The managed services market just got a reality check. Kaseya’s 2025 State of the MSP Report, released this week and based on a survey of more than 1,000 providers worldwide, reveals that the share of MSPs reporting typical annual customer spend above $25,000 has plummeted from 75% to 41%. Simultaneously, 48% of providers rank AI and automation as their clients’ top need for 2026, but only 13% are generating meaningful revenue from those services. These numbers land alongside a wave of channel announcements from TD SYNNEX, N-able, NWN, Microsoft, and Fleet, all pointing to a market that is maturing fast—and demanding that MSPs sell outcomes, not just technology.

The Numbers That Matter

Kaseya’s report offers a sobering snapshot. Winning new customers is the top challenge for 71% of MSPs, a figure that underscores how much harder sales have become. More striking is the contract value compression: three-quarters of providers used to count a $25,000-plus annual engagement as typical; now that’s true for just over four in ten. Smaller deals are becoming the norm, and each one comes with longer sales cycles and the same expectation of around-the-clock responsiveness, security, and reporting.

On the technology front, demand for AI and automation is visible. Nearly half of all MSPs say their clients are pushing for it. But the commercial engine isn’t firing. Only 13% have turned that demand into a repeatable, billable service. Cybersecurity, by contrast, remains a reliable revenue driver: 71% of MSPs reported growth in that area, and it continues to anchor most recurring-revenue models.

Why Your MSP Relationship May Look Different Soon

If you’re a business owner or IT manager who relies on an MSP for daily operations, this isn’t just channel gossip. The broad, all-you-can-eat managed services contract is fading. In its place, expect more modular, outcome-focused offerings. Instead of a single flat fee for “full-stack IT,” you may see proposals that break out security monitoring with defined SLAs, disaster recovery at a predictable per-workload price, or AI-enhanced help desk automation tied to measurable time savings.

For power users and IT professionals inside customer organizations, the shift means MSPs will increasingly push for deeper conversations about business impact. You’ll likely be asked to co-design services that map directly to uptime, compliance, or productivity goals. That’s good news if you’ve ever felt your MSP was just a reseller of tools you didn’t fully need. But it also means you’ll need to invest more upfront in scoping and proof-of-value exercises.

Home users and very small businesses may notice less of this structural change directly, but the trickle-down effect is real. As MSPs standardize their offerings to maintain margins on smaller accounts, self-service portals, automated monitoring agents, and AI-driven support bots will become more prevalent. The help desk experience might improve for routine issues while becoming less personal for complex ones.

The AI Promise vs. The AI Profit Gap

AI has leapfrogged from “interesting add-on” to “mandatory conversation” in every quarterly business review. Customers want to know how their MSP will use AI to cut costs, speed up ticket resolution, or strengthen security. Providers have responded with proofs of concept and advisory engagements, but turning that enthusiasm into a monthly recurring charge is proving difficult.

Why? Because AI services are still being productized. Many MSPs are stuck delivering advisory or one-off implementation projects rather than building managed AI services that customers renew. The real margin opportunity lies in embedding AI into existing lines: automated ticket triage, intelligent monitoring, security event correlation, and workflow automation. When an MSP can show a customer that its AI-powered automation shaved 20% off resolution time, a monthly fee becomes much easier to justify.

For IT buyers, this gap carries a caution. Beware of MSPs that pitch AI as a standalone line item without clear operational outcomes. Ask how the AI will integrate with the tools you already use and what baseline metrics will be improved. Insist on a trial period with success criteria before committing to a long-term AI service add-on.

Security Remains the Steady Anchor

While AI monetization wobbles, cybersecurity stays solid. Kaseya’s finding that 71% of MSPs see security revenue growth is no surprise. Threats don’t pause for budget reviews. But the way security is sold is shifting. Vendors like NWN are adding managed monitoring layers on top of Palo Alto Networks’ Prisma Access, turning a one-time secure access deployment into an ongoing operations service. Microsoft is extending its Copilot for All CSP promotions through June 30, 2026, offering discounts of 30% to 40% to encourage adoption—but the real money for partners sits in the readiness assessments, training, and change management services that surround the license.

For customers, this means you’ll see more MSPs packaging security as an outcome rather than a stack. Instead of buying a firewall and an endpoint protection license, you’ll buy a “secure access experience” that includes monitoring, response, and quarterly governance reports. That can be easier to budget for and easier to hold providers accountable to.

How We Got to This Inflection Point

The MSP model has been evolving for a decade. Initially, providers rode the wave of cloud migration and per-user pricing, building predictable revenue streams around Microsoft 365, backup, and basic security. As the market matured, customers became savvier. They stopped viewing IT support as a cost center to outsource and started treating it as a strategic lever they wanted to control more tightly. That led to demand for specialized services, outcome-driven contracts, and transparent reporting.

At the same time, the rise of AI and the proliferation of cyber threats pushed technology into boardroom conversations. Suddenly, the generic “we manage your IT” pitch sounded too vague. The pandemic further accelerated the need for distributed workforce support, secure access, and cloud resilience. All of this set the stage for today’s squeeze: customers want more from their MSPs but are more careful about how they pay for it.

What Smart IT Buyers Should Do Right Now

If you’re on the customer side of an MSP relationship, here are five concrete steps to take in light of these market shifts:

  • Reassess your contract structure. If you’re still on a broad, undefined managed services agreement, ask your provider to break out services into clear modules with associated SLAs and pricing. This gives you the flexibility to scale up or down without renegotiating everything.
  • Demand outcome-based security services. Move beyond license resale. Push for a security engagement that includes active monitoring, incident response, and regular compliance reporting. Use the market’s emphasis on cybersecurity as leverage to get a better service definition.
  • Start a pilot AI project—but tie it to a pain point. Whether it’s help desk automation or security alert triage, pick one area where time savings are measurable. Set a 90-day trial with a target metric, and only commit to ongoing payment if the numbers justify it.
  • Prepare for co-managed models. MSPs are increasingly offering co-managed services where you retain control over certain functions while they handle the heavy lifting. This can be ideal for IT teams that want to keep strategic ownership while offloading 24/7 monitoring or patch management.
  • Watch for vendor lock-in through proprietary tools. As MSPs adopt more integrated platforms (like N-able’s DRaaS or Fleet’s device management), ask how easy it is to exit if the relationship sours. Data portability and tool independence should be part of the conversation.

What to Watch in the Months Ahead

The next wave of MSP innovation will likely come from infrastructure-as-a-service for AI workloads. TD SYNNEX’s move to reserve dedicated NVIDIA HGX B300 clusters on Nebius AI Cloud is a harbinger. As AI projects move from pilot to production, GPU capacity will become a currency. MSPs that can guarantee compute access will command a premium.

Disaster recovery will continue its shift toward co-managed, hardware-free models. N-able’s DRaaS for Cove Data Protection removes the capex barrier many SMBs face, making resilience easier to buy. Expect other vendors to follow.

Microsoft’s extended Copilot discounts through mid-2026 will keep AI adoption on the agenda, but the real story will be which partners build durable managed services around user enablement, governance, and workflow automation. The ones who only resell licenses will be left behind.

Overall, the MSP market isn’t shrinking—it’s splintering into more specialized, harder-to-close but stickier engagements. The buyers who understand this dynamic will get better service and more predictable costs. The providers who package value clearly will earn the right to grow.