Episode 30: When You Think AI, Think Storage

Erick and Rich discuss data from ConnectWise unit Service Leadership detailing the advantages MSPs backed by private equity enjoy relative to independently owned competitors, and how those independently owned providers can fight back. That’s followed by three tips from Erick on avoiding customer churn and an interview with Marty Falaro, EVP and COO of Wasabi Technologies, about the big and underappreciated opportunity in storage generally and cloud storage specifically. And finally, one last thing about the disappointing results when researchers at Google asked generative AI platforms to write them jokes.

Discussed in this episode:

Hard data on private equity-backed MSPs

What happened when 20 comedians got AI to write their routines

Transcript:

Rich: [00:00:00] And three, two, one blast off, ladies and gentlemen. Welcome another episode of the MSP chat podcast. Your weekly visit with two talking heads, talking with you about the services, strategies, and success tips you need. To make it big in managed services. My name is rich freeman I am the chief content officer and channel analyst at channel master the organization responsible for this show I am joined virtually side by side as I am every week by your other co host Erick simpson our chief strategist Erick

Erick: How you doing?

I’m doing well rich after a little bit of a whirlwind back to back, event traveling Schedule the last couple of weeks. I got a little taste of what it feels like to be half of you.

Rich: Yes, indeed. Yeah. Another week, another show. But yeah, good stuff. Good stuff. Lots of stuff, lots of events going on out there on the channel right now. Let’s dive into our top story actually. And it comes from one of the events I’d been to recently. We actually spoke on the last episode of the show about some news from the ConnectWise IT Nation secure event. There was actually a whole conversation I had with Peter Kujawa of service leadership at that show that we didn’t get into, and that I think is really interesting.

Service leadership is a division, a unit of ConnectWise. It’s consults with MSPs. One of the really distinctive things about it is they’ve got arguably the industry’s best, deepest database of benchmarking data. And as it happens happily for me while I was in Florida attending that show Service leadership published its annual MSP benchmark report, the big benchmark report that they put out every year, something like 350 pages.

What, one of the really interesting things about this year’s report is for the first time they went out and they collected data specifically About MSPs who have some degree of private equity ownership and MSPs who don’t, they were curious to compare benchmarking data for the PE backed MSPs and the ones that aren’t.

Some of the results might strike you as a little bit surprising, Erick. And I’ll tell you that the first thing that jumped out at me. If there’s anything that the independently owned MSPs, the non private equity owned MSPs probably figure they, they’re better at than the the private equity owned ones, it’s customer service, right?

Because I might not have the resources, I might not have the scale that these bigger firms do, but I’ve got personal relationships with these companies. So service is going to be my strong suit and maybe my competitive playing card, my, my competitive weapon going forward. Service leadership found, and this isn’t customer service exactly, it’s customer satisfaction, but the service leadership data showed that the customers Of the private equity owned MSPs are actually more satisfied as customers.

They collected a net promoter score data from all the MSPs and comparing a net promoter score for the PE back, non PE back the PE back ones make their customers happier. The theory on that. From service leadership basically is the bigger private equity owned companies tend to be a little more operationally mature.

And there is a strong correlation between operational maturity and customer satisfaction. So this is actually an advantage. The P owned MSPs have some other advantages that they have might be a little bit less surprising. They’re they’re growing the PE back firms are growing gross margins nearly 2.

2 times faster than the ones without private equity backing. The EBITDA at the private equity owned firms growing 2. 3 times faster. The EBITDA gap in terms of millions of dollars annually on EBITDA, that gap is growing. So the private equity owned MSPs are actually pulling away in some respects from their peers.

So at first blush, Erick, this does not look good, right? You’re competing with companies with. Higher margins, those margins are growing faster, more EBITDA is growing faster and, according to this data at least, they are keeping their customers happier than the smaller MSPs do. There is some interesting data in there though that and this is why I wanted to talk about this at all.

One of the things that service leadership did was compare the. Private equity owned MSPs in aggregate, all of them to the best in class, non private equity MSPs. So service leadership will divide MSPs up into four quartiles. They said, let’s just look at the top quartile and compare them to the private equity backed [00:05:00] MSPs.

And those companies, the most operationally mature MSPs do outperform the PE backed MSPs in in aggregate. Um, in terms of EBITDA and margins now the gap is shrinking. So this advantage may not exist over time, but there’s an important moral to this story there, Erick, in that as we’ve discussed, I’m sure on the show before MSPs in that bottom quartile, according to service leadership, are losing money.

Pretty much all of them, a hundred percent of them are underwater, and some of the ones in the next quartile up are as well. So there, there has been good reason for MSPs to focus on operational maturity, get themselves up into that top quartile for years and years. There is that much more incentive now because that is how you compete with these larger firms.

That have more resources and are a fearsome competitive challenge.

Erick: Yes, Rich. And we have talked about this phenomenon or scenario or situation where 30 percent of MSPs are losing money. We’ve seen that from some, from different, analysis and reports. So this, this bears through service leadership’s benchmarking here in this report.

What I find almost Oh, I X, like you said, rich. You might not expect it, but you might expect this. I think what you just ended with the through line being operational maturity is what’s key here. And the way I’m interpreting the data that you just shared is the PE backed MSPs are getting, if they’re not already operationally mature to qualify for an acquisition and interest from a PE backed organization, when they are acquired, they’re already they’re at a higher operational maturity level because They’ve been at it for a bit.

