Terry Hedden – (00:00)
Jay McBain is a visionary in the IT channel. He’s one of the people that everyone listens to because he bases his recommendations and insight on true research, not just gut feel. He knows a lot and shares his wisdom with others. And we’re really proud to welcome him to the Grow Limitless podcast. If you want to learn where the money’s going to be made, where the opportunities are, where the risks are when it comes to AI, cybersecurity and managed services in the coming year and in the five to 10 years beyond, this is a podcast you really must listen to. Enjoy. Jay, thank you so much for joining us. It’s so good to see you twice in a week, which is not a normal thing. So it’s good. ⁓ And I appreciate you jumping on.
Jay McBain – (00:45)
Absolutely. Thanks. It’s great to see you earlier this week in Tampa and now virtually.
Terry Hedden – (00:50)
Awesome. Well, Jay, you know, I have a tremendous amount of respect for you. You’ve been around the channel since kind of like the PC was invented. I feel like you’ve been around a long time, been with a lot of different roles and have a really unique perspective, not only in your current roles and analysts, but just seeing the different waves of opportunity in the IT channel. And I’m really eager to hear, ⁓ to explore today where you see the big opportunity for growth in the next three to five years, you know?
Do you see, you know, security being the major growth engine, AI? I’m really curious to get your perspective on where the opportunity is going to be for the MSP specifically and the vendor if you’d like to talk about that. And then what do you think we need to do to basically prepare to capitalize?
Jay McBain – (01:39)
Yeah, as an analyst, I get to approach the market as a system kind of thinker. You you can start at $5 trillion at the very top and, you know, think about all the areas of growth by buyer type, by industry, by geography, by segment, by product, by business model, like managed services. But starting at the very top, you kind of start with the customer. You know, where are they investing more in last year, this year than they did last year? where are the places ⁓ adjacent to managed services that are the easiest wins, the lowest hanging fruit. And while we may want to default to AI as a 59.3 % compounded growth rate, when you overlay that onto managed services and then lay that onto SMB, it’s actually not anywhere close to that growth rate. Now we’re talking at this point more for Accenture and Deloitte and very large firms.
The hyper tailors and open AI and video, et cetera, wrapping services there. In a managed services world in SMB, most of generative AI and then now agentic AI, which is co-pilots and agent force is going to be seen through SAS and SAS, which is a $420 billion market. Companies like Salesforce, ServiceNow, Workday, Marketo, NetSuite, HubSpot. It’s not an area that managed services has had a lot of success in in the last 25 years.
And so the question on AI is a big one. Is there a way to bring managed services into generative AI through these major platforms and then be able to sell enough recurring services around it? Which is probably a bigger risk than core managed services, which is growing at 13 % this year. And core managed services is $610 billion around the world. It’s one and a half times larger than the SaaS industry.
And growing at 13 % is a fantastic opportunity. 82 % of end clients outsourcing more this year than they did last year. No cybersecurity growing at 11%, but the services around it are growing at 13 and then managed security services are growing at 50. When I combine a 13 % growing market with a 15 % growing market, and then perhaps look at a couple of other growth areas to take on that are adjacent to my business,
I can grow a world economy that’s growing at two and a tech industry that’s growing at eight. I can really build a managed service provider that can grow double that, know, grow at 15 to 20 % per year.
Terry Hedden – (04:13)
It’s really interesting you say that. don’t disagree with what you’re saying. In the current state, it certainly feels like cybersecurity managed services still represents an incredible opportunity and one that you ignore at your peril. It’s the most sure thing out there. we see our MSPs, our clients are growing ⁓ anywhere in the 20 to 35 % annual rate, which lines up really well with the figures you mentioned. I do hear of some that are struggling a little more this year than last, but we’re certainly not seeing that. ⁓
I’m kind of curious, know, and I’ve been doing a lot of thinking on AI and I know literally it’s your job to think about AI. In three to five years, do think we’ll have less people on managed services or more? Do the employee counts, are the employee counts going to shrink? Do you see the long-term impact of AI to be a negative one on the number of users under management or do you see the fear factor of AI not really playing out and not replacing half the jobs out there like someone predicted.
Jay McBain – (05:16)
I mean, in quantity of jobs, it’s going to be increased. There’s going to be, like I said, more companies this year are outsourcing more of their IT than they did last year. We asked them about 2026. When we asked them about 2027, we expect managed services to be growing in double digits throughout the entire three to five year window of agentic AI. As we move into physical AI, which is self-driving cars, drones, humanoid robots,
Terry Hedden – (05:34)
Interesting.
Jay McBain – (05:46)
The whole IOT phase of AI beyond that it’s at the edge, which is going to be a great managed services environment. Many more devices, many more security threat vectors, much more to manage. ⁓ know, getting cyber and AI skills is the hardest thing for end clients to find. Again, a very good phase for ⁓ managed service providers. The third phase of AI, which is the promise of AI, why we’re going into this 20 year cycle, like we had 20 years in cloud and 20 years in client server, is really the promise of our lives changing in AI, as consumers, as business people. Today, 99 % of the world’s business data has not been trained, has not been indexed or inferred into models. 99%, 83 % of that world’s business data sits on premises in cold storage.
