The title may be a little over dramatic but we need to move away from the past and gear up into the next generation of MSPs. Unlike the previous slow evolution over the past 24 years, the MSPs are morphing rapidly into something quite different in 2025.
For thirty years, we have observed the evolution of the channel firsthand. The last decade has witnessed remarkable growth and maturation of the managed services model, and now we are entering the next phase of its evolution, powered by AI, governed by compliance and regulations serving a tech savvy, younger customer base in an all-in digital world. Meanwhile, the bad hackers are circling the wagon!
According to Canalys, this year the MSP business is looking to grow by 13% to $596 Billion, but not every MSPs will get their fair share of this pie.
The blueprint for a successful MSP is actually well documented and you can find a ton of content and experts about this on eChannelNEWS and other places. But, what were best practices yesterday, may not be best tomorrow. We have learned a lot about best practices over the years with our MSP assessment. Not sure what to do? A good place to start is by asking yourself 230 questions on best practices and you can get them all for free.
Most experts agree that the channel continues to experience strong growth and will remain robust for years to come, primarily driven by cybersecurity and now, compliance and artificial intelligence. We continue to see the ongoing consolidation of Managed Service Providers all the while also see new MSPs emerging, leading to an overall growth in the total number of MSPs. Spinning up a new MSP today is much easier and cheaper than it ever was.
Here is a cool graphic from Canalys on how much the channel is biting off in the fastest growing cybersecurity sector. You can check my extended eChannelNEWS interviews with Jay McBain and Rob Rae on trends and MSP playbooks for 2025.
Still, profitability is hovering around 10%. Compare this to other professionals servicing the SMB sector and you may agree that MSPs are not getting nearly enough margins especially when you consider the high-value that they deliver. What would the World look like through the pandemic without MSPs keeping tech up and running?
Why are MSPs not more profitable? Efficiencies? Death by a thousand tools? Marketplaces? Poor marketing? Human resources? Competition? Leadership? These are just some of the headwinds that are debatable but smart MSPs already know how to navigate most and turn them into tailwinds!
[Keep in mind that hardware remains relevant; with the rise of AI-powered devices and the transition to Windows 11, sales are expected to grow! For the first time hardware capabilities are way ahead of software. These are very early days of AI-Enhanced hardware and AI-optimized software, so watch for amazing things to come, and sooner than you think!]
If you are already a successful MSP (with recurring revenue exceeding 50%), you are likely to be ahead of the game and should continue to thrive. However, it may be wise to review your strategy and offerings as AI is influencing so much and you do NOT want to be blindsided.
Think of AI as a “wild card”. It can be anything…
So, what’s next for MSPs in 2025-2026?
I could say that the most successful MSPs will have reduced the cost of their business delivery tools from 30% to 10% of revenue. And, 80% of revenues will be ARR on at least two year contracts at 30% + margins. And, using AI to increase productivity by 50%. And, be a go-to provider for cybersecurity, compliance and AI. And, able to demonstrate significant business outcomes every month to their clients. And, create an award-winning environment in which everyone wants to work in…
But instead, I will share 12 things that MSPs may want to do to navigate the next two years.
- Double down on streamlining your operations to eliminate friction, save time, cut costs, and enhance customer success—achieve more with less. Numerous tools are available to assist MSPs, but be cautious; introducing too many tools can lead to increased costs, complexity, and cyber vulnerabilities. Less can be more and platforms are emerging everywhere to help you consolidate and integrate. Find the right balance for your business by doing your homework. Inefficiency will hinder your progress to scale and profitability. As one very smart MSP puts it “death by a thousand tools”.
- Decide wisely on your cybersecurity offerings—whether to build in-house or outsource. Assess the pros and cons to make the best choice for your business. Companies aim to minimize risks, so outsourcing may be prudent. However, advancements in AI and platforms have made it increasingly feasible for MSPs to develop SOME cybersecurity offerings internally. If you lack cyber resilience and cannot provide it to your clients, consider accelerating your exit strategy as your valuation will decline, while putting both you and your clients at risk of cyber breaches.
