Executive Summary
Dawn’s March 2025 MSP Market Study of 40 MSPs across the US, UK and ANZ covers how the industry is responding to shifting customer demands, competitive pressures, and technological change. The findings reveal opportunities and pressures against a backdrop of growing security demand, automation (AI), and Microsoft’s increasing dominance.
MSPs highlight strong customer retention and a “golden age” of industry growth. However, margins remain low, driving a need for differentiation. Only the most efficient providers achieve margins of >20%, as service delivery costs and operational inefficiencies weigh heavily. Security services are becoming the fastest-growing segment offering the potential to move upmarket and serve higher margin services. But knowledge gaps and hiring remains the challenge: cybersecurity specialists are in short supply, and even entry-level helpdesk roles are proving difficult to fill.
MSPs believe in Microsoft as an opportunity to grow their business. End-customers are consolidating their IT and security needs under Microsoft’s ecosystem, with 73% of MSPs expecting Microsoft adoption to increase over the next two years. Microsoft Secure Score is starting to appear on end-customers’ cyber insurance policies. Other MSP software vendors like Connectwise and Kaseya score poorly on NPS against Microsoft.
However, implementing Microsoft can be difficult, and low utilization of the full suite is common. Manual processes slow operations, particularly in security hardening, compliance, and tenant management. Many MSPs report spending 1–5+ hours per end-customer per month on Microsoft security tasks, with existing tools lacking automation. Lighthouse does not meet configuration needs, and customers are interested in buying a third-party tool.
MSPs see AI as a game changer, but are early on their journey. While most MSPs see AI as a valuable opportunity for both operations and service offerings and express confidence in deploying AI solutions for end customers, external monetization is still in its early stages, with most end customers still in the experimentation phase.
In all, the findings paint a picture of an industry in transition. MSPs that embrace automation, AI, and security-first services will be best positioned to scale profitably. Those slow to adapt risk falling behind as end-customer expectations shift and the market consolidates further around security and efficiency.
We hope you enjoy reading the findings.
Industry Findings
MSP Profile
We took a predominantly North American sample of MSPs (60% of total), but also added a minority sample of the UK and Australia/New Zealand (40% of total).
Our sample focuses on senior MSP roles, capturing both strategic (e.g., CEO, COO) and technical perspectives (e.g., CTO, CIO).
Also, focused on MSPs and MSSPs whilst explicitly excluding VARs, agencies, and consultancies. MSPs represent 82% of the resulting sample, to test our security thesis.
We further refined our scope to include only SMB and mid-market MSPs. Final sample consists primarily of mid-market providers (55%), with SMBs representing 25%.
MSP Economics
Respondents represent businesses with annual revenues ranging from $2 million to $20 million; companies exceeding $20 million were explicitly excluded.
We intentionally targeted healthy businesses demonstrating solid revenue growth, predominantly moderate (6–20%). Respondents reporting revenue growth below 5% were excluded.
MSPs typically experience service-level margins constrained by structural factors and diseconomies of scale. However, best-in-class MSPs operating at critical scale achieve margins of approximately 20–30%.
MSP Differentiation (1/2)
MSP struggle to differentiate with an increasing commoditization of their services and pricing pressure. Security acts as a differentiator.
MSP Differentiation (2/2)
MSPs in 2025 are setting themselves apart with AI, automation, and a stronger focus on security. Many are also leaning into industry specialisation, proactive service models, and deeper end-customer relationships.
We differentiate by integrating AI-driven security automation, Zero Trust frameworks, and advanced Microsoft policy management—enhancing cyber resilience, compliance enforcement, and operational efficiency for enterprise end-customers.
We are going all-in on cybersecurity, beginning every engagement with a risk assessment. This leads to a tailored readout, informing bespoke security solutions designed for each end-customer’s unique needs.
Our biggest differentiator has always been relationships. If end-customers don’t feel they can call and have an intelligent conversation with their MSP, something is wrong. Relationships are the one thing we can fully control as an MSP.