So every flight, Terry, you’ve ever taken sits on a Sabre system that was installed in the 1970s. Every banking transaction, every withdrawing you’ve ever made sits on an IBM mainframe that was installed in the 1970s. Every social security request as you get older, it sits on a old mainframe that was put in 50 years ago. Suffice it to say, our entire lives as you go across all 27 industries and what we do every day as consumers and business people really revolve around business data that hasn’t seen these large language models yet. We basically taught our children how to read and write and speak, but we haven’t sent them to school yet. The 83 % of the world’s business data that sits on premises is not going to be forklifted into public clouds. AWS, Microsoft, Google, Alibaba, Oracle, everyone has said at the CEO level, there’s not enough electricity or water to do that.
So the training and tuning of this world’s business data, the point where we have less apps on our smartphone than someday no smartphone, the point that we have less websites because our co-pilots are gonna go talk to their co-pilots. There’s gonna be no top-down logins into apps. It’s all gonna happen through back doors. And this mass integration of models working 24 seven as our digital twins, this whole world 10 years from now, is going to happen near or at the edge, which creates a ridiculous opportunity continuing for managed service providers, the storage, the compute, the networking, all of the cyber around it. This is a 10 year view of double digit compounded growth. So what a wonderful opportunity in industry to be in, but I want to be opportunistic and I want to be making sure that my eyes are forward in terms of where my customer base is going to be invested.
Terry Hedden – (08:45)
It’s interesting you say that because as a business owner myself, and I know you are a business owner and work with a lot of them, it feels like there’s a tremendous opportunities for MSPs. So I feel like as an industry, as much as we can, we’re on top of cyber, we’re on top of IT support, user support. We’re pretty solid there. We’ve certainly been doing it for long enough. Obviously, threats change.
New issues come up on a daily basis, but we’ve gotten a great ecosystem around adapting to that. But AI to me is one where I see really two big opportunities and I’m curious to get your thoughts on both. ⁓ The first one is project and managed services. So implementation as well as managed service around Copilot specifically, since the channel is so centered around Microsoft. And then the second one,
The more I looked into ChatGPT and how it will work for a business to address the data access that you mentioned just a few moments ago, which I see is a huge deal, where you can build environments where you have the outside copilot engine that exists for everyone. And then you can ⁓ create access internally, but doesn’t go out to the public web for all your internal data. You can hook on your files, your server, your email, your SharePoint, and give copilots engine access to that so that the user can mine both at the same time and create that ⁓ chat GPT interface and usability that accesses the internal data as well as the external data through a single user interface without exposing that data to the outside world. So I see a big opportunity for MSPs and perhaps third party enablers, which I think is one of the things that I’m excited about to help businesses leverage chat GPT to the fullest without sacrificing the security of their information, you know, and the IP that they’ve built over the years. How do you see both of those playing out?
Jay McBain – (10:46)
Yeah, I think the way you framed it is kind of an internal opportunity and an external opportunity. you know, co-pilots and other things will, will layer on as a second part of that. But, you know, the internal opportunity over the next three to five years is to rethink every role in your own company and everything that everybody does and the things that you do every day. So rethinking your sales and marketing, rethinking your invoicing and billing, rethinking your service tickets, rethinking all of this.
But you’re not going to go build your own model. I know some of the managed service providers probably will, but the fact of the matter is you’re not going to be working with open AI or anthropic or Gemini, Google, you know, directly. What we are going to do is rely on the stack of software that runs your company today. And it could be for some ConnectWise, others Kaseya, others Enable, Ninja, Halo, Synchro. I could go down all 25, but you’re probably gonna take advantage of each of those things I mentioned as they’re being served up and as you execute them today and improving each of those and trying to do that faster than your competition. So this is every role, every business process, every piece of business logic, every workflow that you’ve built kind of in your company gets better, gets faster and more powerful. It’s gonna make you more efficient, it’s gonna make you more effective in front of your clients. And hopefully in the end, obviously more profitable.
This is not less people, but just taking your people to the next level. Level one service calls. We already know that large language models can do password resets. It can delight customers, you know, at that chat bot level, ⁓ you know, better than a level one technician that you hire, you know, in their first six months in the job. So this is just reframing inside, but now taking everything you learn inside your company and getting into these conversations.