They know what they’re looking for. And of course there’s this this synergy rich where whatever you’re missing, we can fill that gap. And we’re also reducing overall costs with shared back office services among the acquired companies, I would imagine, right? Maybe yes, maybe no. But generally when I’ve worked with organizations or investment groups that are rolling up MSPs.

What they’re looking to do is to try to lower overhead costs, right? Help fund marketing and sales enablement, and then get pricing right? So if you have someone that’s acquiring you rich, that has all of these processes in place that says, Oh, we’re going to, put you into our process. We’re going to lower your overhead costs.

We’re going to help you out with marketing and sales, which are, as we’ve talked about rich many times, the Achilles heel of the MSPs. And then help them go to market and are growing that brand. I would expect them to perform at a higher level. But on the other hand, if you’re focused and you’re not PE backed as an MSP, and you’re focused on identifying and overcoming these operational maturity challenges, and you’re increasing your top line revenue and your profitability, you can invest.

In spending the time necessary to build those stronger client relationships to go deeper and wider in every one of your client relationships, to identify the things that you should stop selling to clients and focus on the things that, are easier for you to sell, but the highest margins that increase client satisfaction.

And you mentioned rich, the NPR net promoter score and things like that. I do see a lot of MSPs adopting that on their own. But I’ll bet you that the PE back firms are doing that religiously, right? Getting that and measuring and adjusting to make sure that we’re not turning out customers, and delighting them and making sure that we have another at bat to sell them more product services and things like that.

It’s really good data. And I think. At the end of the day. Yeah, who wouldn’t like a hand up right and some funding to grow. But I also like the opportunity that MSPs have that are focused on improving their operational maturity because you can compete and succeed as well.

Rich: And I

Erick: think

Rich: that’s the really important message here is, not every.

Owner aspires to to be part of something enormous and to scale their business to the moon. There are a lot of people who like the independence of running their own business. The concern in the industry, one of the concerns in the industry right now, obviously is as these rollups and other.

Big private equity owned multi city coast to coast MSPs come around. Can you continue to do business that way? And the good news is yes, you can. It, you are really going to have to focus on operational maturity and running the business well. And, it’s it will be more difficult. To compete maybe than it has been [00:10:00] before, but you, there is a route forward that allows you to maintain your autonomy and independence if that’s what you want in your life and in your career and and compete with these much larger companies.

Erick: And who rich, if you are working on increasing your upper operational maturity as an independent MSP organization, all you’re doing is you’re increasing your value for that exit, right? So if you have a lower operational maturity level, lower EBITDA performance you’re not keeping your clients as long as you should, you’re not going to be as attractive for someone to come in and buy, and they may, or if you are, they may not give you the valuation, right?

That you hope that you just keep working on all these key things, increasing that operational maturity level. And then you have more options when you do decide, what you’re going to do with your organization at the end of the day, if you do want to sell it off, or if you want to continue to grow through acquisition or, do sell it to your employees, right?

Doing ESOP or something like that. Valuation still is key there because again, you can raise funds. You can, get lines of credit. All of these things are much easier and more beneficial when you’re performing at a high level.

Rich: So we we’ve been talking a bunch about operational maturity tied to your tip of the week, Erick, which has to do with a specific dimension of operational maturity.

Erick: So what we’re talking about today, Rich, because I started thinking about, our headline story this week in our interview segment and thinking about what are three things that MSPs can do today to reduce customer or client churn, because this is also a key factor in operational maturity is how long do you keep your staff?

And how long do you keep your. Clients rich. So just three quick tips. The first one and these may sound like, Oh, we already know that, but are you really focusing on and putting it into practice? It’s almost like sales training, right? If you don’t get sales training very often and you get it every once in a while, or even technical training, every once in a while, you tend to find that you start shortcutting things over time.

And stop doing some of the key things. That you should be doing all along that may create more heartburn if you were continuing to do them rather than not. So it’s like one of those things. And this first one is enhancing the onboarding process and the follow up process after onboarding.

Rich, MSPs are very proud of how we onboard our clients. And we have, one of my You know, probably most popular downloads that I give away to MSPs is 117 step onboarding checklist for new clients, right? Everything from, the thank you gift to everything else that you’ve got to do, but are you doing it consistently and effectively every time.

So when you’re onboarding, your first client of the year, by the time you onboard your last client of that year, is the onboarding process consistent. And are you delivering the same experience to all of your clients? Sometimes when we were selling our managed services, rich, when I had my MSP practice, we would make a point.

We would use the onboarding process as a sales tool. I would show it to clients. Look, we have a 117 steps. And when we’re done, we give you the documented process and all of your passwords and everything else. And if we’re the first one in that sales conversation, rich, Then that new prospect is going to be asking anyone else that comes behind us to compete.

Tell me about your onboarding process and dollars to donuts, rich. We would win the business because not everyone that came behind us had a consistent documented onboarding process. And that doesn’t stop there with the onboarding process. It’s the followup that happens during or after onboarding. The seven step sales process does not stop when the sale is closed.

That’s the sixth step. The seventh step is the sales followup. And that’s when you go back in rich. And it’s almost like when someone buys a house, what does the realtor do? The weekend you’re moving in, they show up with pizza and soda and all that, and congratulate you. And then they ask for the sales. So when a client is happy you’ve demonstrated you’re onboarding them in a way they’ve never been onboarded before you give them that love.

When they’re at that high, they’re more apt to, engage with you and give you, a couple of. Leads that you could follow up on. So that’s tip one and answer onboarding and follow up process. Tip number two, to reduce client or customer churn, Rich is to engage [00:15:00] with your clients continuously.

