Support services are dead, MSPs need to shift and embrace transformation

The Australian channel faces ongoing challenges in 2025, partners who can transform and shift can position themselves for success, while those who resist change risk falling behind.

According to Kaseya’s State of the MSP Industry 2025 Look Ahead: Trends, Growth and Strategies for Success report, expanding services in alignment with client needs, leveraging automation for efficiency and building robust security frameworks will be key to smart growth.

To reach this success, James Davis, former director of Academy APAC at Pax8 and founder of The TSP Advisory (TSP), believes smaller MSPs need a “mindset shift” and start seeing the industry as a place for transformation and innovation, not just maintenance and support.

The evolution of MSPs “started in as break-fix shops” then moved to infrastructure management, but now basic infrastructure and desktops are self-servicing, Davis said.

“I’ve been coaching and consulting for nearly eight years and see many companies are shrinking, losing clients, or just existing,” he said. “I’m here to focus on transformation and share insights.”

Davis felt it was the right time to step away from his director role at Academy, which he founded and then sold to Pax8, to help partners with leading them through these transformative times.

Davis believes about “25 per cent of MSPs” are breaking even or losing money, because of “client churn due to stagnation”.

“Newer businesses don’t seek MSPs because their needs don’t align with MSP value propositions,” he said. “Economic cycles are swinging back to internal IT management with the remaining churn coming from clients maturing out of stagnant MSPs.”

Moheb Moses director of Channel Dynamics told ARN, customer loyalty was diminishing, and it’s driven by the depersonalisation of customer service and the endless array of self-help tools and videos online.

“Before you had a relationship with your supplier, now, it might be that your communication with them is solely via a frustrating cumbersome chatbot,” he said. “That will probably get worse with AI, where some companies will use AI to replace/reduce their customer service teams.

There’s an old adage “customers care more about how much you know about them, than they care how much you know about your product”, said Moses.

“I think that’s going to be even more true in the future,” he said. “When a customer can easily get all the product information they need online, the value a partner adds is how they tailor and apply it to their customer to achieve the best outcome.”

Davis believes MSPs should be talking about cyber security, compliance, digital transformation, or AI to their clients, but they’re focused on “keeping the lights on”.

This is backed by the Kaseya report which shows that MSPs generating over $10 million annually focus on cloud, automation, and managed security services to maintain their competitive edge.

The shifting role of VARs and systems integrators

VARs also face significant transformation as traditional hardware sales decline.

“It’s interesting for VARs who traditionally sold hardware. That market is shrinking and they’re realising they need to sell services but don’t know how,” Davis said. “Many are trying to become MSPs, but that’s a sinking model.

He believes that VARs are aware they need to adapt, but they just don’t know how. However, some are adapting to be technology brokers, selling SaaS and services.

Technology brokers have online marketplaces for self-serving, SaaS, hardware-as-a-service, and a partner network to deliver specific tech specialties.

“There’s a market for it, and younger businesses are realising this opportunity and adapting quickly,” said Davis. “They’re well-positioned to sell these services and make a margin, instead of trying to build them.

“Those trying to build their own will fail unless they acquire someone who knows how to run services businesses, very different business models.”

As for system integrators who mostly follow a traditional professional services model they’ve done cloud migrations, and these integrators specialise in one technology, however many of their clients are on Microsoft 365 Copilot.

Peaking models and collaboration

With traditional models hitting their peak, modern system integrators realise there’s huge potential in partner-to-partner models, while MSPs are also realising they can’t do everything.

“Evolving system integrators don’t yet understand how to run a channel model. There’s an interesting dynamic emerging. I’ve already worked with partners to help them build channel models.”

“In our smaller market, these firms are peaking after completing big projects and need new specialties to grow,” said Davis. “But as MSPs have spread across mid-market and SMB, those clients rely on them for advice because they often lack the expertise of traditional system integrators.”

That’s why Davis breaks down the traditional MSPs or SI’s into technology solutions partners, technology brokers, boutique advisory firms and technology specialists.

“We’ll have a more cohesive ecosystem, with more partners working together, because collaboration offers more opportunities than going alone,” he said.

Vendors also need to play a part in this shifting channel model and deeply understand partners better, because that’s where the real growth lies, said Davis.

“The vendors who get partnerships right, grow the best,” he said. “But they fail to understand how partners build, monetise, and engage with clients.

“Educating and lifting up partners will lead to overall industry growth, and clients will have better outcomes,” he said.

This is a sentiment Moses echoed, who believes not all vendors fail to grasp how their partners operate, but the ones who have a deep understanding of a partner’s business are the ones partners are more likely to invest in.

“A great example is, if a partner genuinely believes a vendor channel manager understands their business, they will invite them to their internal strategic planning sessions, where investment decisions for the next 12 months are decided,” he said.

Opportunities for Transformation

The local channel industry faces a variety of challenges that reflect the continuing changes of the perfect storm of evolving customer needs that require expanded services, technological disruption and depersonalisation of technology consumption.

“I provoke partners by saying support is dead, which always gets a reaction,” said Davis. “[Clients] still need help, but not to fix broken things and they need advice on what technology to use and how to use it. That’s the transformation needed.”

According to Davis whoever gets their model right will make more money than ever.

“But the majority won’t reap the rewards,” said Davis. “There’ll be a group that will grow and take advantage of client churn, making good margins. The rest will slowly fall behind.”