Terry Hedden – (12:19)
And try
Jay McBain – (12:43)
With your client. This is what makes me the most nervous. Because AI, as you know, isn’t new. It’s been around 30 years. Just some of the things we’re talking about now around improving these processes and workflows. We’ve had RPA around for seven or eight years. And the managed services community, the MSP community at the SMB level never got close enough to UiPath, to Automation Anywhere, to Blue Prism, and to getting to these business workflow conversations across sales, marketing, HR, finance, operations within our clients. So there’s this disconnect here. And part of the bellwether is, you know, now agentic AI, generative AI is a much better RPA. There’s no programming needed. There’s no drag and drop.
Terry Hedden – (13:32)
That’s the difference. That’s the difference right there.
Jay McBain – (13:34)
But if you’re not engaged in the old world, I’m nervous about being engaged in the new world. It means that we might not be talking to the right buyer of this, which is all the lines of business with our clients or the president that has to kind of do a lot of this in smaller business. But the fact of the matter is 78 % of SaaS today is sold to line of business. And so when you take that number, managed service providers have never done a great job of moving out of IT and moving out of security into those conversations around the sales buyer, the marketing buyer, et cetera. And if that doesn’t happen, generative AI, kind of this agentic model for the next three to five years, is going to be a struggle as well.
Terry Hedden – (14:20)
You think so? I think if MSPs don’t get a board, they’re going to go direct. Chat GPT is already going direct. They don’t even have a reseller model that’s accessible easily, at least. They have a reseller model, obviously, but it’s more technical than it is business, right? Which is an interesting thing. I find it fascinating that they aren’t being more channel friendly ⁓ through all the different channels. so that’s really interesting. So I’m in the marketing space and help people grow. And it feels like I’m I’m the canary in the coal mine. ⁓ How we see AI here is Iron Man. You know, you have a normal human with an exoskeleton that makes them into a super hero, right? Superhuman. And that’s how we see AI here is embracing every aspect of AI so that one copywriter can perform the work of three and perform faster, better, and cheaper, to the point where we’ve seen a 75 % or more reduction in the value of a blog, for example. So when we were talking earlier about jobs disappearing, I can assure you in the marketing space, a lot of jobs have disappeared and a lot more are disappearing. And ⁓ the quality is arguably better because the time that we do spend isn’t wasted on creating draft number one.
It’s create its leverage to create the final draft and and and the refinement and and and every year in the last I feel like in the last night 18 months specifically, it’s been unbelievable value change when it comes to creating a blog. And so I’m shocked to hear you think that there’ll be more jobs in five years just because of what I’ve seen. I think if I was a radiologist and I read X-rays, I don’t see that job existing anywhere near the current level as it is today. The reality is AI is going to be able to read an X-ray better, faster, and cheaper than a doctor. You might still have a doctor do a verification, QA, QC kind of role, but do you see a role for, if I’m looking at the junior level of a radiologist, I can see that, but at the top end, do you see more radiologists in five years than you do today?
Jay McBain – (16:42)
Yeah, I mean, we could go down this path. I mean, there’s a lot of really strong arguments because today’s version of AI can actually compete for 44 % of all the world’s jobs. So, you if you took the number one job in America, it’s a truck driver. And now not Tesla, but others have proven and they’ve driven tens of millions of miles up and down the West coast without an incident. And the fact that we know that is it’s never reached the front page of the newspaper.
If a self-driving 18-wheeler mowed down something, this would be front page.
Terry Hedden – (17:17)
Yeah, I agree.
Jay McBain – (17:19)
Because every time a Tesla hits something full self-driving, it’s front page news. And that’s why we have this irrational fear that self-driving is going to be the end of everything. But self-driving is already safer than humans by 10x. Big trucks. So when you take a job that has over 3 million people, that can already be done in today’s version of AI, done better, 10 times better.
Terry Hedden – (17:34)
Wow.
Jay McBain – (17:46)
You start to move it on to healthcare and nurses. start to move it into, that’s the second biggest job in America. You take it into retail workers getting replaced by kiosks at McDonald’s or, you know, all these things, like you can take 3 million and 3 million and 3 million and 3 million. You start to cut into about 44 % of all jobs. The argument is though, the technology itself, you know, I’m maybe not going to be a radiologist doing what I used to do, you know, staring at a bright light with, X-rays in front of it. I’m going to be augmented. I’m going to be, that’s going to be my co-pilot and it’s going to come up with recommendations and healthcare is going to improve to the point, to the level of nuance that I can upscale. And that’s across every job. Is I got to start thinking about the mechanical turf, the physical labor and intellectual labor at a basic level is going to start to replace those jobs. And we’re going to have to redefine new opportunities going forward, but I want go back to your marketing question because it’s important. In many medium and mid market size companies, the head of marketing, the CMO spends more money on technology than the CIO. So when you’re in that world where there’s major platforms, the Marketo’s and Eloqua’s and Pardot’s and HubSpot’s, but there’s also 15,348 ISVs in the Martech and Adtech stack. Top Ranker just published it a week or two ago.
So that 15,000 ISVs and all of the $6 in services that they kick out has not, and by the way, somebody who’s spending more on tech than the CIO has not been the managed service provider collecting those services. We’ve not created some level of recurring revenue plan for all of that $140 billion being spent by CMOs.