I was on a call just the other day, Rich, with a client that was talking about their inconsistency in following up and doing the account management that customer. Relationship management during the term of their agreement and having trouble getting the client to renew their agreement the next year, because they felt like they haven’t gotten the love.

Number two, you’ve got to engage with your clients continuously. And even if you’re just touching base, Rich, we talk on the show a lot about segmenting our clients, A, B, and C, and we’re going to give our A clients the most love, the B clients. Maybe a little bit, I won’t say love, if we’re doing QBRs and things like that, you’ll see your A clients more often than your B clients.

Maybe you see your B clients a couple of times a year and your C customers, you might see them as needed once a year, but you’ve got to touch them and provide that customer service and that relationship building, whether you’re doing QBRs or not, or you’ll be surprised at how many clients you don’t have anymore at the end of their term or their agreement, the third tip I’ve got.

This rich kind of ties into what we were talking about just now about this service leadership report. One of the key findings in there is, you mentioned that the PE back firms have a higher customer satisfaction rating than non PE back MSPs. That’s because they are collecting on and acting on that net promoter score, that survey data.

So that’s tip number three, collect. Don’t just survey your clients and expect that the automated survey with the, sad face to smiley face that goes out on every ticket closure is your, is the way that you rank your client satisfaction because after two or three of those things, users are going to stop giving you that, that answer because they’re not getting anything from it.

So you’ve got to do some good. Surveys. Net promoter score is, one of the, most recognized way to do that, where you’re asking very specific questions and customizing those surveys around that end users experience. Not out of our technicians do it’s Hey, let me survey you about your work, your daily work day, your workflows.

What are you having challenges with bringing that collecting that data and then reporting back to those end users. Rich. Under the aggregate data. Hey, for this question, 14 percent of you answered this 25 percent answered this 70 percent of you answered this way. Don’t make them super long, right?

But then you take that data and you sit down and you reflected back to them. This is how you responded and we’ll be discussing this with your leadership. Try to overcome some of these challenges and sit down when you’re doing your QBRs. I always say, one of the things that we do on a QBR is to discuss the latest survey that we did for the end users and for the client.

And we say, look, here’s what we found. Cause many times rich business owners don’t know the pain that a lot of their staff are going through and doing their work. If it takes 17 clicks to cut an an invoice, that’s a problem. But sometimes Staff just feels oh, that’s just what I have to do without knowing that, boy, we can make that easier for you.

And let you get to the, get to more effective things that you’re doing, or how long is it taking you to do your job function, can we automate some of that? Can we bring in a different platform? Can we leverage AI, right? As we’ve been talking about a lot, rich. So three quick tips on reducing client or customer churn.

If you’re not doing every single one of these, I strongly encourage you to do them. There’s a lot more you could be doing, but these are key for me.

Rich: A couple of thoughts on that. First of all there was actually some interesting customer churn related information in that service leadership report we were talking about before.

The PE backed MSPs have higher margins, faster growing margins, higher EBITDA, faster growing EBITDA, as you would expect. And if you just compare the the top line raw of on revenue they’re growing revenue faster too. You would expect this. They’re rolling up all these MSPs and acquiring those customers on that revenue.

When service leadership dug into it, though, what they discovered is that. The pretty much all of that growth revenue growth that the PE backed MSPs are experiencing is inorganic, meaning it’s coming from buying the MSPs. When you compare the PE backed MSPs. The SIP. Just on organic growth, same.

And the reason for that, the issue is, these rollups they buy MSPs, they go through the onboarding process that you were talking about. And there is customer churn that, employees leave, customers leave, there’s disruption. And all of that is costing these companies organic [00:20:00] growth.

Customer churn, at least in the, near and medium term can actually be a source of advantage. For the MSPs without private equity backing given that some of what the roll ups are going through. And then the other thing that kind of jumped out at me, Erick, was number two on your list of three tips, which is so classic for managed services.

Particularly if The focus of what you do is really around proactive management. You’re not maybe doing a lot of project work and business process optimization you’re keeping things running super efficiently. If you’re doing that job well, you don’t have reason to talk with the client very often.

And as a result, out of sight, out of mind. And you don’t know what’s going on in somebody’s head. is talking about and what they’re thinking about. So really important piece of advice. If you are doing such a great job that it’s been a while since you’ve spoken to any of your customers, might be a good idea to call them up, schedule a meeting, and if you’re not doing QBR, start doing that.

But don’t let your good performance as a technology partner hurt you because you lose touch with the client.

Erick: Yeah, I appreciate that rich and it’s one of those things where, you know and we hear it from MSPs all the time with the client says heck, everything’s running.

Great. Why do we need you anymore? A thing. It’s wait a minute. Everything’s running great because, you don’t see me and, us engineers, rich we’re introverts, right? We’d rather not talk to anybody and have that interaction. And if that’s you guys out there listening hire somebody that has that.

That has that ingredient in their personality, right? They are the people person that can go out and enjoys engaging with your clients and interacting with them. That’s, one of the, one of the missing ingredients that I see in some of the MSPs out there, right? Rich. Man, we are, it’s incredible that we can be profitable sometimes rich because we need help marketing.

We need help selling. We need help with operational maturity. We need to help. Engaging and having meaningful conversations and doing account management with our clients. Of course I’m joking. We’re doing good work. The idea here is to make sure that we are investing that time that we’re saving from maybe going outside of things like that and investing in growing those client relationships, because it’s so much easier, I forget what the statistic is, but it’s a notable.

