Growth is a common ambition among MSPs - but it’s far from guaranteed. A single misstep can be the difference between a record year and a rapid decline. With AI introducing new variables and reshaping competitive dynamics, the ability to read market signals and make smart bets has never been more critical.

Those bets appear to have been well placed, for the past year at least, with 46 percent of respondents to a survey of our MSP Index members reporting moderate through to strong growth. That fortune has not been spread equally however, with 12 percent witnessing a strong downturn in clients ICT budgets and engagements.

As for the scale of growth, global data from Service Leadership Inc (a ConnectWise company) shows that organic managed services revenue is running at 10.4 percent, which is within the historical 10-14 percent range, with 32.6 percent of partners growing at over 15 percent and 18 percent growing over 20 percent. Of course, this still leaves 54.5 per cent growing under 10 percent, with 22.4 percent growing at 0.0 percent or less.

Despite this, those surveyed so far by our MSP Index remained optimistic about the future, with more than half anticipating moderate and steady growth in clients’ budgets through 2026, and only 4 percent expecting a substantial decline.

The factors influencing MSP’s outlook are many and varied, with two thirds nominating macroeconomic factors such as uncertain global conditions, a tightening business environment, and a challenging economy. These sentiments were by far the most prevalent, dwarfing even concerns about cyber security (20 percent), the impact of AI and automation (18 percent), and concerns relating to rising costs (16 percent).

While this last factor may not be significant today, the question of costs - and particularly margins - is emerging as a potential pressure point. As AI and automation reduce the cost of service delivery, some MSPs are likely to trade these efficiency gains for lower prices, eroding their own margins in the process.

This is not yet reflected in our MSP Index data, however. While 42 percent of MSPs reported some pricing pressure of late, another 18 percent said prices had been stable, while 26 percent reported that they had successfully raised prices. Only 12 percent reported significant pressure to lower prices.

The automation dilemma

According to Scott Atkinson, CEO of the Sydney-based MSP TribeTech, the ability for some MSPs to compete will be challenged by the introduction of automation.

“If you spend the time and the effort you can get some good gains,” Atkinson said. “With the smaller MSPs it is harder, because the time you are investing in there isn’t necessarily saving you that much – it is only when you grow that you really get the benefits. You’ve got to have enough of the volume for it to make sense.

“The standard IT part of the MSP – the daily backups, the general support, the application maintenance, that is really becoming commoditised.”

The challenge for many however will be that failing to bring in automation will erode their profit margins anyway, making evolution essential.

“The break fix guys or the tiny providers are going to have a hard time in the next few years in justifying that they can still exist,” Atkinson said.

Atkinson said the challenge brought on by AI and automation was shifting the tone of conversations among his MSP peers, such that many were now spending more time talking about business performance than technology.

“Business metrics are very prevalent in a lot of discussions today,” Atkinson said. “It is about margins, and whether you are charging enough to be profitable. And the key to that is, raise your prices.”

Paying the price

If clients weren’t prepared to wear higher prices, then Atkinson had one very clear piece of advice – to fire them – something he said was also discussed in much more often now than at any time the past.

“It is a measurable metric that people are looking at now,” he said.

The question of pricing in the era of AI is also proving to be a vexing one for Orro Group CEO Daniel Greengarten. While traditionally MSPs had sold services, he believed that increasingly customers were wanting to buy outcomes.

“That might be taking a measurable cost out of their business,” he said.

“And MSPs need to define what they want to be in that paradigm shift.

“Your mission even 12 months ago was different to that. Then, we were a passenger watching an interesting show. Now I feel like an am an actor in a movie I didn’t sign up for.”

Building a moat

Those MSPs not wanting to get caught in a race to the bottom on price will need to find other ways to compete. For many, that will mean specialisation, but in a sector where many are selling essentially the same set of services, standing out in a crowded market may prove challenging.

According to Kinetic IT’s head of marketing Lara Barnett, MSPs have only a handful of options available to them if they wish to create a true differentiated offering, and in most instances that means specialisation in a particular sector, solution, or technology.

“And the way to find that is to ask your customers,” Barnett said. “At Kinetic IT we are known for being a sovereign provider on shore. We have specialised target markets in the public sector across Federal and State Government, Defence, and critical infrastructure, but beyond that our brand differentiation comes from being a sovereign player.”

In this way Barnett believed that having a strong brand that was truly reflective of an organisation’s market capability – and particularly as a statement of quality - may provide some relief from margin pressure, while also attracting the right kind of clients.

“The MSPs that are going to be successful into the future are the ones who figure out their differentiation point, then figure out what they are actually known for, and then bridge the gap between the two,” Barnett said.