Terry Hedden – (19:31)
I told you.
Jay McBain – (19:42)
So managed services have never met the CMO in many of their medium or mid-market sized customers. So that’s the story. And the buyer there is not in a medium or mid-market sized customer company, is not going to go to OpenAI or Anthropic or Google or any of the other things. They’re going to work through the stack they already have. And their version of AI is going to come from HubSpot or Marketo or Eloqua, along with the AI level ISVs they add on top.
Terry Hedden – (19:47)
All right. Think so.
Jay McBain – (20:12)
And the consumption is going to go back to Google or Microsoft or AWS, but it’s going to be white labeled. The front end of how they execute every new role, every new blog, every thing that you just went through. So from an MSP perspective, it’s not introducing Nvidia and OpenAI and all these Microsofts into the customer. They’re going to be working through what they already have. Third point is when you’re working in small business.
Terry Hedden – (20:35)
Interesting.
Jay McBain – (20:38)
I mentioned, know, MSPs themselves are going to see AI through the tool sets that we already use. But if you have a restaurant as a customer, they’re not going to go to OpenAI and set up their own models. And you’re not going to train and tune these models and index and infer them with the customer. They’re running a restaurant. And they probably invested in a platform like Toast or Clover or Square. And they’re going to see AI.
It’s going to help them with online ordering. It’s going to help them with kitchen management and food inventory. It’s going to help them with staffing. It’s all the things in your restaurant. This is a restaurant that doesn’t buy Salesforce and ServiceNow and Workday and Marketo. This is a restaurant that runs end to end. Their version of ConnectWise or Kaseya is toast. From billing right to the front end and all the tablets you carry around, the entire business is run on one platform.
Terry Hedden – (21:31)
Including ordering of the food. I didn’t realize the toast was that comprehensive for a restaurant
Jay McBain – (21:35)
It’s getting into all the they’ve got integrations across all the food companies, Cisco and all the food companies, and they’re building these tens of thousands of integrations. And the version of AI that’s going to run is going to be toast AI. And so their market share now and the billions of dollars they create. So if that’s your customer. And you’re not representing toast and built a managed services program around it and built skills and competencies around that you’re probably not gonna be in that AI business conversation. Again, they’re gonna worry at some point that the tablets are secure and nobody’s hacking them. They’re gonna worry that bill payments. I mean, there’s structure, federal government level structure around running a restaurant and fixing things when they break. And that’s always going to be a business. But this opportunity, the 59 % growth I talked about.
If we’re not getting into this platform economy and adding those skills that maybe a consultant, a designer, architect, implementer, integrator, an SI type consultant are adding, we’re going to be stuck, you know, replacing iPads when they break. And that’s not the business that we really want, you know, looking ahead five years.
Terry Hedden – (22:52)
Totally agree. You know, my background, obviously, I came up from management consulting, so I’m more of an Ernst & Young guy than I am a hardware maintenance and repair type person. And to me, I see a tremendous opportunity. If I look at the average company and I see the treasure trove of IP that’s on their SharePoint, their file server, wherever their data resides, I feel like…the ultimate efficiency gains that AI can bring need to combine the best of chat CPT’s algorithms currently, the external data, with somehow that internal data. And to me, when I look at how that is done technically, it’s not that complicated. It’s not anywhere near as complicated, frankly, as ⁓ a Windows domain environment in a mid-market company. I really see MSPs able to, if they get over the fear and certainty and doubt about what they know and what they don’t know and become more consultative. I see this tremendous opportunity for them to implement ⁓ a new stack based on the public either PIP one, Gemini, whatever, chat, CBT, combined with access to the internal information and build this cloud-based stack that gives the customers the best of both worlds because looking at an agency, for example, there is no work day.
That’s going to access my file server currently. I don’t have Workday, right? The average agency is using Adobe Creative Suite, but they’re also using 50 other cloud-based or SaaS-type systems that don’t necessarily access anything in the environment. And I don’t see anyone trusting Adobe with their creative assets that it’s going to allow the system to create imagery, for example, or copy based on a style. You know, ⁓ I see it as a tremendous opportunity for the MSPs, but when they have to get in, they have to be more consultative, they have to get confident, and they have to get to market ⁓ to offer that. Or do you really see that as just not a thing and that people are going to go through there basically what you’re saying is their ERP, their CRM, their current line of business applications, that’s how they’re going to access AI. There’s no external that an MSP can own and build and maintain and provide managed services for. They have to become a workday for the opportunity to be there for an MSP.
Jay McBain – (25:22)
Yes. So I think some of your history with EY, know, history with Accenture and Deloitte and CAP and KPMG and the 20 GSIs are very enterprise focused. And I grew up, you know, I worked for 17 years at IBM with you at E &Y serving banks and pharmaceutical companies at that scale. That’s where the relationship with OpenAI and Gemini and other things sit at the enterprise level.