We are taking a proactive stance on security—no longer letting end-customers make decisions based on price alone. We’ve set minimum security criteria for hosting, productivity suites, password management, and onboarding. If end-customers don’t meet them, they can’t remain end-customers.
Experience of Vendors
Microsoft maintains its market leadership and continues to strengthen its position. Meanwhile, incumbent, PE-backed providers face significant dissatisfaction among their end-customers.
The MSP community is tightly knit, with buying decisions heavily influenced by relationships. Nonetheless, the importance of a strong online presence and effective branding remains critical.
Microsoft Findings
Microsoft Expertise & Spend
A majority of respondents have developed substantial expertise in Microsoft solutions, reflecting widespread adoption across the MSP landscape.
A significant share of MSPs now see Microsoft as their end-customers’ primary vendor with large exposure
And see themselves and their end-customers increase their usage and adoption over the next 24 months.
Microsoft Service Offerings
MSPs are starting to wrap services around Microsoft’s security and governance ecosystem. Intune and Defender, are a popular choice to start as they demand hand-holding through a more complex delivery.
End-customers are consolidating IT security, compliance, and endpoint management under Microsoft’s ecosystem, making Intune, Defender, Purview, and Entra critical growth areas
We are seeing continued growth in Microsoft across all end-customers, especially with the move to large language models and security
End-customers want to leverage their licensing investment more in Microsoft and avoid additional spend in other products where possible
Microsoft Adoption by Module
However, in practice, tools are not effectively use across their end-customers.
Most end-customers currently exhibit medium to poor security scores, highlighting significant upside potential for improvement.
One reason might be a lack of awareness/education for secure score integration into your insurance policies.
Configuring Microsoft
MSPs frequently dedicate considerable amounts of time to tenant configuration activities.
Lighthouse has achieved moderate adoption among MSPs, with most respondents indicating light to moderate usage.
Despite current Lighthouse adoption, there is strong demand for alternative solutions, particularly among existing Lighthouse users.
Respondents indicated a clear willingness to invest on a per-tenant basis, with spending expectations ranging from $20 to $80 per month.
Interest in Lighthouse Alternative
MSPs are actively seeking alternatives to Lighthouse due to its limitations in automation, multi-tenant management, and compliance.
Lighthouse has limitations in advanced automation, compliance, and customization for enterprise end-customers. A tool with AI-driven security enforcement, automation, and deeper compliance controls would increase our interest.
Another tool would make us a lot more efficient and save time and money.
If a new tool offers significant automation, improved security, I would likely be open to exploring its benefits further
We currently use Nerdio but would be very interested in alternatives.
Services Findings
Revenue by Service
MSP revenue remains dominated by IT lifecycle services and infrastructure, but security services—especially advanced security (SOC, XDR, Pen Testing)—are a strong secondary revenue driver.
Over the last 24 months, we have observed a gradual shift towards increased investment in foundational and advanced security services
MSPs spend the most time on IT lifecycle services and infrastructure, while security—especially advanced security—remains a smaller but critical focus.
No major changes in this and I don’t forecast seeing too many. We still make most of our revenue from Helpdesk and IT services
Workflow Painpoints
MSPs struggle with manual processes (85%), tool fragmentation, staff shortages, and billing complexity, slowing operations. Automation and integration are the biggest opportunities for efficiency.
Manual interaction is still needed within workflows. Some pieces are automated, but not nearly enough. Lack of consistency in execution and manual bottlenecks slow everything down.
Many tools without a single-pane-of-glass. Going from tool to tool with no comprehensive view. Lack of automated remediation and too much noise from RMM tools.
Hiring and retaining skilled employees is a growing challenge. The labor market is unpredictable, and training new staff on workflows takes too long.
Billing is a nightmare—tons of separate solutions, each with its own cycle, reconciliation process, and pricing model. It takes too long to make it all work.
Security Hardening
80% of MSPs perform monthly security hardening for their Microsoft Tenants.
Two thirds of MSPs spend between 1 and 5 hours per tenant per month hardening Microsoft Tenants.
