Can Smaller MSPs Survive the AI Revolution?
It’s here, folks. The most disruptive technology of the last one hundred years has arrived, and while its full impact is ‘to be determined,’ no one can deny that AI is now a reality – and a pervasive one at that.
It’s only natural, then, for MSP execs to be asking big questions. Questions like…
- How can I leverage AI within my business and within those of my clients?
- How do I ensure a healthy ROI on my AI spend?
- How will AI affect the marked revenue and profitability gap that exists between large (often PE-backed) MSPs and smaller, independently owned shops?
That last one is in bold because it’s really just a polite way of asking about the elephant in the room – the existential question and title of this article:
Can smaller MSPs survive the AI revolution?
Will AI make the performance and profitability gap between large and small MSPs bigger or smaller? If it’s the former, how much bigger are we talking? Enough to wipe out a large portion of the small, independent MSPs that, up till now, have formed the backbone of our industry?
This is obviously a very important topic, and for many, deeply personal. So, in the spirit of handling it with care, we’re going to ‘home in’ on what we believe to be the most plausible answer. It’ll take four tries, but the discussion is well worth having.
Answer #1 – The Worst Answer
Is it possible that this AI business will blow over? That the hype will fade, and everything will go back to how it was?
In other words, can we answer the existential question with another question – albeit a snarky, rhetorical one: What revolution?
Sure we can – we’d just be way off base. Fortunately, there aren’t too many MSP owners thinking this way at the moment. Unless you’re living under a rock, you’re well aware that AI is actively reshaping modern commerce as we know it.
A few numbers to drive this point home (not that we think you need convincing):
- A survey of 500 US enterprises found AI spending skyrocketed from $11.5B in 2024 to $37B in 2025
- A global study with 1,993 participants revealed that 88% of organizations are using AI for at least one business function
- Among small businesses (25-499 employees), 92% have already integrated AI into operations
These numbers underscore a simple truth: the AI revolution isn’t coming; it’s here. Which brings us right back to our initial question: Can smaller shops survive it?
Anwer #2 – A Better Answer
A more levelheaded owner of a smaller MSP won’t deny the reality of the AI revolution. But they might view it through rose-colored glasses. Ask this owner about AI, and you might hear:
Oh, AI is great! It’s gonna totally level the playing field. We’re talking new efficiencies, deeper insights into client environments, and a bunch of other stuff that will help our MSP punch well above its weight. Plus, being small, we can experiment and deploy this stuff practically overnight. Bring on the revolution!!!
A couple things to say about this perspective:
First, the spirit of it is spot on. Confidence and optimism are powerful tools in an entrepreneur’s arsenal. But more than that, there’s truth to it…
AI can inject newfound efficiencies into a smaller MSP’s operations.
AI can yield deep client insights and tons more raw predictive power.
Smaller shops can move fast, experimenting and deploying AI more rapidly than their larger competitors (although this one comes with plenty of caveats, including the fact that certain types of experimentation and deployment are simply beyond the reach of a firm with more limited resources).
With all that said, the optimistic viewpoint conveniently overlooks a formidable competitive advantage held by larger MSPs with regard to AI adoption. Enter the third answer to the existential question – a step up from the second, though not the final word…
Answer #3 – An Even Better Answer
Now we’re really getting to the core of the issue – and the reason the existential question isn’t just another question, but a giant elephant-shaped one:
When it comes to AI, large MSPs enjoy a profound structural advantage over smaller shops.
“Profound” in that the advantage in question is considerable – and, as we’re about to see, not only considerable but compounding. And “structural” in that it’s just a function of large MSPs’, well, largeness.
So, what is this profound structural advantage?
In a word, data. In a recent LinkedIn article, Kevin Lancaster hits the nail on the head: AI runs on data, and “small MSPs simply can’t match the training ground that big MSPs have access to.”
With their surfeit of data – data that comes from thousands of support tickets and client relationships, network and device monitoring logs, and years of historical project work – large MSPs can train their AI to spot patterns, predict issues before they happen, and perfect workflows at a scale and speed smaller firms simply can’t match.
In light of this, one might be tempted to answer the existential question with a resounding no – or, at the very least, the classic 8-ball verdict: outlook not so good.
That’s because if data really is the name of the AI game – the grist for every AI mill – then small MSPs, with their comparatively meagre datasets, seem structurally boxed out of the very feedback loop that makes AI powerful.
From this perspective, the only viable paths available to a smaller MSP are:
- M&A (specifically, selling your shop and plugging into a larger platform and the data it brings – here’s why we don’t think you can ‘acquire your way out of trouble’ as a smaller shop)
- Specialization (leaning hard into a specific vertical or niche)
But the problem with this view is that, similar to answer #3, it tells only part of the story. While answer #2 perhaps overestimates the virtues of being small, answer #3 more or less overlooks them altogether.