Once you hit a certain level of mid-market, probably down into medium, like at about 250 to 300 employees and below, which 90 % of MSPs serve between 50 and 150 seats, but pretty much 90 % of the market is going to be served through another layer, which is a SaaS layer. And again, companies at 50 to 150 people, regardless of the 297 industries they might be in, like a restaurant will not have a direct relationship with a hyperscaler. And they don’t today, by the way, there’s no company within kind of the managed services world that would have enterprise credits sitting at AWS because they consume AWS through the software stack that they purchase. By the way, if you purchase Salesforce today, you know, it’s actually running in a lot of cases on AWS, but you would never see that that’s white label. Salesforce customer today.
Terry Hedden – (26:42)
I agree with that.
Jay McBain – (26:45)
And you’re stepping into Agent Force and Einstein and all the ways that your sales and marketing and CX world is going to, if you’re that large enough that you’re going to be that SaaS customer, you’re going to be an Agent Force customer, probably connecting to Co-Pilot and connecting to all the pieces and parts. That’s your version of agent to AI. There’s not going to be a relationship. That’s all going to be white labeled behind these business applications.
Terry Hedden – (27:12)
So what you’re saying right now is in the average small business people are not paying the $20 a month subscription to ChatGPT? No one.
Jay McBain – (27:21)
Well, unless you’re a consumer, I do, because I’m a consumer and I am dazzled by the…
Terry Hedden – (27:26)
Like company does, if not three fourths. They’re going direct and the problem with it is they can’t access our file server. They can’t ask if we’re in SharePoint. So it can’t see SharePoint. And when you look at the cost of ⁓ having an access SharePoint, it’s nothing. It’s like $5 a user a month or something like that. It’s not consequential to create that secure link where you have chat, GBT plus access to the file server.
That’s interesting. Your perspective is very interesting.
Jay McBain – (27:56)
I did say at the very outset that 99 % of today’s business data, the stuff that sits on that file server for every company in the world has not been given access to large language modes. They’ve never been introduced to OpenAI or Claude or Gemini. This is your 10 year view of AI and guess what? Who owns SharePoint?
Terry Hedden – (28:23)
Software is obviously provided by Microsoft, open AI. ⁓ On the back end, it’s open AI. I thought you were giving me a question. was trying to stay one step ahead of you.
Jay McBain – (28:27)
Copilot. Microsoft.
This is it. You your version of SharePoint when you decide to open up that file server, it’s being managed under a Windows NT domain. It’s being managed under SharePoint. It’s probably being managed in some way around Microsoft and Copilot already has the functionality to go absorb every file. And to learn from every file and keep that secure and protected. That’s by the way the managed services opportunity. When you introduce that file server into copilot that you have enough guardrails that it doesn’t end up out in consumer land and chat. There’s a lot there that can be done in this phase, but 99 % of the data hasn’t been introduced yet. And it’s a managed service provider that can do it. But understand, you’re not going to take that file server, the company that’s running that file server at Marketopia and introduce you to open AI.
Terry Hedden – (29:16)
So easy.
Jay McBain – (29:34)
There’s layers and it’s probably going to be done through Microsoft. Microsoft is going to kick out $8.45 for every dollar.
Terry Hedden – (29:41)
No question. No question.
Jay McBain – (29:44)
$8.45, what is the lowest hanging fruit that isn’t a big system integrator, that isn’t being done by an ISV? What’s the lowest hanging fruit for us? How can we go find? It’s about a dollar, $1.50 of the Microsoft $8 in managed services. So if the customer is going to, you know, up and go spend $100,000 to go do this, we should be making $100,000 divided by 36 in the first three years. That’s where we’re at.
Terry Hedden – (30:12)
No question. So you see Copilot as the logical entry point for MSP and you see it as, it sounds to me like it’s almost the opportunity, the biggest opportunity out there and the biggest threat if you don’t capitalize on it properly. Is that what you’re saying for an MSP in the AI world?
Jay McBain – (30:30)
And I would ask an MSP that you should be asking Microsoft, if Copilot is your choice, you should be asking Microsoft and you should get really close to that study around the $8.45. Because I can make a dollar in consulting. The conversation we’re having right now is the conversation every company in the world, from a flower shop to the biggest bank, is going to need to have. The biggest bank is going to have the conversation with E &Y and it’s going to cost millions of dollars to have that conversation.
But you can be given away this conversation for free. $100,000 of Microsoft consumption. There’s $100,000 in consulting that can be had depending on the market, depending on the buyer, blah, blah. There’s also $100,000 in design and architecture, configuration price, building this seven layer stack and how we’re going to use all these parts. Right. In SharePoint. There’s also a dollar there. There’s money around procurement and provisioning, but that’s going away.
Terry Hedden – (31:02)
Totally agree.
