Business of Tech: Daily 10-Minute IT Services Insights

MSPs Face Profitability Challenges as 18% Operate at a Loss; OpenAI and CrowdStrike Innovate AI

Feb 13, 2025

Managed service providers are struggling, with 18% now operating at a loss, raising concerns about traditional service contracts. A shift towards transactional IT spending is noticed amid slower revenue growth. In AI, a report highlights a governance gap, where many leaders fear security risks but lack preparedness. OpenAI is set to launch GPT-4.5 and GPT-5, aiming to enhance functionality and address these challenges. The podcast delves into the integration of AI in security solutions, advocating for AI that complements existing systems.

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Quick takeaways

Managed service providers are increasingly struggling with profitability, as 18% now operate at a loss amid declining revenue growth.

A significant gap in AI governance raises challenges for responsible adoption, with only 24% of executives feeling prepared to manage associated security risks.

Deep dives

Managed Service Providers Face Profitability Challenges

Managed service providers (MSPs) are experiencing a significant slowdown in revenue growth, with a mere 1% increase reported, the lowest in the year. While profitability remains relatively high, with adjusted EBITDA dropping slightly to 11.1%, 18% of MSPs are now operating at a loss, indicating a worrying escalation from the previous quarter. This trend suggests that factors affecting the managed services market, such as competition and economic conditions, are impacting the ability to sustain operations, particularly for smaller or less efficient providers. Additionally, the strong revenue growth of value-added resellers, driven largely by product sales, signals a potential shift away from traditional service contracts as clients reassess their spending strategies.

Intro

5min

Navigating AI Governance and Innovations in IT Services

6min

The Integration of AI in Security Solutions

3min

Managed service providers (MSPs) are facing significant challenges as recent data reveals that 18% are operating at a loss, a concerning increase from 14% in the previous quarter. While overall managed service revenue growth has slowed to just 1%, profitability remains relatively high, with an average EBITDA of 11.1%. However, the decline in services revenue, particularly among value-added resellers (VARs), indicates a potential shift in client spending habits, raising questions about the sustainability of traditional service contracts. This trend suggests that clients may be reverting to transactional IT spending rather than fully managed services.

In the realm of artificial intelligence (AI), a report from NTT Data highlights a growing responsibility gap in AI adoption, with over 80% of business leaders acknowledging that governance is not keeping pace with technological advancements. The divide among executives regarding the prioritization of responsibility versus innovation complicates the landscape, as 89% express concerns about security risks associated with AI, yet only 24% feel prepared to manage these risks. This lack of alignment could hinder AI adoption and create compliance challenges, emphasizing the need for structured governance policies.

OpenAI has announced plans for its upcoming GPT-4.5 and GPT-5 models, aiming to unify its product lineup and enhance functionality across various tasks. The new models will offer different levels of intelligence based on user subscriptions, with a focus on addressing ethical concerns in AI, such as misinformation and self-harm. Meanwhile, Apple is partnering with Alibaba to integrate AI technology into its iPhones, reflecting a strategic move to enhance its AI capabilities while navigating regulatory landscapes.

CrowdStrike has introduced Charlotte AI Detection Triage, an AI-driven tool designed to automate alert assessments in security operations, achieving over 98% accuracy and significantly reducing manual workloads. This development underscores the increasing necessity for AI-driven automation in cybersecurity, as adversaries can now exploit vulnerabilities within minutes. The integration of AI into existing platforms, rather than as standalone tools, is preferred by cybersecurity professionals, highlighting the importance of delivering value through AI-enhanced solutions.

Three things to know today

00:00 Managed Services Hit Growth Wall as 18% of MSPs Operate at a Loss

06:08 OpenAI Plans GPT-4.5 and GPT-5 While Apple Taps Alibaba for AI

09:29 With Breaches Happening in Minutes, CrowdStrike Bets on AI-Driven Security Automation

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