Briefing Points

  • Managed service providers (MSPs) face multiple challenges, but finding new customers is the most pressing issue, according to Kaseya's 2026 State of the MSP Industry Report released Tuesday. The IT and security management software vendor surveyed more than 1,000 MSPs globally.
  • Nearly three-quarters of respondents said winning new customers is the biggest obstacle to their business. The survey also found that shrinking deal sizes and a widening talent gap are pain points for MSPs, while cybersecurity and backup services remain core revenue sources.
  • "In today's mature market, growth is no longer just about scale, but about precision and operational discipline," Dan Tomaszewski, Kaseya's executive vice president of channels, told Channel Dive. "The most successful providers will be those that simplify their tech stacks, automate intelligently, and turn high-demand offerings into structured, profitable, and scalable service models."

Deep Insights

As customers scrutinize IT service contracts more closely, once-stable revenue streams are drying up, leaving MSPs struggling. Kaseya noted that acquiring new customers is particularly difficult in a competitive market.

"The data reveals a clear contradiction: MSPs are focused on growth, but structural market pressures are making growth increasingly difficult to achieve," the report said.

Large annual contracts have become less common, slowing revenue growth for many MSPs. The share of customers spending $25,000 or more annually fell year over year from 75% to 41%, while the number of contracts below the $25,000 threshold more than doubled.

Respondents said this trend is eroding profits. About 16% of respondents reported that their companies are either unprofitable or only barely breaking even.

As traditional growth drivers weaken, AI and automation services are becoming key for MSPs to stand out in a competitive market. Nearly half of surveyed providers ranked AI and automation as their top customer demand this year, ahead of security and backup.

"This shift brings both pressure and opportunity," the report's authors noted. "Providers that can turn AI and automation into clear, outcome-driven services will be more likely to stand out in competitive bids and align with customers' evolving priorities."

Despite dropping to second and third place in customer demand rankings, cybersecurity and backup and recovery services remain reliable growth engines for MSPs.

Nearly two-thirds of respondents said endpoint and network management are the top revenue sources. Nearly half ranked security services such as antivirus/anti-malware and email security as the highest revenue group, and 41% pointed to backup and recovery, including server backup, workstation backup, SaaS backup, and disaster recovery.

The biggest operational constraint for MSPs is talent. The share of providers finding it difficult to source and hire skilled technicians rose seven percentage points year over year to 16%, while challenges in employee training and upskilling more than doubled.

"As the talent gap replaces tool limitations as the primary operational constraint, providers must rely on integrated platforms and automated workflows to sustain core revenue engines," Tomaszewski said. He noted that cybersecurity, disaster recovery, and business continuity services are three areas poised to benefit from AI and automation.