Entrants – BIG
Industry Rivalry – BIG
We see that the overall IT market continues to grow steadily, read our background article on the ABN AMRO survey.
As an MSP, you would need to guard against the 3 forces in the model: Suppliers, New Entrants and Rivalry. But how?
Bargaining Power of Suppliers
To reduce this, you must become more important to the supplier and use different suppliers. To do this, you must become more prominent. Become a player that grows substantially faster than its competitor (i.e. grows faster than the market) and is large enough to run multiple technologies side by side. So, to achieve both, you need to grow very fast in a short period.
The threat of New Entrants
How can you reduce this power? First of all, you can ensure a strong brand within the market. A customer chooses a brand because it inspires trust and many other parties have chosen and would like to choose this brand. Another way is to make sure that the customer has all kinds of service requirements, making it more costly for newcomers to enter the market. Both come with high out-of-pocket costs.
An example in the MSP market are ISO27001 standards. Almost all existing parties have such a certificate or are in the process of obtaining it. As a result, the customer knows that it is better to choose a party with an ISO27001 standardization. Therefore, new entrants will first have to obtain such certification before a serious customer will do business with this party.
By differentiating, you bring distinction to your services so that a customer finds your service more valuable because it better matches his perception of value. You can differentiate, for example, by focusing on the market you serve (healthcare, education, etc.). The region in which you operate (Randstad, Brabant, 50km around Leeuwarden, etc.). This requires a straightforward market approach and adaptations of a products and services catalogue and knowledge of the market where you want to focus. Want to read more about this? Read the article: Make Meaning – What meaning do you have?
Force21 can help you with this. Do you want to know more? Please make an appointment for an informal talk.
As an MSP, you should do several things to solidify your overall market position despite the booming market. The easiest way to do that is by merging with competitors. If you do that you become a more important party for suppliers, more decisive against New Entrants and reduce the Rivalry. That’s three birds with one stone.
This, together with the strong recurring nature of cloud services and the growing market, makes it an exciting market for wealthy parties (investment companies). That is why many MSPs are looking for each other, and market consolidation will continue. The market consolidation will allow MSPs to occupy a better position in the market collectively.
Our question is: What will be the next step after the market consolidation? Ultimately, the customer will have to be enticed to purchase the service from you. What will you do? Compete on price or convenience, or…. looking more for added value for the customer.