backup services

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Data protection has been a lifeline for many managed services providers (MSPs) during turbulent times brought on by the COVID-19 pandemic. A rise in ransomware attacks has forced more organizations than ever to rely on MSPs to ensure they can recover their data in the event their primary copy is encrypted by cybercriminals.

The challenge MSPs face is that competition for that business is fierce. Ensuring that an MSP profitably delivers those services often comes down to the pricing model they employ. Those models typically span a wide range of options based on per user pricing, per device, amount of data, flat fee, or simply a la carte consumption of specific services.

More challenging still, MSPs need to determine how those services should be priced based on consumption that might be tied to either a monthly contract or a commitment to an annual or even multi-year contract. Many small-to-medium businesses (SMBs) tend to prefer to make smaller financial commitments as they navigate their own cash flow challenges. However, there is no correlation anymore between the size of a company and the amount of data that organization might generate, so month-to-month accounts won’t always be small, adding another element of uncertainty.

Most MSPs have a vested interest in longer-term contracts that make their own revenue projections more predictable. As such, many MSPs tend to offer better terms based on the lifetime value of the contract. Nevertheless, as more organizations treat IT in general as an operational expense, many of them prefer to pay for all forms of IT infrastructure based on how much is actually consumed within a given month. The same model that a cloud service provider employs to provide access to compute resources is now being applied more broadly.

Recovery Time Objectives Matter

The speed at which data can be recovered (recovery time objectives, or RTOs) is another factor for backup service providers to continue. Many MSPs charge extra to enable organizations to recover data, for example, in a few hours for data volumes that might otherwise take days.

In general, savvy MSPs tend to charge more for shorter-term commitments. The issue is that in the face of competition from rivals it’s often difficult to maintain pricing discipline. No MSP likes to lose a deal. However, if MSPs are not careful they could find themselves providing data protection services at a loss.

Determining that pricing level has also become more challenging in the age of the cloud. While the cost of a terabyte of storage has never been lower, many end customers don’t always appreciate the amount of time and effort that MSPs need to put in to stand up a service capable of ensuring that their data can always be recovered.

A recent survey conducted by Enterprise Strategy Group (ESG) on behalf of Asigra, a provider of a data protection platform, found the biggest challenge MSPs face when selling any cloud-based service is determining the right pricing levels for different managed services (31%), followed by poor margins on cloud-based managed services (21%); developing and executing successful marketing campaigns (29%); recruiting technical staff with cloud-oriented skills (28%), and customer billing logistics (22%).

The two biggest external challenges found are customer resistance to cloud-based managed services (21%); lack of pricing/margin control (27%) and competition from other vendors or service providers (18%), the lack of a centralized portal to managed services from different vendors (24%), and difficulties with getting the right training and enablement from service providers or vendors (21%).

On-Premises Backup vs. Cloud

Meanwhile, on the cost side of the data protection equation MSPs need to determine what level of investment makes the most economic sense. Options range from building a service around a software-as-a-service (SaaS) platform accessed via the cloud to deploying physical appliances in an on-premises IT environment. Those decisions are typically driven by the amount of data an organization needs to protect as well as recovery times. An on-premises appliance, for example, will enable organizations to recover their latest data faster than a cloud service accessed over a wide area network (WAN). The cost of deploying those appliances, of course, is considerably higher.

Providers of backup and recovery platforms generally recognize the critical role MSPs now play protecting data (see Starting an MSP Backup and Recovery Service: IT Partner Options). In fact, vendors such as Acronis, Veeam and HYCU are encouraging end customers to rely on MSPs more than ever.

“I would always suggest getting a partner who really knows and has experience on how to truly protect infrastructure,” said Acronis CEO Patrick Pulvermueller.

“What an MSP brings is expertise of the local environment,” added Veeam CTO Danny Allan. “That is a very significant business for us now.”

In fact, there’s no substitute for professional data protection expertise, said HYCU CEO Simon Taylor. “Customers should absolutely always rely on professional services,” he said.

Those professional services, as every MSP knows, play a critical role in reducing the number of support calls that would otherwise have to be fielded by a vendor.

As a result, just about every provider of data protection platforms and services is investing a lot more in sales enablement tools that among other things provide suggestions for how MSPs should price various services in a way that enables both the vendor and their MSPs partners to turn a profit based on either the recovery time objectives (RTO) or the recovery point objectives (RPO) required by the end customers.

Watch Vendor Financial Stability

There is, of course, no shortage of options when it comes to data protection vendors. In addition to a pantheon of providers of platforms that have been around for decades, a larger number of startups have emerged to challenge incumbents. It’s not clear to what degree those startups will replace those incumbents versus simply addressing new use cases alongside them. Despite the large number of data protection vendors, the level of consolidation across the category over the last two decades has been slight.

Nevertheless, MSPs should make sure that the vendors they partner with have the financial resources required to be around for the long haul. After all, the only thing more expensive than installing a data protection platform is replacing one that is already widely employed across a wide range of existing customers.

Further reading: Best Endpoint Security and EDR Tools for MSPs