Service Leadership, Inc. has released its fourth quarter data for 2024, showing that while managed service revenue growth has slowed to pre-pandemic levels, profitability for managed service providers remains high. The report indicates that worldwide managed service revenue growth was just one percent, the lowest of the year, with North America experiencing a mere two-tenths of a percent increase. In contrast, Australia and New Zealand posted a growth rate of two point eight percent. Despite this slowdown, managed service provider profitability showed resilience, with the average adjusted earnings before interest, taxes, depreciation, and amortization across providers decreasing slightly from twelve point two percent in the previous quarter to eleven point one percent. However, a concerning trend emerged: eighteen percent of managed service providers reported operating at a loss, up from fourteen percent in the third quarter. Value-added resellers experienced strong total revenue growth of eighteen point five percent, driven mainly by non-recurring product sales, although their services revenue declined by eight point five percent.
A new report from NTT DATA reveals a growing responsibility gap in artificial intelligence adoption, with over 80 percent of business leaders acknowledging that leadership and governance are not keeping pace with advancements in AI technology. The report, which surveyed more than 2,300 executives across 34 countries, highlights a significant divide in the C-suite regarding the importance of responsibility versus innovation. While one-third of executives prioritize responsibility, an equal number favor innovation, and the remaining third view them as equally important. Furthermore, 89 percent of leaders express concern about security risks associated with AI, yet only 24 percent believe their organizations are adequately prepared to manage these risks. The report emphasizes the urgent need for leadership-driven governance strategies to ensure ethical AI development and prevent potential innovation and public trust setbacks.
Why do we care?
The slowdown in managed service revenue growth suggests that the post-pandemic surge is behind us, with expansion returning to a more normalized, pre-2020 trajectory. The fact that 18% of MSPs are now operating at a loss, up from 14% last quarter, is a warning sign—especially in a market that is supposed to thrive on predictability and recurring revenue. This suggests that while profitability remains solid at 11.1% EBITDA, margins are under pressure, and smaller or inefficient providers may be struggling to sustain their operations.
The strong revenue growth of VARs (18.5%) is another key signal. Much of this was driven by non-recurring product sales, meaning companies are still investing in hardware, software, and infrastructure. But their services revenue declined by 8.5%, reinforcing that customers may be shifting spending away from traditional service contracts. For MSPs, this raises a question: Are clients moving back to transactional IT spending instead of fully managed services? If so, the shift toward co-managed IT models may continue to gain traction.
Or, another existential threat. Maybe traditional service contracts are becoming unnecessary. I’ve cited the example of an MSP leader visiting another MSP recently and encountering issues… and used ChatGPT rather than use their help desk. Now consider if customers do that. How valuable are service contracts?
I paired this with the AI data as it shows where the value need is. 80% of business leaders admit that governance isn’t keeping pace with AI advancements , so AI adoption is outpacing responsible implementation—a clear risk for businesses and their service providers. The executive divide on responsibility vs. innovation is worth noting. With one-third of leaders prioritizing responsibility, one-third focused on innovation, and one-third balancing both, there’s no clear consensus on how AI should be governed. This lack of alignment could slow down AI adoption or create compliance headaches down the road. For IT service providers, this reinforces the importance of helping clients develop structured AI governance policiesbefore regulators step in and impose them.
The managed services industry is maturing, and easy revenue growth is no longer guaranteed. Providers must focus on operational efficiency, high-value offerings, and emerging AI governance needs to stay competitive.