Jay McBain – (31:29)
You know, it’s going to be a 3 % resell margin or a very low co-selling, co-marketing, empty dollars. But then you get an implementation integrations. How do you be the E and Y for your 150 person company? Because E and Y is going to scale down to that because they won’t start a conversation for less than a million dollars. How do you go win the $100,000 in implementation and integration in that file server?
And then how do you go win the $100,000 in managed services, securing it, governing it, compliance, all the pieces. Now I’m talking at about a $4 level to $1 at Microsoft. And now if that customer is going to spend $100,000 getting into the AI era, how do I sell them a half a million dollars? Every MSP has got to be thinking about this and building competencies, certifications, using Microsoft because they’re spending billions of dollars.
Terry Hedden – (32:03)
Right.
Jay McBain – (32:25)
To create these partners that serve the customer before, during, and after the transaction. And regardless of the way we bill it, whether it’s a managed service or not, we have to bill the customer in all these opportunities.
Terry Hedden – (32:40)
I think one of the diseases I see in the industry is that we give away the most valuable thing we sell, which is advice. You know, one thing about your business and where I was in EY is it would be the MSP equivalent would be to go in there for three weeks and tell them all the answers and then ask to charge them for the installation, but give away all the answers. And we were way too savvy to do that, right? The billing started long before the advice was given. Whereas MSPs will literally go in there understand the politics, the infrastructure, the integrations, the constraints, the politics, the everything with the customer, and architect a solution, and literally give all of that for free. And AI, sounds like that’s the biggest opportunity. You have the ongoing managed services support, security, all that. I get that ongoing opportunity, but there’s a lot of money upfront making sure that the implementation is successful and that type of thing.
Jay McBain – (33:33)
And now, you know, we do surveys on this globally. Fifty six percent of MSPs are doing consulting and charging for it. Fifty percent are actually charging for those design and architecture charges. The good news is, I mean, this isn’t new. We know that with resale margins, we used to when you made 40 percent on a PC, you could afford to give away everything else for free because the money came at the point of sale. That PC is now being sold at a three percent margin. You have to share with distribution.
I have to go and find other avenues. So this has been going on for decades. And now we’re over half of MSPs have figured this out. remember, the conversation isn’t probably going to be happening with the IT manager. And the conversation is also not happening alone. We’re used to being a trusted advisor or a single firm to choke. Well, the average larger customer today has seven partners they trust. Companies like E &Y are getting really good at playing in a team sport playing with the ISVs, playing with an MSP, playing in these bigger environments, knowing that they’re all going after this multiplication opportunity. In smaller accounts, you’re probably not gonna be able to talk to the head of marketing at 150 person company without being next to the digital agency that they trusted for decades. So build a relationship with that local digital agency who’s got that ownership that they’re the trusted advisor to that marketing leader spending more money on tech than the CIO.
Before we talk to the CFO, go partner up with the accounting firm. Not E &Y, but the little local Larry in the white van CPA firm that’s been trusted for decades to do their taxes, to do accounting, general ledger work, because they’re having the conversation about how AI is going to slip through NetSuite or slip through Sage or slip through Intuit to start agentic working through the finance.
Rinse and repeat, but you should be looking at ways that you can partner up. 81 % of accountants are now tech services companies. 78 % of digital agencies are tech services companies, but they don’t do what MSPs do. One plus one equals three because we can go in and talk about this together. mean, it’s a beautiful opportunity, but don’t go in at alone. Go find the people in your market that are different professional services company, even lower end managed consultants and others that have earned the trust at that client, at the very particular person who’s gonna spend the money, and going as a team.
Terry Hedden – (36:11)
So I want to make sure I understand what you’re suggesting. So I’m an MSP. I see an opportunity. I see a threat. If I want to talk to the head of marketing at my mid-market company, I need to bring in an agency maybe who has already got the street cred and the knowledge of the tools and go in as a unified team. Is that what you’re suggesting?
Jay McBain – (36:32)
And I don’t think you need to find one to introduce. They already have one. So they’ve trusted.
Terry Hedden – (36:37)
So they just find that out and then call them and say I’d like to work with you on the AI opportunity?
Jay McBain – (36:42)
There’s somebody at that company who built the website 20 years ago. Somebody 10 years ago that helped them get on the front page of SEO. That same person today is in there talking through 15,348 solutions and how to implement and integrate the future of doing blogs in an AI world, which he started to talk about. That’s not going to be us. You we don’t need to be experts exactly at how to do a blog at scale and be on the front page of SEO.
But if we’re next to the person that’s talking about that, and we can do that broader business conversation and then all of the fencing around it, the cybersecurity, the infrastructure around how that’s all gonna work and how it’s gonna be cost efficient. And from a FinOps perspective is all gonna lace together in a beautiful, integrated way. That’s something the digital agency doesn’t know how to talk about. That’s right. And they would be better off having us next to them know, leading to that’s the one plus one equals three. That’s partnering, multi partnering, not going in naked.
