The Evolving Landscape of MSP Business: AI Perspective in 2024

💡This post will summarize the contents of the 'MSP Business Environment Change 2024' report issued by Barracuda Networks in June 2024.

The managed service provider (MSP) market is rapidly evolving. As digital transformation and cloud adoption accelerate, the role of MSPs is becoming increasingly important. At the same time, artificial intelligence (AI) is having a significant impact on MSP businesses. Based on Barracuda's "2024 MSP Market Trends Report," let's examine the key trends and response strategies in the MSP market from an AI perspective.

1. MSP Market Status and Outlook

The MSP industry is expected to maintain steady growth in 2024. The average revenue of surveyed MSPs is projected to increase from $27 million in 2023 to $29 million in 2024. In particular, the share of managed services revenue is expected to grow significantly from 34% in 2023 to 44% in 2024.

This reflects the trend of companies reducing internal IT resources and increasing their reliance on MSPs. 92% of respondents said that their customers are reducing internal IT staff and requesting more technical support from MSPs. Demand for managing complex IT environments, cost efficiency, and 24/7 support is driving MSP growth.

2. AI Adoption Status and Outlook

AI is becoming an essential element in the MSP industry. 95% of respondents are either already providing AI services (58%) or planning to introduce them within the next 12 months (37%). This is because AI can provide various benefits such as cost reduction, automation, enhanced security, and 24-hour support.

Key areas of AI utilization include:

• Predictive analytics and proactive solutions (57%)

• Intelligent customer support (55%)

• Enhanced cybersecurity (54%)

• Intelligent automation and efficiency (53%)

• Data-driven decision making (53%)

• Personalized education (46%)

Most MSPs plan to add AI services they're not currently offering within 2024. Customer demand for AI is also high, with 77% of respondents feeling pressure to provide AI-related guidance and tools.

3. Challenges in AI Adoption

Despite AI being essential for MSP business, many MSPs are struggling to enhance their AI capabilities. 87% of respondents said they need significant improvements in knowledge and application of AI products/services. 30% identified in-depth understanding and use of AI as a major challenge for 2024.

This may be a natural result considering the rapid pace of development and complexity of AI technology. However, it is urgent for MSPs to strengthen their AI capabilities to maintain competitiveness and meet customer demands.

4. AI-based MSP Strategies

Let's look at MSP strategies for effectively utilizing AI:

1) Securing AI Expertise

• Recruiting and nurturing AI specialists

• Utilizing AI-related education and certification programs

• Building partnerships with AI specialized companies

2) Expanding AI-based Service Portfolio

• Developing AI-specialized services such as predictive analytics and intelligent monitoring

• Integrating AI functions into existing services (e.g., AI-based security threat detection)

• Providing industry-specific AI solutions

3) Improving Internal Processes with AI

• Helpdesk automation

• Resource allocation optimization

• Predictive maintenance

4) Enhancing Security with AI

• Building AI-based threat detection and response systems

• Behavioral analysis

• Automated patch management

5) Responding to AI Ethics and Regulations

• Establishing AI ethics guidelines

• Monitoring and complying with AI-related regulations

6) Strengthening AI-related Customer Support

• Providing AI adoption consulting services

• Operating AI utilization education programs

• Analyzing and optimizing AI solution performance

5. Utilizing Cloud Marketplaces

Along with AI, another trend MSPs should pay attention to is cloud marketplaces. 92% of respondents said that cloud marketplaces will be important to their organization in 2024. 47% are already purchasing products and services through cloud marketplaces, and 50% are considering adoption.

The main benefits of utilizing cloud marketplaces include:

• Improved new customer acquisition (56%)

• Increased ROI per transaction (53%)

• Reaching customers who prefer cloud marketplaces (43%)

However, there are concerns such as direct customer purchases (55%) and dependence on specific cloud vendors (53%). MSPs need to establish cloud marketplace strategies considering these pros and cons.

Strategies linking AI and cloud marketplaces should also be considered. For example, providing AI-based services through cloud marketplaces or improving product recommendations using AI.

6. Expanding Security-Centered Services

Along with AI, another area MSPs should focus on is cybersecurity. Security-related services were the most common among new services to be added in 2024, and main services provided are also security-centered:

• Security Operations Center (SOC): 42% (up from 35% in 2023)

• Security awareness training: 38% (up from 26% in 2023)

• Network security: 36% (up from 31% in 2023)

This reflects customers' security demands due to increasingly complex threat environments and growing regulatory requirements. AI can play a crucial role in enhancing these security services. For example:

• AI-based threat detection and response

• User and Entity Behavior Analytics (UEBA)

• Intelligent phishing prevention

• Automated vulnerability management

• AI-based security awareness training

MSPs can improve the accuracy and efficiency of security services and provide differentiated value using AI.

7. Future Strategies for AI-based MSPs

In the future, AI will be more deeply integrated into all aspects of MSP business. Long-term strategic directions to prepare for this include:

1) AI-driven Innovation

• Expanding AI R&D investment

• Exploring collaboration and M&A with AI startups

• Discovering new AI-based business models

2) Advanced Data Strategy

• Building customer data integration and analysis systems

• Strengthening data quality management and governance

• Establishing a data-driven decision-making culture

3) Securing and Nurturing AI Talent

• Recruiting AI experts and internal training

• AI literacy education for all employees

• Conducting AI ethics education

4) Developing Customer-centric AI Services

• Improving AI services based on customer feedback

• Developing industry-specific AI solutions

• Enhancing customer experience using AI

5) Building AI Ecosystem

• Strengthening cooperation with AI companies, academia, and startups

• Participating in open-source AI projects

• Operating AI innovation centers or labs

6) Pursuing Sustainable AI

• Developing energy-efficient AI models

• Reducing carbon emissions using AI

• Establishing AI ethics and responsible AI principles

7) Building AI Regulatory Response System

• Establishing AI-related regulatory monitoring systems

• Developing internal guidelines for AI regulatory compliance

• Establishing AI governance systems

8. Conclusion

AI is bringing revolutionary changes to the MSP industry. The potential of AI is limitless, from meeting customer needs and improving operational efficiency to creating new services. However, there are many challenges to be addressed, such as enhancing AI capabilities, responding to ethical issues, and regulatory compliance.

To become a successful AI-based MSP, a strategic approach with a long-term perspective is necessary. Differentiated value should be provided through securing AI expertise, strengthening data capabilities, developing customer-centric AI services, and enhancing security.

At the same time, it's important to recognize the limitations and risks of AI and seek responsible AI utilization methods. Efforts such as establishing AI ethics principles, continuous monitoring, and combining human intervention and judgment when necessary are required.

MSPs in the AI era should evolve from simple technology providers to strategic partners leading customers' digital innovation. They should focus on improving customers' business performance and creating new value through AI. It's also essential to maintain a flexible and agile approach, keeping an eye on rapidly changing technological environments and market trends.

AI presents both opportunities and challenges for the MSP industry. The future of MSPs will be determined by how they utilize and respond to these challenges. MSPs that use AI as a strategic weapon and grow together with their customers will lead the future market.