As vendors deploy generative AI tools that can chew through IT help desk tickets and automate support processes, companies that provide these services are feeling the heat. Throughout the year, managed service providers have been under pressure to adapt or risk eventual extinction.
While many MSPs need a refresh to meet customer demands for AI-based services, the doomsayers have it all wrong, Abacus Group CEO Anthony D’Ambrosi told Channel Dive.
“Whenever there's a shakeout in a market, there’ll be winners and losers,” D’Ambrosi said. “But to holistically say that a $600 billion industry that's growing anywhere from 10% to 15% per year is up against it and we're at risk of being disintermediated — I call bullshit.”
The numbers bear out D’Ambrosi’s assessment.
Abacus Group said it has grown organic revenue by double digits this year, tallying record sales.
More broadly, global managed services revenue is expected to increase 13% year over year to $595 billion in 2025, despite mounting concerns about returns on AI investments, according to technology research and advisory firm Omdia.
The industry has seen record setting pandemic era growth taper off slightly, and executives are eying margins closely. Profitability is a pressing concern, cloud data security provider Datto found in its State of the MSP Industry 2025 Look Ahead report.
Nearly one-quarter of MSPs are not regularly profitable, Robin Ody, Omdia MSP practice leader, said during a Canalys Forums presentation in October.
However, rumors of an MSP market crash have been greatly exaggerated.
ConnectWise’s Service Leadership benchmarking reports for technology services providers shows a healthy industry, Peter Kujawa, EVP and general manager of the IT service analytics company, said.
In Q2 2025, only 13% of MSPs were unprofitable, compared to roughly one-quarter a few years ago, Kujawa said.
“We've had the best five years ever in the industry,” said Kujawa. “[In] the last five years, top quartile guys have had their best profitability. The bottom quartile guys have lost less money than they historically have.”
AI impacts
There’s little doubt among industry analysts that AI will hasten — and perhaps consummate — a transition away from the traditional break-fix model for MSPs.
Partners will need to evolve their service capabilities to orchestrate agentic AI systems, Pax8 CEO Scott Chasin said at Pax8 Beyond EMEA in October. MSPs that fail pivot could lose 30% to 50% of their margins, Chasin estimated.
Many MSPs are improving their margins by using AI to automate tier-one support. But AI chatbots and copilots could also threaten to disintermediate MSP help desk services.
“It's going to be a matter of time before Copilot is going to have a help desk option or a vendor is going to come out and say, ‘We've got a subscription for help desk. You don't even need a team anymore or an MSP,’” Erez Zevulunov, CEO of Canadian MSP MIT Consulting, said.
There’s good reason for concern. An increasing number of MSPs forecasted annual revenue declines in each successive quarterly survey Omdia has fielded this year.
“The exuberance that we brought into 2025 is now more level, and as we're thinking about the rest of this year, we’re all in a mode of a little bit of protection and very specific on where we're going to go on offense as an industry,” Omdia chief analyst Jay McBain said at the September MSP Summit.
Some MSP founders are choosing to sell their business rather than embark on an AI transformation. Those MSPs report that it’s become difficult to acquire new customers and drive additional sales, according to Craig Fulton, an M&A advisor at tech holding company Evergreen.
“People are like, ‘Oh crap, I can’t figure out how to grow. Maybe it's time,’” said Fulton, who added his company takes calls from dozens of MSP executives every week.
D’Ambrosi agreed that AI is a boardroom topic for which MSPs must develop a plan. He expects MSPs to weather the changes just as they adapted to cloud and cybersecurity.
“We've had to adopt and evolve over the years, and we're going to have to adopt and evolve again,” D’Ambrosi said. “But boy, oh, boy. I read some of these things, and I hear some of these things about, ‘It's impossible to be profitable. The market's going to hit a wall.’ I don't see any signs of that.”
Many of the struggling MSPs are actually value added resellers that added a managed services practice, D’Ambrosi said. It’s those companies, whose managed services revenue is less than half of their business, that may be tilting channel sentiment toward bearishness.
“If you're a reseller and you're a transaction-based business model with thinner margins, and you're trying to self-fund the bubble of transformation to go from transactional reseller to longer term, recurring revenue MSP model, that's not for everybody,” said D’Ambrosi. “There are thousands of VARs that never really crossed that chasm.”
Disclosure: Informa, which owns a controlling stake in Informa TechTarget, the publisher behind Channel Dive, is also invested in Omdia. Informa has no influence over Channel Dive’s coverage