Terry Hedden – (37:46)
That also of helped the MSP who’s got the fear and certainty and doubt about their own knowledge and experience in it to bring in a third party to collaborate with. So if I’m focused right now on right now, right? So I think the five-year horizon is cloudy. It’s difficult to see whether we’re all going to be on universal basic income or if AI is just going to take us to a whole other level professionally and we’ll all make more money. It’s hard to predict, but 2026 shouldn’t be as hard.
If you were an MSP right now, first start off with the AI opportunity. What should I be doing in 2025 for the rest of the year to make sure that 2026 is going to be amazing? Start with AI. What would you do practically speaking if you were an MSP and I’m focused on, let’s say the SME market, sort of the five to 150 person company type size. What should I be doing right now in your mind?
Jay McBain – (38:37)
Bifurcated, two things. One is I should be looking at every internal process, every minute that every one of my people spend and how every role and every moment and every dollar can be optimized. So this is that internal view like we talked about. How can I improve my invoice and billing? How can I improve my service tickets? Introduce that first layer of support. How can I write better blogs and get in those 28 moments, especially post cookie as Facebook and Google are now losing antitrust suits?
Now, how do I step in as that early ⁓ data broker of those buy-in signals? So these are all things I should be thinking about internally to be 10 % or 20 % better than my competitor. I don’t have to go solve the world problems. I don’t have to be Microsoft. I just have to be 10 or 20 % better than the person across the street. Externally, I have to really look at my market, even though we think we do all things to all people all the time.
I really want to answer six questions. Which buyers are we the most successful with? Which industries or sub industries that we do good in restaurants? Do we do better in government of state offices? Do we do better narrow down from an industry perspective, narrow down geographically? Am I a 50 mile MSP and I multi-state, where am I narrowed down by segment, get right into that 50, 100, 150 employees. Cause that’s going to answer the next question.
The next one is the product sets. If I want to be successful in AI, it’s going to be out of a platform. For example, if I want to be successful in managed services as an industry, serving the MSP themselves as a business, I’m probably looking to integrate with those 25 that I mentioned right off the bat. If I have, you know, one of the thousands of solutions for MSPs to be better businesses, I’m not going to get in the door unless I go through one of the established platforms up top.
Terry Hedden – (40:33)
So you wouldn’t go through the Microsoft door then? wouldn’t implement Copilot now and start planning on implementing Copilot for your customers next year? You would not go that route? No, I would. ⁓ you would. OK.
Jay McBain – (40:44)
The point is I need to understand all those things about my buyer and who I’m really selling to and the opportunity I’m selling it to. In other words, where they’re spending the money. And I’m going to choose my product stack based on that. It’s going to answer whether I should get closer to Salesforce or Workday, whether I should get closer to Toast or to Kinequise or Kaseya, get closer to Microsoft. It’s going to answer that question. And I think for most MSPs, Microsoft is going to be a strong answer.
⁓ But there could be an AWS Google answer in that SMB market as well. You got to decide. And then you got to decide about the business model as well. Remember, in the early phases of any new technology, we saw this in the cloud, both in the SaaS and infrastructure markets. It took 10 years for us to figure out how to wrap a managed services around consumption in the cloud. And still we’re not doing that well. We still, after 25 years, haven’t figured out how to do a managed services contract around SaaS software, which is now a $400 billion market. So we’re not good at the beginning of convincing a customer to pay per month for something they don’t even understand. So we have to figure out that being a good MSP may actually be a 30 % recurring model, maybe a 50%, wherever it is, 70 % of our business is going to be non-recurring, but it’s going to lead the customer as we mature back into more predictable, you know, managed type of contracts. So that’s the lead engine is to have these business conversations and then to provide the services downstream to make them more predictable, more repeatable, more ⁓ reliable for the customer. And that’s what managed service providers have always done so successfully. And that’s what I would be doing. I have an internal problem, I have an external problem, and I want to be in the platform economy. I’m always asking.
Terry Hedden – (42:15)
Alright. Like it.
Jay McBain – (42:42)
How can I make a dollar, $2, $3, $4 for every dollar of platform that my customer is going to spend? Going around the cycle, consulting, design, I’ve got to be looking at that multiplier. I should be an expert on that multiplier, getting the certifications, getting the competencies I need to go serve and get the dollar, $2, $3 for every dollar. That’s the future of managed services. And as much as we can make recurring in the next five or 10 years, is great, but the majority of it’s not going to be recurring out of the gate.
Terry Hedden – (43:14)
So we focus a lot on AI, I don’t want to let you go before I ask about the traditional managed services business. know, cybersecurity, user support, normal infrastructure management. What should I be doing in 2025 to make sure that 2025 is amazing? Where do you see the pockets of growth? Where do you see the pockets of revenue and the pockets of profit right now? What should I be doing right now to make 2026 amazing?
