MSP Survey: Channel in Better Shape than U.S. Economy

Managed service providers (MSPs) are much more bullish about the channel than the overall U.S. economy, according to the Q1 2024 Channel Futures Market Outlook survey.

Of 90 respondents to the quarterly MSP survey, 79% said they believe the channel economy is good or excellent. That’s compared to only 44% who considered the U.S. economy good or excellent. More than twice as many considered the channel industry excellent (26%) than considered the U.S. economy excellent (12%). None of the 90 respondents said they believe the channel economy is below average, while 20% believe the U.S. economy is poor and another 6% believe it is terrible.

Q. How well do you believe the channel industry and U.S. economy are performing?

Q1 2024 Channel Futures Market Outlook Survey

The MSP survey showed a split in how they think the overall economy is affecting their business. The same amount (37%) said the current economy has a slightly negative impact as said it has a slightly positive impact. Another 16% said it had no impact, while 8% said it was extremely positive and 3% said it's extremely negative on their customers.

MSP Survey Shows Revenue, Profit Up, But Not by Much

Most MSPs said they increased total revenue, recurring revenue and profit year-over-year in the first quarter, but the gains were mostly small. Fifty-five percent said they had no increase, or up to 10% increase in total revenue. Fifty-four percent were unchanged or increased from up to 10% in recurring revenue, and 57% were unchanged or increased to 10% in profit. While less than 10% said total and recurring revenue decreased, 17% said profit decreased.

MSPs remain optimistic for the rest of 2024. Looking ahead, 46% said full-year revenue forecasts are ahead of original 2024 projects and 44% of profit forecasts are ahead of originals. That includes 15% who said profit forecasts are significantly higher and 14% who said revenue forecasts are significantly higher. That’s compared to 13% who said revenue and 15% who said profit forecasts have decreased.

Even with rosy forecasts, MSPs faced sales challenges in Q1. When asked to pick up to three of their biggest challenges in the quarter, more than half (51%) said expanding their customer base and 42% said sales. Profitability (14%), product supply (14%) and access to capital (11%) were low on the list of challenges.

Q1 2024 Channel Futures Market Outlook Survey

Pros and Cons of Layoffs

One big trend in today’s economy – tech layoffs – have brought mixed results to MSPs. The biggest way it has affected them is increased competition – mentioned by 33% – followed by reduced IT vendor support (31%). Other negative results include lower client confidence (27%) and loss of partnerships (10%). But there were positive aspects to the layoffs with a more skilled IT talent pool (27%), additional business opportunities (27%), expanded service offerings (17%) and lower talent recruitment costs (10%) among the results.

Q1 2024 Channel Futures Market Outlook Survey

AI No. 1 Motivation for Adding Vendors

When asked which sectors they added vendors for in Q1, artificial intelligence (AI) led the way, as 43% said they added vendors for AI services such as chatbots, AI-powered cybersecurity, sales/marketing and automation tools. Managed security (33%), cloud services (26%), backup and disaster recovery (19%), infrastructure as a service (17%) and compliance services (17%) make up the rest of the top five sectors MSPs added vendors to deliver.

Content and image creation (44%) is the most common use for generative AI inside MSPs’ businesses, followed by marketing campaigns (41%), social media posts (41%), email (31%) and education/research (27%). Only 17% said they are not using gen AI.

Q1 2024 Channel Futures Market Outlook Survey

More than two-thirds of the MSPs said they increased AI-related solutions deployed to or consulted with customers in Q1 2024 compared to Q1 2023, with 57% increasing up to 20% and 12% up more than 20%. That compares to 13% unchanged and 19% who do not deploy AI with customers yet.

Overall, more MSP survey respondents said their AI-related solutions increased year-over-year in Q1 2024 than in Q4 2023 when 63% reported AI increases. However, the gains were larger a quarter ago. In Q4 2023, 24% said AI deployments were up more than 20%. Only half as many (12%) reported AI deployments increased more than 20% for Q1.

Despite an industry-wide focus on AI, slightly more MSPs said managed security services had large gains over the past six months than AI. When asked to pick up to five types of services or technologies that had the biggest gains, 28% said security services such as MDR/XDR/SEIM while 26% chose AI services. At least 20% chose data analytics (25%), public cloud migration/storage (23%), help desk/service desk (21%), disaster recovery/business continuity (20%), and remote monitoring and management (20%).

Q1 2024 Channel Futures Market Outlook Survey

Channel Futures also surveyed technology advisors about their Q1.