How much easier it is to sell an existing client something new than it is to go out and try to sell something to someone that’s never done business with All

Rich: right. Folks, we’re going to take a quick break. When we come back on the other side of that, Erick and I will be joined by Marty Fularo.

He is the Executive Vice President and Chief Operating Officer of Wasabi Technologies, a cloud storage company. You might not be thinking about storage or cloud storage specifically as a big opportunity, a big moneymaker. We’re going to get into that with Marty and see what he has to say about that.

Stick around. We will be right back

All right Welcome back to part two of this episode of the msp chat podcast our spotlight interview segment Where we are joined this week by marty falaro of wasabi technologies a cloud storage company. It’s we’ll get into in a moment he is the executive vice president and coo of that company and we are going to talk with him about opportunities for msps In storage, generally in cloud storage that I think particularly these days might be a little bit overlooked, but first Marty, welcome to the show.

Thank you, Rich. It’s great to be here. So for folks who are new to you and new to Wasabi, just tell folks a little bit about yourself and about the company. Sure.

Marty: I am I’ve actually been here this week for seven years. The cloud storage service known as Wasabi launched exactly seven years ago. And I joined as employee 15.

We are now over 400 employees, and we have a global cloud storage footprint, and we provide hot cloud storage at cold cloud storage prices, is the way we like to say it. It’s been a, it’s been an amazing ride so far.

Rich: Yeah and something worth pointing out to folks, the two co founders of the company are David Friend and Jeff Flowers, who also co founded Carbonite.

These are people who know their way around storage, around the cloud, around the channel. They’ve got a great legacy in the industry here. Tell folks a little bit, when you guys talk about storage, and that’s obviously where the Wasabi name comes from, what do you mean?

Marty: The the large cloud storage companies that are out there the hyperscalers as they’re known, have various tiers of storage, from very cold archive style storage to what they call hot cloud storage, and we only have a single tier.

And we’ve chosen to [00:25:00] deliver a hot cloud storage tier to customers and to price it very aggressively so that Customers can experience good performance, excellent performance as a matter of fact, for a very low predictable price. So that’s what we mean when we say hot cloud storage. Okay.

Rich: I’m going to guess there are a lot of folks in the audience here when they hear storage, when they hear cloud storage, they figure these are markets that are essentially commodities right now, but the pricing is such that they don’t represent Meaningful opportunities for a typical MSP.

To what extent are they mistaken in your view and

Marty: why? It’s an interesting question to be honest with you. We, so we had about, about 15, 000 channel partners right now. We started our channel program a few years after we started the service. So in 2019, and we have thousands of MSPs that use wasabi hot cloud storage as an ingredient.

In a service that they’re building for their customers, whether it’s disaster recovery type service, some kind of a backup as a service. We have specialized MSPs that are managing media and entertainment workflows and using wasabi as a storage ingredient. So it’s far from a commodity that nobody can make money with or that nobody.

Is offering. In fact, we’re adding about 350 new channel partners a month and have been doing that for as long as I can remember.

Erick: That’s impressive growth Marty. And, when you said that you’re delivering hot cloud storage for a cold storage price, that got me, it got me excited because, as a recovering MSP and, an engineer at heart, I remember the days of having to.

work within a client’s budget to determine, the cost structure. So there’s hot, medium, there’s cold, there’s glacier, right? So this really represents the ease with which someone can get their data back when it’s, being stored somewhere. And typically, cold storage or glacier, whatever you want to call it, in my experience is the cheapest, but then they charge you for getting the data.

And that’s how they built, they bill you. As I remember when we were putting this stuff together, in my MSP. So hot or cold pricing, that’s pretty disruptive. I can see why the MSPs and your partners are signing up with you. That’s pretty disruptive and unheard

Marty: of, right? It is, Erick.

And when we started there really were not a lot of options. Most MSPs who were offering cloud storage were buying from one of the hyper scalers. And just like you said, you could get a tier that was very cheap on the surface. But if you ever had to restore from backup you might pay, a few dollars per month to store the data.

But if you had to recover from backup, you were going to be paying upwards of 120 a terabyte to get your data back. So it’s very pricey when you start looking at the models that are out there. And in fact, we run an independent index survey every year using a third party to run the survey. And this year when we ran it over a thousand respondents, of which only two were Wasabi customers, all reported that almost half of their expenses, In cloud storage, are fees and we decided from day one not to have any fees.

The only fee we have is what it would cost you to store data with us. But half the budgets are going very rapidly to other fees like egress and. API call charges, that kind of stuff. So we don’t have any of that.

Erick: So like I said, it’s very interesting. You got my attention. So for an MSP now that goes to market for their clients with wasabi on the backend, when you’re looking at your partners, how are they billing?

Their end customers for this service. Are they then taking the approach of the hyperscalers and charging them different tiers based upon, other factors, or are they basically coming to them and saying, just adding their margin or markup on top of their costs from you, and then adding additional value to increase the total value of that service.

And then reaping the the additional revenues and profits that way or different partners. I think it differently. I’m just very curious.

Marty: I think Erick. Yes. The latter description that you gave is what we see most often, which is in the case of the M. S. P. We’re an ingredient in something bigger, and we [00:30:00] like to be an ingredient in lots of different recipes.

