In just over two decades, MSPs have evolved from humble break/fix outfits to strategic partners powering some of the most complex technology environments in the world.

Since those early days, MSPs have passed through several step changes, including the growth in remote monitoring solutions, the rise of public clouds in the 2010s, and massive growth in demand for security capabilities.

Today MSPs find themselves grappling with the next great evolutionary change – AI – and the challenge of meeting the AI needs of clients while adopting the technology for the betterment of their own systems and processes.

“I would say the industry is undergoing structural change,” said Orro Group chief executive officer Daniel Greengarten. “For the last 20 years the model has been focused on providing technology solutions to customers. This structural change is driving a change in the dialogue, to ask how you will deliver a set of outcomes through technology, and how will you think of delivering your services differently in a way that is aligned with specific outcomes customers want to achieve.”

Building capabilities

These evolutionary changes are best represented through how MSPs identify themselves today. While 68 percent describe themselves as one-stop ICT partners with a broad service offering, 44 per cent also now identify as a security partner, and 30 percent as a cloud managed service provider. The growth potential of this last category was reflected in the 48 percent of respondents who indicated they had launched or expanded compliance-as-a-service offerings.

One company to build this capability is TribeTech. CEO Scott Atkison said his business had invested in numerous capability upgrades, including achieving ISO27001 certification, and added that security was one service area where size mattered.

“When you start to look at the regulations that are going to be coming down around security, privacy, and all sorts of things, the smaller organisations are going to have trouble meeting some of those,” Atkinson said. “Not from a capabilities point of view, but because there is so much administrative time required to keep those things operational.”

The focus on security was also evolving in ways that might even favour local MSPs – that being to embrace the concept of digital sovereignty, by providing fully-onshore services.

According to the future of work advisor at IBRS, Dr Joseph Sweeney, the current debate about sovereign data and capability was tailor made to be capitalised on by local MSPs.

“There is a lot of dissatisfaction and a growing distrust of US global giants, given how close they are to the (US) administration and the Cloud Act, and (customers’) realisation that they have a financial dependency on these services as costs go up,” Sweeney said. “And so we are starting to see some genuine discussion around replatforming critical things – in house or with a local cloud provider – to break this reliance on international hyperscale cloud.”

Through the clients’ eyes

But perhaps the most important evolution in the MSP model has been how they are regarded by their clients.

When asked to self-assess their primary role in most client relationships, 44 percent of MSPs described themselves as a strategic partner helping clients plan their IT roadmap and business alignment. This was only slightly ahead of the 40 percent who believed they were embedded as a trusted advisor providing regular strategic input.

IBRS’ Sweeney believed moving up the value chain was a sensible strategy for an industry where the cost of running core IT services went down year on year, but where the margins available from their core technology providers got slimmer and slimmer. He said the only response was to offer greater value.

“So how do they go to the customers and tell them to spend more and to do more with the technology to get more value out of it? “Sweeney asked. “That value discussion is evolving, and that is why the MSPs who have an advisory role can look at the business and become very tied into the executive of the business.”

Sweeney said this need was shown through one of the five most common inquiries received by IBRS being how to talk value to the executive.

“(Clients’) IT costs are expanding faster than the revenue of the business, and as a result they are asking to be shown the value,” Sweeney said. “And that discussion is really hard for a lot of MSPs.”

A broader conversation

This trend was further reflected through the expansion of MSPs’ conversations beyond just the realm of technical buyers. Over two thirds of respondents indicated they had ongoing relationships with line-of-business stakeholders when delivering projects, including heads of sales, marketing, HR, finance, and other executives. This compared to just ten percent who engaged only through their IT contact.

And as MSPs have evolved, so too has their focus on customer service matured. More than 60 percent now conducted client business reviews on a quarterly basis, with just over a quarter doing so monthly. This close alignment to customer feedback has driven numerous changes in the way MSPs provide service, with more than half reporting they had worked to deliver improved customer communication and transparency in the past 12 – 8 months.

Other changes which have improved customer satisfaction include implementation of faster response and resolution times through automation, increased cybersecurity protection and awareness training for staff, the introduction of regular business reviews or strategic account management, and the rollout of new service offerings aligned with customer needs.

Automated evolution

According to Stu Applegate, senior IT Nation community at ConnectWise, automation specifically was critical to ensuring the long-term success of MSP.

“They need to almost turn their business upside down,” Applegate said. “If you’re not doing automation, or trying to change the way you engage with your customers, you are going to be behind the eight ball - you are not going to be remain operationally efficient or profitable.”

The key challenge that Applegate saw was that MSPs needed to do more for customers with fewer resources.

“That is as simple as it gets,” Applegate said. “Everyone talks about that, but the reality is that they try to do more with more. Until we turn these businesses upside down and change the way we staff them and skill for different areas, we won’t get tangible benefits.”

While many of the evolutionary stages MSPs have passed through were driven by technology, Applegate noted that this next shift - changing the very nature of the service offering - may be the least technical, but the most significant.

“As MSPs, we’ve copped these waves more than anyone else, as we’ve gone from break/fix to managed services” Applegate said. “We have to change our conversations, because if we don’t, we’ll get left behind and become irrelevant.”

Applegate noted that for those MSPs accustomed to shielding customers from the complexity of IT, the rise of AI and automation introduced a new challenge, as customers could now assume more of the technology role themselves. Hence he suggested that an astute customer might reasonably conclude that, with access to the same tools, they may no longer need a provider at all.

“But there is a genuine feeling out there that if we are not mindful, there is a possibility of disintermediation.

“The evolution of an MSP isn’t optional - it is existential.”