Jay McBain – (43:39)
Yeah, so this is the opportunistic part of the conversation. Now I said, cyber is growing at 11, services growing at 13, managed security growing at 15. I’d be asking analysts like me to double click or triple click. Underneath managed, how much is MDR? How much is remediation? Now some of those are growing, by the way, by triple digits. By use of remediation, for example. Cyber insurance and all these other pieces and parts. Where are people making not the 15 % growth, but where are they making 30, 40, 50?
Anchor on these opportunistic moments. If I fish out of cyber for a minute, PCs are growing at double digits right now, not because of tariffs. There’s a little bit of bump in first quarter, but because all the laptops we sent every one of our client people home with for the pandemic, those laptops are now four and a half years old. Microsoft just pulled support on Windows 10 on all those machines by October, which is a general cycle. And now this year, all of them are loaded with like really nice AI edge, Nvidia type of technology. There’s three reasons for every customer to upgrade every one of their machines. And you know that every PC that comes in, comes in on a enriched managed services contract. So this is the, know, kind of, if this is growing at double digits, like PCs are usually a pretty boring market. I sold them for 17 years. It’s hurting flat. When we had that big spike in the pandemic,
It created eight quarters of decline to level off supply and demand. But that supply and demand is consistent. And right now it’s in double digits. And I would be thinking about the PC industry more in 2025 than I would have ever thought because it’s growing at double digits. I just want to take that five trillion dollars and go in and find those opportunistic moments, everything that’s growing at double digits, and making sure that I’m in front of my customers taking that demand and having these conversations that I’m the one that’s the tip of the spear in all the growing markets.
Terry Hedden – (45:36)
It sounds like what we’re seeing on the growth side, the big opportunities, we’re breaking record after record in terms of lead gen. And I feel like it kind of lines up with what you’ve been talking about. Just like a once in a lifetime opportunity. You have cyber growing, you’ve got infrastructure going, you’ve got just straight managed services, and now AI added to the mix. It’s almost like, it’s just like an open field of opportunity for an MSP. And to me, it feels like the greatest opportunity ever in the MSP industry. And I’ve been in it for you know, 20 years, right? And ⁓ it feels like the people who are allowing fear and certainty and doubt to guide their behavior and they’re pulling in and getting scared and worrying about the future are kind of doing it without their eyes wide open. They’re not seeing the green field that you seem to see and I see on the front end. People want to talk, customers want to talk about infrastructure. They want to talk about support. They always want to talk about better, faster and cheaper.
And now, of course, AI is the hottest buzzword out there and everyone wants to capitalize on it. So I see just nothing but green grass for MSPs and we got to get the industry out of its little funk. I feel like it’s kind of been in the last year. It feels like to me, I don’t know if you share that, but we got to step back a little bit and assess the opportunity and go out there and get it. It’s a once in a lifetime deal. Would you agree?
Jay McBain – (46:56)
Yeah, I mean, if I look at everything, you know, where there’s mystery, there’s margin. And that’s always been the case going back 44 years in our industry. We are the fastest growing industry of the 297 industries I mentioned. This is the fastest growing industry. We’re in the right place. we just did an effective job talking about the next 10 years, if not 20, that this will continue to be the fastest growing. That’s why every accountant and digital agency and everybody else wants in, because this is the place to be.
And now we’ve been handed, you know, AI and we’ve been handed this world where every one of our customers has to become a tech company. I don’t think there’s any better place to be. And in the world of that big spend, the $5 trillion services are growing faster than products. And I know when we read the magazines and newspapers every day, we get dazzled with these trillion dollar valued companies. That increases the complexity and the chaos, which increases the amount of services to stitch together all the things.
Again, I would be very bullish on this industry and I know Wall Street is, know private equity is, I know vendors are, I mean, we trip over each other. I’m on the road every day, anointing new platforms, 100 % partner focused companies. Everybody understands that there’s now seven partners surrounding and the only platforms are synonymous with partnerships. I couldn’t be more excited. And it’s just, let’s get specific and double and triple click to go make sure you’re growing at 20 to 30 and a big part of that is working with companies like Marketopia. Offloading those things that are proven and can get you on that growth level, making sure that you’re aligned the right way. And this is part of winning.
Terry Hedden – (48:38)
Jay, I tell you, you’re one of the brightest minds in the channel. I love the energy, enthusiasm. I love the facts at which you base your recommendations on. It’s not gut feeling, it’s not emotion. It’s like, hey, listen, I’ve done the analysis. And I just want to thank you for doing what you do to the channel. Every time I get to work with you, I leave a better, more capable professional, a better leader. ⁓ You’re just one of those people that brings a lot to every conversation and it’s fascinating for someone like me. So thank you for being here. Thank you for doing what you do do.
And thank you for, I guess the kind words about Marketopia. I certainly appreciate that as well. All right. Thank you so much. All right, Jay. Take care.