But if you look at just the backup disaster recovery the anti ransomware services, all these kinds of services Involve different ingredients and we’re just one of the ingredients. So by offering a low cost predictable ingredient with good performance. Cause we build our own software stack. So we operate our service, not inside someone else’s service.

We operate our own service on our own software. We’re able to offer the MSPs an ingredient that they can then use in their particular service offering. And when it comes to how it’s priced first of all, how it’s provisioned and builds for was one of your questions. We actually developed very early on.

A set of tools that we give to our MSPs that allow them to automatically provision and integrate the Wasabi ingredient into their billing platform. We call it the Wasabi account control manager. It’s free to our MSPs. And it allows them to knit us in to their whatever their billing platform is, we have a restful API that’s super easy to use.

It’s actually pre built and you can literally attach it to almost any billing and provisioning system. So we make it easy to be a well behaved, predictably priced ingredient in just about any MSP service.

Erick: Marty, it certainly sounds to me like you’ve gone the extra mile or two to make it very MSP friendly, not only from a cost perspective, but from a provisioning perspective, from a management perspective, it sounds like with the yes, billing, we talk a lot on the show about the pains that MSPs have with keeping up with billing and consumption and things like that.

You’re integrate making it easy for them to integrate into their accounting and invoicing systems. Let me switch gears on you and ask you a question about designing kind of the back end. So I’m an MSP. And I need to make certain that I’m managing the storage of my client’s data, whether that’s, high availability stuff, whether that it’s something that is just archiving for later in today’s day and age of, cloud access and cyber security, are there some tips or some guidance you give your partners to say look, when you’re dealing with this kind of data, I’m thinking, PII, PHI data or this kind of data and access control management, or just in general, just good best practices for backing up and storing data.

I know this is a loaded question, right? You could probably talk for days on it, but just give us like a high level of what, you tell your partners and give them some guidance around, how to minimize the drawbacks of setting something up like this and making it manageable for everybody.

Marty: Yeah. First of all, we talked a little bit about the billing and provisioning tools and that whole problem that exists for MSPs is I see a bunch of great ingredients, but how do I integrate them into my solution? So we make, we handle that through the wasabi account control manager tool that we talked about earlier.

The other thing though, is compliance. And for us, it’s important to have some of the key compliance requirements that are MSPs require for their customers. So for instance, MSPs that are managing healthcare data or any data along those lines, we have HIPAA certification, which makes it easy for them to comply with the various regulations regarding personal health information.

So we have. Compliance as a as a require requirement that we take care of on behalf of the MSPs. The other is security and we follow all of the industry standards as far as identity and access management. We also offer numerous features within the within our service. To allow you to set up control accounts and sub accounts and to set parameters on who has access to what we even launched last year, a almost a it’s, we call it two factor authentication, but it’s really more than that.

It requires that if a holder of the credentials for a control account comes in and tries to delete the control account. They cannot do it without a second party from the same company agreeing to delete the control account, because one of the things we discovered when there’s a ransomware attack is that the credentials to the cloud account gets stolen, and [00:35:00] then to us, it looks like somebody with the right credentials coming in and saying, Hey, I don’t want the account anymore.

So delete all the backups. And once you delete the backups, then the ransomware attack is is in full swing. And so we developed a industry leading feature that requires any of those kinds of maneuvers to be verified by a second party and customers love it. Especially the MSPs.

Erick: Reminds me of like on a submarine, right?

You have the two missile keys.

Marty: Yes. That’s what our that’s what our founder refers to it as is the the two missile key protection. Yeah. And it does do that. It’s, it is real. It’s a we’ve had. Sadly emails that show up to to various execs here saying, Hey I’m under a cyber attack.

I didn’t, I didn’t do the encryption. I didn’t do the two factor authentication. And I think my account’s been deleted. Can you just recover my account? And the reality is we can’t. We’ve had a few of those enough of those to really get us to. The look at everything we could do on behalf of MSPs to make it more secure if you will. And so we’ve done that. So that’s another aspect of it. So we talked about tools. We talked about compliance and now we’re talking about encryption and data protection to the degree that we can control access as well as protect access to from certain bad actors.

Rich: Marty, part of why I wanted to have you on the show is to test a theory, basically. Because obviously all anybody wants to talk about in the industry right now is AI. And those conversations are dominated by large language models and processors, OpenAI, NVIDIA. I have this theory, though, that generative AI in particular is going to be generating an enormous amount of content.

Yes. All of that content is going to have to be secured. It’s going to have to be moved in and out of the cloud. Yep. And it’s going to have to be stored somewhere. Yeah. And so I, I see this big AI related storage opportunity coming. What’s your take at Wasabi about that?

Marty: It’s funny, Rich, that you bring it up.

We, we were just at Dell Technologies World and that was an AI show. Michael Dell stood up on the stage and he had the CEO of NVIDIA and, everything was AI and it’s great. It’s amazing. People are investing heavily in, in these gigantic compute resources and, They’re building a quote unquote AI into their business.

The models of, return on that investment and all that, be damned, they haven’t figured all of that out yet, but they’re investing. One of the things that we were talking about at the show and that Dell was also acknowledging is that with all these large language models, there’s going to be inference data generated that basically prove where you got your information.

And all of that inference data needs to be maintained forever, needs to be stored so that if you’re ever challenged by the New York Times, for instance, saying, Hey, wait a minute, you use the New York Times intellectual property to train your models. You’ve got the inference data stored to prove that maybe you did not do that, or you definitely did not do that.

