The impact of AI on the MSP business model

Today, I liken the impact of AI for MSPs to the scene inside the garbage crusher in the original Star Wars movie. On one side is the impact AI is having on the existing MSP model around configurations and maintenance and on the other is the challenge of how to provide new AI services to customers.

The starting point is to examine the current MSP business model which is largely based on a reactive approach, that is, get paid for fixing issues after they occur. The managed service that most MSP’s sell is a kind of insurance policy. This means the client agrees to pay a regularly fee per month and for that the MSP will ensure they are available to resolve issues that occur during that time period at no additional cost to the customer. The incentive then for the MSP is to thus reduce the chances of problems occurring by configuring systems to be as reliable as possible. However, no matter how much this is done things will still go wrong and require a reactive approach to resolution.

Enter AI. It is clear that AI is become more and more integrated into services sold to the customer. One simple example is Microsoft Security Copilot. This service can look across all the security signals in an environment and assist with investigations and incident response. We are beginning to see Microsoft Security Copilot being extended from a stand alone chat style interface to direct integration with Intune. This means that it can report and troubleshoot on policies used throughout Intune. At the moment this integration is largely just reporting but that ability to actually make changes and configure Intune directly cannot be far away. AI will soon be able to do the job of the MSP with Intune I would suggest.

Likewise, Security Copilot is also available in Defender XDR and Entra ID. I’m sure it won’t be long before it appears in places like Exchange Online and SharePoint Online as well as across the whole Microsoft 365 administration portals. In fact, that capability is already in preview (Copilot in Microsoft 365 admin centers). It won’t be long before it is available for every tenant. The Microsoft 365 administration portals used to be the sole purview of the MSP. No longer, AI will take up a lot of the load and probably allow customers to do most of the administration tasks that an MSP does today such as resetting accounts, creating users, assigning licenses, etc.

AI is really good a evaluating data and them coming to a decision about what option is best in a given circumstance. It is in fact probably going to be able to better evaluate the security of a customers environment and determine what settings should be enabled or disabled to provide this. What it will soon be able to do is actually take those recommended actions. In a world where AI is automatically handling the administration of a Microsoft 365 environment, what now is the role of an MSP, given the AI is largely doing what they used to do for a fee?

How will AI mitigate those challenging errors that also occur for users that you can’t plan for you may ask? Take a look at this example from the keynote at the last Microsoft Build conference :

https://youtu.be/8OviTSFqucI?si=j0oI1kbmbRgrvaSe&t=1260

(at time stamp 21:00 if needed)

It shows Copilot playing Minecraft by reacting to what is on the screen directly. Now extend that concept to desktop support where the AI is constantly watching and can interact directly with a user if an error appears. It may also get to the stage where the AI takes care of the error immediately without an interaction from the customer or MSP. AI today has the capability to see and talk based on its environment. As this matures I surely see it challenging the traditional help desk concept, especially for MSPs. Still not convinced? Take a look at this video of ChatGPT 4o interacting with data on the screen:

https://www.youtube.com/live/DQacCB9tDaw?si=j-KvPcNJwypvk1U9&t=1105

( at time stamp 18:34 if needed)

and remember that was back in May 2024! The capabilities have only increased since then (hello Sora)!

Can AI do every maintenance role that an MSP can do for their customers today? Not yet, but I very confident that it will do more and more over time (aka the walls are definitely coming in thanks to AI).

If AI is reducing the maintenance side of the MSP managed service model, where is the opportunity selling AI services to customers? When a customer wants Microsoft 365 Copilot, they simply buy a license and assign it to a user. That’s it! Microsoft 365 Copilot will automatically appear for the user as an icon that will open Copilot Bizchat so they now have an AI agent they can generate answers from. Microsoft 365 Copilot will automatically appear in all their desktop apps as well such as Word, Excel, Teams, and so on without the need for further configuration. Microsoft 365 Copilot will also automatically appear in SharePoint and Onedrive. The list goes on, Forms, Loop, etc, etc all without ANY further configuration.

As for AI training tools, they are already available such as Prompt Coach and are free. There is also the Copilot Prompt Gallery that the user has access to, again for free. There are also services like the Microsoft Copilot Academy available for free and integrated into the Microsoft 365 Copilot subscription. The list of free embedded training material is extensive. This is going to challenge an MSP to provide provide something that is better than what is already available and how will an MSP be able to charge a fee for that when quality embedded training is already available for free?

Once Microsoft 365 Coplot is in place I can’t see how it will need any maintenance. It doesn’t need password resets, it doesn’t need delivery troubleshooting, it doesn’t need to restored, it will just work. It won’t break or required support as other services MSPs supported did. In a world where services don’t require a managed maintenance service, how does the tradition MSP revenue model apply?

It is important to remember that Microsoft 365 Copilot doesn’t have any settings, such as for security. It relies on existing services like Entra ID, SharePoint permissions, DLP policies, Data Labelling and so on. These security settings really should already be in place prior to Microsoft 365 Copilot being enabled and once configured they largely won’t require any form on ongoing maintenance. As I have also suggested previously, I think the AI itself will play a bigger and bigger role in evaluating and acting to ensure Microsoft 365 environments remain constantly secure. Once again, the need to ongoing maintenance is reduced or eliminated which means another hit to the MSP business model.

The direction that most vendors like Microsoft are encouraging MSPs to move to is around building ‘apps’ or ‘agents’ for their customers to solve business challenges. The challenge there for MSPs, as I have called out before, is that fact that the majority are not skilled or experienced in the ‘creator’ model we see today. That model means taking tools such a Copilot Studio to create these ‘agents’. The big change to the MSP business model is thus a shift from reactive to proactive. Unfortunately, I just do not see any evidence of MSPs in general understanding or embracing this as part of their business. Most continue to place their faith in the old reactive business model, which introduces huge risks for their business. The biggest of these is that it allows an ‘AI aware’ provider to solve customer challenges with agents and then potentially scoop up the best of the business from the customer.

These are the reasons why I see most traditional (infrastructure focused) MSPs being stuck in the proverbial Star Wars compactor. Moving to an AI business model is a huge change in approach and it can certainly be done but I am not seeing it being embraced. To me, it harkens back to the early days of the cloud but I feel the AI transformation will have a far greater impact on MSPs of today than the cloud ever did. It is not too late to include a true focus on delivering AI effectively to customers while also using AI to minimise tenant maintenance costs but any effective strategy cannot be grounded in the status quo. You can’t expect to continue to apply the same old MSP business model and expect to be successful. The AI model is different. The AI model is proactive. The AI model is about code.

The walls are closing in from both sides on the traditional MSP business model from what I see and there is precious little time to escape. Much like in the Star Wars movie, the saviours to the compactor conundrum will be the bots (R2-D2 and C3PO in the movie), but not unless you invoke them.