This brings us to answer #4…
Answer #4 – The Best Answer…For Now
We’ve discussed how big MSPs’ access to vast datasets positions them to get on the AI “flywheel” – to use Lancaster’s term for the compounding feedback loop – and in doing so, leave smaller MSPs in the dust.
But is data volume really the be-all and end-all? Is the AI race really all about size?
Yes and no. Without a doubt, data is king when it comes to AI deployment, integration, and optimization – the foundation on which all progress is built.
However, the structural disadvantage small MSPs are facing isn’t quite so insurmountable. And if you run a smaller firm, there are a number of ways to counteract the data scarcity problem. Namely…
Operational Agility
You’re smaller, but you’re also more agile. And right now, while MSPs are still largely experimenting with AI – how to deploy it, integrate it, streamline it, etc. – the ability to try things out quickly is an underrated superpower.
Sure, big MSPs have more data to work with, but your small MSP has fewer bureaucratic bottlenecks and information siloes to contend with. Our advice: lean into speed (while of course staying firmly on top of security and compliance, the other elephant in the room where AI discussions take place).
Intimate Knowledge of Clients
Big MSPs might have more data, but you have something else: an intimate understanding of your clients’ unique IT environments, business goals, etc. And this is also “structural,” make no mistake; it’s inherently easier to maintain a close relationship with a handful of clients than an armful. So, while big MSPs roll out AI solutions grounded in extensive data, you can sneakily outperform them by building solutions your clients actually want and need.
Brains & Hustle
Large MSPs have more resources to devote to AI research, implementation, integration, etc. But having the capacity to do something isn’t the same as actually doing it. In theory, the big players will leverage their size to get smart about AI, fast.
But in practice? That AI flywheel won’t spin itself; you need a team that’s actually willing to do the work. And a small MSP that busts its a** can feasibly make up a lot of ground on the complacent giant that expects AI to built itself.
What’s more, while AI has the potential to completely transform the way businesses operate, the reality is still very much the Wild West. Employees are using AI on their own, often with little guidance or regard for things like security and compliance – and we believe this is as true at enterprises as it is at SMBs.
On top of that, while MSP execs are busy crafting AI programs, there’s still nothing like a consensus on:
- Where to use AI – which business functions should be given AI makeovers first
- How to use AI – the cleverest and safest ways to incorporate AI into existing workflows
- Whether to use AI – which functions might actually suffer from automation
These are strategic, big-picture questions – the kind you don’t necessarily need big budgets and enormous data sets to answer. In fact, within our peer group, we’re already seeing smaller MSPs do big things with AI.
Their success tends to follow a basic pattern:
- Start with clients’ actual needs
- Work relentlessly and intelligently to build AI solutions that move the needle
- Communicate the value of these solutions in language that resonates
That last piece of vital; being your clients’ go-to expert for all things AI means connecting the shiny tools to tangible business outcomes. And last we checked, you don’t need a giant team to nail the communication side of things.
Final Thought: Connection > Size
We’ve covered a lot of ground, so let’s review a few key ideas:
- Participation is the AI revolution isn’t optional; it’s existential.
- In the AI ‘arms race,’ large MSPs’ access to massive datasets gives them a significant structural advantage over smaller shops.
- Smaller shops can counteract this structural disadvantage through M&A and/or vertical specialization.
- Smaller MSPs can also fare well during these early stages of AI experimentation by thinking strategically, wielding agility, working tirelessly, and putting clients’ actual needs first.
But can a small MSP with an already overworked owner be expected to carry out #4 in total isolation?
This is where realism needs to temper optimism. Given the scope of the task at hand – figuring out the best way to use AI within your MSP and within your clients’ businesses – the lone-wolf approach makes very little sense. Especially now that we’re about to see large MSP roll-ups start acquiring AI companies for added expertise. If we can be frank, remaining relevant and competitive during the AI revolution – or even just remaining in business – will take resources and brainpower that far outstrip your individual MSP’s capabilities.
Vast datasets might not be a requirement for surviving the AI revolution, but being plugged into the right ecosystem is. Bottom line – if you haven’t already, it’s time to drop the lone-wolf act and find your pack.
Looking for a community to help you keep up?
Look no further than The 20’s acclaimed peer group. We help our 175+ MSP members do things most small and mid-sized MSPs can only dream about.
Want to dive deeper into the existential question?
Don’t miss our CEO Tim Conkle’s presentation – “AI for Adults” – next month at the IT Sales and Marketing BootCamp in Dallas, TX (reserve your seat). Tim’s excited to get real about what AI deployment actually costs – and how MSPs under $5M ARR can avoid getting crushed.