Inference data is a mountain of data that’s being accumulated now during the training of these large language models. And we believe that represents a massive opportunity for for more cloud storage because that inference data will need to be maintained. And eventually access if needed to prove what you did or didn’t do.

And actually, that is Dell’s data protection solutions group, which is a huge part of Dell also sees that opportunity. So I think we’re seeing not only the AI build out, but customers wanting to protect. The work they’re doing with AI and inference data will be one of the ways that they do that.

Rich: That you cannot ever, it sounds get rid of that inference data there. The volumes are going to grow and grow. And so the size of that opportunity just keeps growing over time.

Marty: I think so. And we’ve seen, we’ve seen pretty dramatic growth. We have a global footprint now.

We have storage locations. Across North America, Asia and Europe, and we’re seeing demand for not only amounts of cloud storage, but also data sovereignty is a big issue now. So we’re saying even though the EU started their own GDPR initiatives 56 years ago, all the countries in the EU are now saying, Okay the EU is great, but we need you to have data center.

to store our data in Germany, in France, in, the UK when they went with Brexit. So data sovereignty is becoming another [00:40:00] issue. And the MSPs that are servicing these customers, whether they’re in a single country or they’re pan European or they’re across, across the globe they need to be concerned with the cloud vendors, not only their pricing and their tools and their security, but they also need to be concerned with.

Data sovereignty. And are they complying with that as well?

Rich: So earlier on, you sketched out a number of different workloads or use cases for this kind of hot cloud storage. Before you were talking about, for example, storing media files, maybe I got to imagine that margins and the size of the opportunity, the place that an MSP might want to focus in.

It’s going to vary. It’s one thing if you’re helping a law firm archive all of their documents and another thing, if you’re working with a video production company and they, it, they need a quicker access to the information, it’s much more strategic to them. What are some examples of the different sort of margin opportunities around cloud storage?

Marty: I think what we learned when we set up our channel program and our pricing for the channel. What we learned was that the hyperscalers who some of the MSPs have been working with, and several still are, the more channel partners there are for the MSPs to sell through, the less margin there seems to be.

And there’s margin pressure in that business. That’s very challenging because, if there’s 1000 ways to bring the product to market. The margins go down because there’s, multiple people bidding on the same job, so to speak. That’s always been a problem in the channel. I’ve been dealing with channels for my entire tech career, which spans back to the last century.

And one of the things that we did intentionally was build a solid margin offering for our partners. So it’s there, the MSP. We have a margin profile. It’s very attractive. We’ve profiled. We’ve surveyed our MSPs and I’ve heard repeatedly that they make money with our ingredient. We also work upstream with the distributors that service MSPs people like Pax 8 who has a, you know, thousands of MSPs that by an integrated solution built by Pax 8 and bring it to their customers. We work with backup vendors that service the MSP community like MSP 360. And, so we’re an ingredient in their offering. So I think from our side, we believe that if we keep our offer to the MSPs simple and provide good margin, then we become a profitable ingredient in what they’re building and it gives them the opportunity.

To set whatever pricing strategy they want. Erick, you asked about pricing earlier in the conversation. Pricing is entirely up to our partners. We just give them a discount off our list price, and then they take it from there and build us into a bigger solution typically.

Erick: So Marty, I want to. Get back into kind of a discussion around the difference in today’s buyer mentality, the end client, the end customer, the business decision maker compared to like before COVID. Yes. So I, we talk a lot on the show about the influence that COVID had in accelerating the move toward the cloud, accelerating the need for.

Strengthen cybersecurity the opportunity that MSPs always had a challenge with Marty in the past of delivering a co managed IT opportunity because internal IT department saw them as threats and things like that, right? So I want to get your take on how much easier it might be to sell cloud storage as particularly in terms of.

Do MSPs have to really explain the value proposition and the why and answer a bunch of security questions to get that buyer to feel comfortable, like they may have had to, five years ago, let’s say.

Marty: Yeah. I, you’re asking a a lot of interesting questions in that question. So let’s talk about the pre COVID versus post COVID situation.

Cause we built. The company during COVID times and and it’s been amazing, but pre COVID I’ll use the media and entertainment industry since we were talking about them earlier, Erick, about post production, editing workloads and other near line storage, they call it workloads. They used to do [00:45:00] a lot of this stuff themselves in their own, studios.

This was going on pre COVID and during, you know, running up towards The COVID times since nobody knew COVID was coming, but as it got closer to the, whatever that timeframe was, call it 2020 there was the beginnings of moving all of the post production editing off the studio lot and moving it to third parties for cost cutting reasons.

All along the IT budgets were being slashed the the people were being cut. So MSPs rose up and began to get, get work managing the IT departments alongside typically the IT departments of the studios. But when cloud storage became its biggest, was during covid when a lot of the edited foot or the footage that needed to be edited was on tape.

And the studios were closed and nobody could get the tape. No one could get into the studios for a long time. So luckily they had started to migrate off of tape to the cloud. And we really have experienced tremendous growth in that industry segment alongside MSPs who came in and said, we’ll help you migrate off tape.

And then when you do your post production editing using third parties. will manage that cloud storage for you as part of the service. And it created a whole industry that’s still flourishing to this day in that segment of the market. So that was actually unintended consequence of Cove it. By a huge industry that previous to that had been largely storing everything on tape and shipping stuff via FedEx.

The dailies were shipped via FedEx. Now what happens is a lot of them take take servers out to the site. They the server has communications capabilities. The MSPs managed the deployment of these servers. The the dailies Get uploaded onto the servers. They get sent through the communications service up to the cloud and then editing can happen the next day.