Talent Painpoints
Security roles are the hardest to fill, with high costs, talent shortages, and rising complexity making hiring and retention a major challenge. Helpdesk is also difficult to staff, as many IT professionals see it as a stepping stone, not a career. AI-driven security is emerging as a specialized hiring bottleneck.
Advanced security services (SOC, XDR, Forensics, Pen Testing) require the most specialized expertise and are also the most difficult roles to hire and retain talent for. The demand for highly skilled cybersecurity professionals far exceeds supply, making recruitment and retention a challenge.
We have difficulty hiring for any specialty since they are the most expensive to hire and recruit; however, we also find it difficult to hire for Helpdesk. Many IT professionals believe they have outgrown Helpdesk, so it is hard to find people willing to answer the phones.
High-skilled security people are increasingly expensive, and quality is averaging out lower across the market. The cybersecurity roles are getting harder as there are more tools and options. Compliance has come into play, and it is challenging to stay competitive without the revenue for dedicated resources
Advanced security, in particular AI-based forensic analysis, is currently our biggest challenge. It is difficult to find people experienced in training AI models around this type of data, and many end-customers are reluctant to share said data.
Tool Wishlist
MSPs want fully integrated, AI-powered security and management platforms, but current solutions are too expensive, fragmented, or not built for multi-tenant use. Automated onboarding, compliance assessments, and security telemetry analysis are key unmet needs
I wish that enterprise security tools were designed for SMBs with multi-tenant functionality from the start. Most products today are either immature or designed for large enterprises with little thought for MSPs serving smaller end-customers.
A comprehensive AI-driven security management platform that integrates Defender, Sentinel, and third-party tools into a single dashboard for automated threat detection, incident response, and compliance reporting would significantly improve efficiency, but currently lacks affordability and ease of use for large enterprises.
I wish there was a software tool that would link all of our tools together and give us a management interface. PSAs are now glorified billing systems, but I want something that ingests all my telemetry and allows me to manage end-customers holistically—security risks, billing, subscriptions, quotes, and alerts all in one place.”
An all-in-one tool that would automate onboarding, deployment of tools, and invoice reconciliation across all products in our stack. A fully hands-free, AI-driven end-customer onboarding tool would be a game changer.
AI findings
AI Priorities
AI is increasingly becoming a priority for MSPs to build internal capabilities and future proof their business.
Most respondents anticipate AI will generate positive, albeit moderate, financial impact.
AI implementation will help increase our margin because it will make the organisation more effective and efficient
MSPs start thinking about externally facing AI solutions as a new revenue opportunity.
AI Delivery
MSPs want to play a role in guiding end-customers through AI transformation, typically beginning with advisory services or taking on primary decision-making responsibilities.
We see our end-customers use other companies for their AI implementation. It is very important for us to come up with AI solutions for our end-customers.
And there is high levels of confidence among MSPs regarding their ability to deploy AI solutions.
AI Adoption
But it’s still only early stage engagement, with most use cases centered around ChatGPT-like applications, and only a limited number of fully operational deployments so far.
Over 33% of respondents identified Copilot as the leading use case driving end-customer interest, highlighting its clear market leadership and significant growth potential.
1. Microsoft Copilot
2. Workflow automation
3. Internal chatbots / knowledge search
4. End-customer support
5. Private GPT
6. Marketing
The real opportunity isn’t in turning on Copilot—it’s in being the partner that helps companies operationalize it
Copilot adoption
There is clear and strong demand for Microsoft Copilot among end-customers.
Key insights into deployment barriers include technical integration and skill gaps.
The biggest technical challenges in deploying Microsoft Copilot include data security & access control, ensuring compliance with regulatory policies, and integration complexities with legacy systems, requiring proper governance, role-based access, and AI adoption training
[There is] a lack of clear ROI for our end-customer base. Everybody is watching the market to see what occurs in the space.
I see cost being the biggest challenge. People are not seeing the value in Microsoft Copilot for the cost.
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