2024 MSP Revenue Off to Good Start, IDC Says

Driven by artificial intelligence (AI), cloud and expected growth in overall IT spending increase, analyst firm IDC predicts managed service deals will increase in 2024. The expected uptick comes after a strong start to the year following a decline in deals from 2022-2023.

According to the IDC Services Contract Database, there were about 1,800 managed service deals worth more than $100 billion in contract value in 2023. The average deal size in 2023 remained the same as in 2022, although the number of contacts decreased. IDC predicts AI and cloud managed services will bring about larger IT spending in 2024. On average, the size of AI-centric deals doubled between 2022 and 2023, with AI implementations figuring prominently in sectors including manufacturing and financial services. IDC expects AI-enabled services will continue this trend for several years.

IDC’s forecasts match predictions of increased spending from other analyst firms and industry numbers, and MSPs also expressed optimism in the Q4 2023 Channel Futures Market Outlook survey. But IDC’s contracts database also shows a strong start to 2024 for MSPs.

IDC predicts 2024 managed service deal sizes will be larger than in 2023. Several $500 million-plus contracts were signed in the first quarter of 2024. IDC said around 60% of the total value was from cloud and 15% involved AI technology. It estimated about 60% of the total contract value of first-quarter 2024 deals came from cloud and about 15% included AI technology. IDC estimates more than 200 deals worth more than $100 million will be up for renewal this year.

IDC points out there were more large deals (more than $100 million in total contract value) signed in 2023 than in 2022. These include a $14 billion agreement between AT&T and Ericsson, a $2 billion-plus contract between Verizon Business and HCL Technologies, and a $1 billion agreement between CoreLogic and Cognizant.

Other Analysts Agree AI, Cloud Among 2024 MSP Revenue Drivers

Grand View Research and Canalys also predict MSP revenues to rise in 2024. Grand View forecasts the MSP market to grow at a compound annual growth rate (CAGR) of 13.6% through 2023, citing cloud services, AI and cybersecurity as major drivers of that growth.

Canalys research predicts managed services revenue will grow 12% or more in 2024, pointing to cloud infrastructure, AI solutions, cybersecurity, application development and compliance requirements among the drivers. (Informa is the parent company of both Channel Futures and Canalys.)

Investment bank Greenwich Capital Group (GCG) managing partner Jeff Goodman expects MSP revenue growth to spark an increase in M&A as well.

“GCG believes M&A activities are expected to flourish in the coming years,” Goodman wrote in a news report on the GCG website.

Greenwich Capital Group's Jeff Goodman

Goodman wrote that AI has spurred growth of specialization among MSPs, allowing even small players to develop expertise that is hard for in-house IT organizations to match.

“The proliferation of AI is accelerating the demands placed upon IT departments,” he wrote. “The various stakeholders throughout enterprises are asking for best-in-class solutions to drive decision-making with AI. It is unlikely that the IT organization has in-house expertise across this nascent set of solutions, which again makes outsourcing managed services an attractive solution.”