October 30, 2019
When Channel Vendors Merge
One truth I learned quickly when I joined Datto was that every decision we make must benefit our MSP partners. It doesn’t matter if it’s a major product introduction or the tiniest language tweak to technical resource materials--the success of our MSP partners is the constant and unrelenting driver.
This MSP-centric focus will become even more critical as the industry continues to mature and we see more consolidation among vendors. The Datto team experienced this first-hand two years ago when we merged with Autotask. Today, the unification benefits our MSP partners with product synergies across BCDR, Networking, PSA, and RMM.
As the founder of two acquired IT startups, I have lived through multiple waves of consolidation and disruption in the technology space. Experience has taught me that benefit to customers is not a foregone conclusion from vendor consolidation. It must be the focus and intent of the “consolidator.”
The Impact of Consolidation
In most cases, consolidation is a natural phase of market expansion. In these instances, the consolidator looks for acquisition or merger targets as a means to protect a core offering during a time of change. This can sometimes result in lower costs for end clients, but often there is a price to be paid by all stakeholders during the integration process. It falls on the acquiring company to identify synergies that represent real operational or technological benefits to the MSP partner, which can also lead to the eventual elimination of services and product lines as the acquirer looks to improve margins.
Open ecosystems thrive on competition, so when some vendor competition is removed due to consolidation, it’s critical to maintain great interoperability with other vendors. For instance, a technology acquisition intended to expand a vendor’s portfolio can have a positive impact on MSP partners and bring increased adoption to the acquired company’s products. On the other hand, an acquisition designed to reinforce vendor lock-in will have the opposite effect. The real challenge lies in accurately understanding the overall impact the activity will have on MSPs.
How to Navigate Industry Consolidation
There are steps you can take to anticipate how consolidation among vendors may affect your business as an MSP. Look for transparent communication from your vendor. Why did they make this decision? How does the tech benefit you? How will your partnership change and improve? These are a few good questions your vendor should provide answers to. Get involved with your vendors to give them feedback on how to improve. Truly MSP-centric vendors will seek partner feedback and take it into account. Your peers are another great resource in this instance, as each MSP has a different experience to share. To determine if vendor consolidation is good for your business, it’s important to also identify the changes that could negatively impact your bottom line. Large reductions in talent resources upfront could be a sign that an acquisition or merger could lead to quality problems. Dramatic cost-cutting of formerly strong products can create a technology "Groupon effect” (what seems like more for less is just less) where the smaller margins and under-investment lead to difficult implementations and ultimately less value to the end client. MSPs should be cognizant that short-term gains could turn into long-term liabilities.
Because every acquisition and merger is different, the only reliable rule of thumb is to exercise caution, especially when considering new investments in the acquired company’s technology stack. My best advice - stick with what works for your business until promised synergies are proven.