- While not fully there yet, marketplaces and consumption transactions are rapidly increasing. With the growing importance of these players, you must navigate wisely, especially if you’re targeting larger customers. Once you give up the transaction power, regardless of what anyone says, you are more open to client poaching and margin erosion. The added profitability, business intelligence and convenience may come at a price.
- Focus on your value proposition, local competitive advantages, and more importantly, the outcomes you deliver to clients. Those who can demonstrate tangible and sustainable positive results will succeed. Companies like Produce8 are building the next wave of services that MSPs can sell on helping their clients measure outcomes. Actually, Mark Scott and Gavin Garbutt from AUGMENTT talked about the future of MSPs at our recent ChannelNEXT events. Just completed an interview with Chris Day at ScalePad on where MSPs are headed.
- Rethink and rebuild your business model around AI and start building your AI Agent. Integrate AI into your operations to accomplish more with fewer resources. AI is transforming the landscape, no-code is replacing low-code solutions. Learn, experiment, and adopt AI, but ensure you have robust safeguards in place to prevent negative impacts. How you implement AI is as crucial as the reasons for using it!
- Pricing structures continue to shift from user/end-point models to consumption, consultation, implementation, and maintenance. The future is leaning towards consumption-based models, although monthly fees per user will still exist. Eventually, this too will evolve into hybrid models and then purely consumption-based pricing. Unlike Netflix, where everyone pays a flat monthly fee for the same content, every IT user has unique needs so it’s difficult to apply one-price to tech. That said, last year we saw Kaseya pioneering an “all-you-can-eat” buffet pricing (40+ tools on one platform) and it looks like this could lead to more profits for the MSPs. You can catch an interview I recently did with Fred Voccola from Kaseya on the topic.
- Do not rely solely on device management (RMM). The focus has already shifted to outcomes, and if you can truly demonstrate your value, you can charge a premium for your services. Do not sell on price! Sell on value! This is what the most successful MSPs do. Ask yourself, how much value (ROI) you are generating for your clients? Try to quantify as this is your golden ticket to charging more or justifying your fees.
- Compliance has become essential, but you need to determine what tasks can be handled in-house and what should be outsourced. This presents yet another risk that you may want to mitigate. I know if I want to fix my teeth I go to a dentist – some things are just not DIY. Compliance audits should be done by an independent qualified third party.
- Cyber insurance is becoming increasingly important. If you lack the knowledge and tools to properly qualify for cyber insurance, how can you save costs or effectively advise your clients? Look at the current issues with homeowners’ insurance in Florida and California for context. If you haven’t already, find the right cybersecurity Insurance provider and fast! Be careful NOT to lock-in your cyber insurance policy, terms and conditions to a specific vendor.
- Relying excessively on automation without adding value through your team isn’t a compelling value proposition. If your business depends too heavily on automation, it may lack differentiation. Build a strong, capable team that consistently enhances value for both your business and your clients! Inject the human touch into the process because people still like doing business with people.
- Think about business valuation and exit strategy even if you do not plan to sell your business. When you develop this mindset, you will impact your time, resources and profitability. We have already added this topic to our events but watch for an extended series on business valuations (just did one with Michael Contento, CEPA) and exits coming to eChannelNEWS and its companion M&A Masterminds Peer-Groups.
- Be curious. Don’t be close-minded. You don’t know what you don’t know and nothing is wrong with asking for help. You are not alone! Today there are so many ways to learn both online and in-person. Take a little time away from the daily grind of the office to work on your business by attending channel events. [A blatant plug to invite you to attend a ChannelNEXT event coming close to you in 2025 :o)]. Seriously though, attending in-person events (especially local) to build your network is at least as important as building your LinkedIn network, plus it’s more fun!
As an advocate of the channel for over 30 years, we firmly believe it plays a crucial role in fostering the digital-first economy. It safeguards against cyber attacks and ensures seamless operations. This importance is heightened as we advance into the new era of AI…The world runs on tech and MSPs keep tech running!
As we continue our journey into 2025 and talk with more experts on the future of MSPs, we will share our findings. My best advice to stay on top of everything is to simply subscribe to eChannelNEWS.
