Canalys: MSP Landscape Primed for Strong Growth in 2024

The MSP landscape should see significant growth this year, driven by demand for cybersecurity management, cloud infrastructure, application development, artificial intelligence (AI) solution consulting and compliance requirements.

That’s according to Canalys’ predictions for the MSP landscape in 2024. Canalys, a Channel Futures sister company, estimates managed services revenue in the channel will grow at least 12% in 2024.

A new Canalys Candefero poll asked respondents how much growth they expect in their managed services revenue in 2024 compared to 2023. Of the nearly 300 respondents, one in four (25%) said It will grow by more than 20%, while 31% said it will grow between 11% and 20%. Twenty-three percent said it will grow between 1% and 10%, while 7% said it will decline, and 14% said they don’t sell managed services.

Robin Ody, principal analyst at Canalys, said managed services are outgrowing many other areas of the channel and there are more competitors in the space coming from a broader set of partners, all looking to capitalize on the customer’s need to find specialists.

Heavy Demand for Cybersecurity Among MSPs

Cybersecurity-managed services will bring more value to both partners and customers, with significant growth expected in cybersecurity revenues. One in three (34%) partners expects more than 20% growth year over year in their cybersecurity revenue in 2024, while almost two-thirds expect more than 10% growth.

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Canalys' Robin Ody

“Cybersecurity has changed everything about the managed services space, from the services partners can offer to the complexity of the solution delivered to the customer,” Ody said. “Today, MSPs can offer everything from training, vulnerability scanning and penetration testing, all the way through to remediation services and forensics. However, the number of partners that can deliver these full-stack services is relatively few, and even fewer when we consider those that can cost-effectively deliver these services.”

Big Opportunities in AI

AI presents opportunities for improved customer management, according to Canalys. MSPs can leverage AI for their own IT, their customers’ IT and preparing customers for the future of AI.

“One of the most important and immediate opportunities for MSPs in AI is likely to begin with questions around Microsoft Copilot,” Ody said. “Customers have seen ChatGPT and the explosion of consumer-available generative AI, but they are still getting to grips with what it really means and how they can use it. All channel partners should be looking at AI in three ways. How can I use it for my own IT? How can I use it for my customers’ IT? How can I prepare my customers for the future of AI?”

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MSPs are proactively using AI for many tasks, including scripting in RMM, automation in ticketing and billing for PSA, project management, proposal creation and a few others. But the vast majority of partners will be using AI as a feature of existing and future tools, where it will be working in the background to improve the accuracy of software such as in data centers, IaaS and cybersecurity. For now, MSPs can see a number of routes to leveraging AI for boosting revenue or internal processes, and 2024 will be an interesting year for new use cases.

M&A Rebound

M&A activity in the channel dropped about 60% in 2023 from 2022, according to Canalys. Interest rate increases and economic uncertainty depressed sales and had an impact on valuations, affecting both the supply and demand side of M&A.

This year is likely to bring a rebound in M&A, though not quite to the same heights, as valuations move up and interest rates in some countries drop enough to entice buyers back into the market, according to Canalys.

“Equally, the shock effect of the cost of borrowing has diminished slightly and those with cash are still looking for acquisitions that will provide solid returns,” Ody said. “There is likely to be some initial consolidation in the MSP space at the beginning of 2024, but the overall number of MSPs in the market will rise during the year as new companies are formed and some channel partners move over to pure managed services models.”

Vendor consolidation in RMM is inevitable, Canalys said. Companies such as Addigy, Atera, HaloPSA, NinjaOne, Syncro and others will be in high demand this year from other vendors and private equity firms. And having seen Kaseya and Rev.io buy Datto and Tigerpaw, respectively, it’s likely that at least one or two will decide now is the time to sell up. There has been an increase in the number of challenger vendors in RMM/PSA in the last five years as managed services gained greater attention in the market. This year will likely see two or three of these vendors being acquired.

MSP Challenges

In the meantime, MSPs will face challenges in acquiring new customers, upskilling existing staff and managing customer budgets. Marketing, specialization and co-partnering can help overcome these challenges and boost growth.

“For some partners, new customer acquisition will be at the top of this list and their focus may be on expanding their work with existing clients,” Ody said. “Marketing is a closely related challenge and many MSPs do not have the budget or size to justify marketing spend, but more partners are reporting they will be recruiting marketing headcount while others are likely to be training existing staff in marketing to boost awareness and raise their brand profile.”