And that’s really a huge business. But you asked another good point. We’ve, we have over 500 university customers just in the United States alone. And the universities used to be the central it, you go there for everything. And they’d have EMC or NetApp appliances on prem and you paid for your little chunk of whatever you needed from that and they tried to figure out how to price it, they did a lousy job, the money was going from one pocket to the other in the university, so they weren’t too worried about it.

What happened was a lot of the department heads discovered the cloud and they said, something, the cloud has more flexibility. It has better. Better storage, newer storage, more secure storage, whatever the caveat was. And so we started to see MSPs coming into the university setting and saying, Hey, look, we can help you.

You’re not, the IT department, just like the media and entertainment IT orgs. Those are the first things that get cut. And and in the university, even though the tuition doesn’t seem to ever get cut, all of the other stuff does. And so MSPs have flourished as augmenting the IT department and bringing cloud storage services and other cloud services to the end user budget holders has grown.

And so we’ve seen that as another big opportunity for MSPs to come in. And the last one I’ll say that we see every day is the MSPs who are, bringing in this data protection As a service, whether it’s, whatever the name happens to be of it, but protecting against cyber attacks, I.

T. Departments are overwhelmed, uh, by these attacks and MSPs have better tools in many cases, and we provide an excellent tool as part of their tool kit to create a anti ransomware service. As a, as part of what they offer as a solution to their customers. And we have, thousands of MSPs that do that as a business.

Erick: Marty, you touched on three very unique, I think two very unique use cases to the many MSPs. And then one that I think is everybody’s moving in that direction. You talked about, the production facilities. I, we have a personal friend that used to work for an animation studio here in Hollywood.

I got the tour of the facility and I saw what you were describing. It’s like they had their own data center in their place, and it was not 10 servers, it was hundreds and hundreds of servers because of the processing that was required and all these workstations. So [00:50:00] I get what you’re talking about.

That the amount of data is just hard to imagine. That’s crazy. Yeah. And you talked about the universities and their data, and then you talked about cybersecurity. I wanna ask you a, a. Kind of a related question around the services themselves and how they impact client satisfaction. And do they help in reducing client churn over time?

Are we seeing more satisfied end customers that MSPs are serving? Because they’re migrating the data to the cloud and managing the data to the cloud and the security and the accessibility and all that. What are your thoughts?

Marty: I would say, Erick, the way that we see it, and this is, as being informed by the MSPs partners that we have is that initially they’re gaining a lot of clients who basically rushed to the cloud and went to the hyperscale cloud, and then got those bills that we just talked about earlier, They knew what half of the bill was going to be.

They didn’t know there was another half to the bill, which was all the fees. And a lot of them retreated, but they didn’t have anywhere to retreat to. So where MSPs have come in and really saved the day is, they pick the best of breed elements of the cloud and such as, our cloud storage or someone’s compute or whatever the services are.

And package that up for the company, the customer they serve, even if the customer has an I. T. Department and Erick, just to give you an example, we have one of the largest groups of hospitals in the in the United States based here in Boston, where I am, and I’ve talked to the C. I. O.

S. Of, one of the top three largest in Boston, certainly in one of the largest in the country hospital groups And they, their argument was, we cannot deliver the same level of service in storage that you can, we don’t have the latest, greatest, anything. We bought our NetApp equipment five years ago.

It works, it stores data. We don’t have all of the security that you do. We don’t have it because we’re not constantly just thinking about storage. And that’s his point was. Companies like ours are only thinking about one thing and we take a lot of the guesswork out of what the MSP has to think about.

And this IT, the CIO of a major hospital chain was saying, look, I can’t even offer half of the level of security that you have. Yes, I have. I have some encryption. I have some identity access management, but I just don’t have enough resources to provide the same level. So we’re seeing that whole dynamic happening and MSPs are stepping in and saying, you know what?

We can get you the best compute the best storage to manage your particular workload. And we want to be a part of that.

Rich: Marty, really interesting conversation. Thank you so much for joining us. A lot of Openings a lot of business opportunities there the folks in our audience may not be considering but might want to start thinking about now So we really appreciate you joining us on the show for folks in the audience who want to maybe get in touch with You learn more about wasabi.

Where should they go?

Marty: First of all, we just completely rebuilt our website and launched it last week So go to wasabi. com If you want to reach me, I’m certainly very active on LinkedIn, and I’m simply marty@wasabi. com. If you want to send me an email and i’ll connect you to the very best person That can help you understand whatever it is.

You’re wondering about

Rich: well, fantastic. Thank you again marty folks, we are going to take a quick break here when Erick and I come back on the other side we’re going to share some final thoughts about this conversation maybe have a little fun wrap up the show stick around we I’m going to be right back.

All right. And welcome back to part three of this episode of the MSP chat podcast. Very interesting conversation with Marty. We thank him once more for joining us. I got to tell you, Erick, I have been covering, I’ve been writing about Wasabi almost literally since the company was born. And so for me, I, right at the beginning of the conversation, he revealed that they’re signing 350 partners a week, I believe he said.

A month makes a lot more sense still. It’s an incredible number that the growth of that business in the last four or five years has been incredible and just FYI off the air when we finished the interview we were chatting a little bit with Marty and learned that they they add a petabyte of storage.

There’s another [00:55:00] petabyte of data put into their cloud every four or five hours, he said, which gives you a sense for the scale of what they’re doing. And then the last thing I’ll just point out is, that for me, like I said during the interview, the really interesting question, the thing that I really wanted to hear his thoughts about was, This opportunity around AI storage because again, the AI services that we’ve talked about and AI security, there are a lot of different ways to make money, but one of the, arguably least sexy, maybe least appreciated, very real opportunities around AI is to store all of that information of various kinds that these AI engines are produced.

Erick: I thought that was a really great question, Rich, and I really enjoyed speaking to Marty Mork with my engineer hat on sometimes, and you really get a sense for how amazing what they’ve built really is. And like you say, proof positive they’re adding partners. So their program, like very few vendors in the industry.

I was surprised when he said that number, I’m like, wow, that means they’re doing a lot of things, and making it easy for the MSPs. He’s taking a lot of care. I will, so I’d be taking a lot of care in making it MSP, not only MSP friendly, but MSP easy onboarding, provisioning and just the pricing model where.

I’m used to, again, back in the enterprise and back in my MSP days is you’re paying different rates for, how long you want to store your data and how easy you want to have access to it. And for them to be able to just say, it’s one rate, get it when you want it, store as much of it as you need.

The other point about the question that you asked specifically, Rich, that I was very interested in and keyed in on was the correlation between, some of the risk that is being, is associated with AI in terms of where the data is and where these, Public LLMs or, large language models are getting access to this stuff because it’s out there in the public domain or whatever.

So we were seeing, lawsuits being filed for copyright infringement, intellectual property infringement, because AI is going to scrape the whole internet, and if there’s a way for it to get data about something that you own that’s out there somehow it’s going to grab it. And so I like the idea of being.

able to position a solution like this to a client that says, Hey, we’re going to be shepherds and keepers of your data and governance of AI. And we’re only going to allow AI to have access to the data that you control and only have it available to your company itself, making sure that it’s not out there anywhere else.

And all this stuff is inside of your own cloud. If you will, Rich, because, what we’ve seen and read stories on our end users that come in and just, fire up an instance of, their preferred AI that may be built into their browser or on their desktop today and just have it search company information and try to, as we do, Hey, I’ve got to parse through a bunch of, data, grab these tables and give me this output and show it to me like this.

Great. That’s a public AI platform that you are allowing access to your internal company data. What happens to that information after it gives it to you? Where is it being stored? Can it be used elsewhere? Is it going into an LLM and what are the fine, what does the fine print say when you subscribe to the AI about who owns the data, once you give it to them, because, social media says by putting your data in our platforms, like we own your pictures, we own everything you write and all this other stuff, right?

So it’s it gives someone an opportunity to have a discussion with their client to say, Hey, we’re going to be leveraging AI and things like that, let’s make sure that we use this cloud environment in such a way. Okay. That, we’re protecting all that. So these are the things that I was thinking about.

Rich: Whole new need, a whole new use case. Therefore a whole new revenue stream potentially for MSPs. And it leaves us with time for just one last thing, folks. And surprise. This is going to be AI related as well. AI, as we know, is good at many things, but researchers at Google DeepMind have discovered something it’s not terribly good at.

And that Erick is comedy. There’s actually a researcher at Google DeepMind who in his spare time does improv comedy. He was curious to see how good are generative AI engines at writing jokes. And it just, by the way, this was new information to me, a lot of comedians are using Gemini and ChatGPT in their work, they’ll use it to maybe get ideas, structure a monologue, et cetera.

They [01:00:00] typically don’t let the the AI write the jokes for them. And it’s probably a good thing that they don’t. I would characterize the results when these AI engines were asked to write jokes as bad dad humor. Erick, let me just Quickly see if I can get one for you here. So the prompt was write me 10 jokes about pickpocketing and one of the large language model responses was I decided to switch careers and become a pickpocket after watching a magic show little did I know the only thing Disappearing would be my reputation

Oh dear, and there are more like that, and I guess it’s impressive that the, this, these things can write jokes at all. They’re just not very good jokes.

Erick: Rich, I remember maybe a year ago now I stumbled across an article or something online about this particular subject too. And it was like, the jokes that the AI was writing were like borderline.

Racist and all kinds of things, right? Because it only feeds on what, where it’s getting its data from. And if you’re looking at the wrong sites for different things, you’re going to get influenced by that. It was creepy. At least it, I think bad dad jokes is probably an improvement from what, I gleaned about a year ago from somebody trying to do something similar.

Agreed.

Rich: Completely agreed. Folks that is all the time we’ve got for you on this episode of the show Thank you very much for joining us. We’re going to see you again in a week’s time until then I will remind you that we we both distribute this show in video and in audio So if you’re listening to the audio version of the podcast, but you might like to check us out on video Look us up, MSPchat, on YouTube if you’re watching the YouTube version of the podcast, but you listen to audio podcasts sometimes.

Go to wherever it is you get your audio podcasts because you’re going to find us there, too. Wherever it is you’re consuming this content, please subscribe, rate, review. It helps other people Find the show and enjoy it just as you are. This show is produced by the great Russ Johns. He’s part of the team here at Channel Master.

He can produce a show for you as well. You want to learn more about Russ. You want to learn more about the work we do for our clients at Channel Master. Please visit www. channelmastered. com. Channel Mastered has a sister business called MSP Mastered that works directly with MSPs. If you’d like to see how MSP Mastered can help you.

Grow and optimize your business. That URL is www. mspmastered. com. So once again, we thank you for joining us. See you again in a week. Until then folks, please remember you can’t spell channel without M S P.