AI “Systems of Action” Have Worrying Implications for PSA Vendors

Including the maybe, who knows prospect of complete displacement. Plus: Why a deal Dave Sobel negotiated with Karl Palachuk is good news for the MSP spirit of community.

If you’re immersed in the world of managed services, odds are good you’re unfamiliar with the terms “system of record” and “system of action.” If you’re immersed in the world of venture capital, you’ve been obsessed with both for years.

A system of record is a big, core business application with a deep repository of mission-critical data offering authoritative answers to a wide range of questions. In the enterprise, think ERP and CRM software from the likes of SAP and Salesforce. In an MSP, think PSA and RMM software from the likes of ConnectWise and Kaseya. Increasingly in recent years, as we’ve discussed here at Channelholic many times, system of record vendors for MSPs have been using generative AI to accelerate critical workflows.

A system of action on the other hand doesn’t accelerate work so much as do it for you entirely on its own. Examples for MSPs include the AI-native solutions I’ve been profiling in recent months from vendors like Cyft, zofiQ, Mizo, Everest, Pia, and Thread, which explicitly aims to be a system of action per its CEO.

All of those companies, it’s worth noting, aren’t just AI-native. They’re agentic AI-native, which is why they can perform help desk tasks autonomously and also why venture capital firms have been obsessing over systems of action generally for so long. According to Omdia, agentic AI software sales will soar from $1.5 billion last year to $41.8 billion by 2030 on the back of a 175% five-year CAGR. Generative AI, for all the frenzy it’s inspired since the launch of ChatGPT in 2022, is three years into a “mere” 90% five-year CAGR by comparison.

In theory, incumbent system of record vendors like ConnectWise, Kaseya, and NinjaOne should be on their way to becoming system of action vendors too. “They have the data. They have all the information. They’ve had the time. They’ve had the horizon. They’ve had the money,” notes Alex Stanton (pictured), chief strategy officer at consultancy ThinkPurple and someone you met here a few weeks ago. All they need is the agentic AI code.

In practice, however, while ConnectWise rolled out its first agent last November and Kaseya has agents coming, Atera is to my knowledge the only legacy RMM/PSA vendor to release a complete, fully autonomous AI component, for reasons zofiQ CEO Lee Silverstone outlined in a recent episode of the podcast I co-host.

“It’s really hard,” he says. “It’s really hard to build these things. These are not simple products. You can get to 60% of the way there overnight. You can’t do the last 40% overnight.”

Needless to say, that hardly rules out the prospect of legacy SoR vendors drawing on their considerable advantages to become SoA vendors too. If they fail to pull it off, however, they face two pretty serious threats:

1. Disintermediation. Inevitably, the system most responsible for the work that makes an MSP money will command an increasing share of that MSP’s attention. To the degree that shift means the MSP devotes decreasing attention to the underlying system of record—the PSA in our case—the end result will be a gradually closer relationship with the SoA vendor and a gradually more distant one with the SoR vendor, giving the SoA vendor what Tidemark Capital (in an excellent post on this whole phenomenon) calls “the strategic high ground.”

2. Displacement. Though disintermediation is bad enough, the bigger risk system of record makers face is that over time a system of action could, in Tidemark’s terms, “integrate and surround” them, scooping more and more of their data into an increasingly rich data lake of its own. To get a feel for what that looks like, check out Christopher O’Donnell, CEO of system-of-action startup Day AI, in this video interview.

I was talking to one person in the venture community, and this person was talking about how sticky systems of record are and the example that they used was Zendesk. If all of your support tickets are in Zendesk, you’re not really going anywhere. And I’m on the call thinking, ‘how do I tell this guy that we have all of the support tickets. We 100% have all of the support tickets and we have them deduped and we have the clips and Slack messages that they came from, and we have them tied to all of the opportunities and can show you the revenue potential impact of a bug.’

How long, one wonders, before users of software like Day AI start wondering what they really need that stodgy old system of record for any longer?

Survival strategies

Of course, dumping a PSA solution is a serious, often painful undertaking MSPs generally avoid. That said, how deep a moat do incumbent PSA vendors truly have? After all, MSPs replace their PSA system all the time, notes Stanton, pointing to Halo’s meteoric rise from obscurity to significance (the company was growing market share at a 72.4% clip a year ago, per Omdia) as an example.

“You can rip everything out of ConnectWise and load it into Halo and kind of get back to functional in a weekend,” he says.

And that’s doing things the old-fashioned way, observes Bessemer Venture Partners, noting that AI gets better at streamlining transitions like that every time a new model update appears.

“With AI’s ability to structure unstructured data and generate code on demand, migrating to a new system is faster, cheaper, and more feasible than ever,” the company writes.

How then should a system of record vendor ward off that threat? Tidemark’s suggestion is “do your best Jrue Holiday impression and play lockdown defense—making integration tough on all challengers. No API access, no MCP integration.”

That may be an option for some SoR vendors but it’s definitely not for SoR vendors serving MSPs, who will punish companies that discourage integration. A far better option, according to Stanton, citing the work of Innovator’s Dilemma legend Clay Christensen, is to “disrupt yourself” before newcomers do it for you.

If you can, that is. “It’s really hard,” says Stanton, noting this is the heart of what the innovator’s dilemma is all about. “You can do it, but it takes deep investment.”

It also takes a mindset adjustment that existing product teams can struggle with. “Oftentimes, organizations have to build an innovation hub,” Stanton says. “They have to build an incubator inside the business.”

That’s what Stack Overflow CEO Prashanth Chandrasekar did several years ago, in fact. Realizing that generative AI would soon make Stack’s legacy developer knowledge sharing business irrelevant, Chandrasekar put 10% of his employees into a new unit entirely dedicated to innovating the company out of its dilemma.

“In technology, it is a very consistent theme that every so often, you will have disruptive threats, and there’s a very specific way in which you need to respond to that,” says Chandrasekar in a recent podcast. “History suggests you should carve out an autonomous team that has very different incentives and can pursue things in a very different way relative to the rest of your business.”

That still takes time, however. Chandrasekar had that time two years ago when genAI was in its infancy, but today’s PSA incumbents may not have the same luxury. Which means that the build element of the classic “build, buy, or partner” trio could be too slow and the partner element could mean inviting a data-siphoning Trojan Horse into your business.

Which leaves buy. Indeed, we saw several MSP toolmakers choose that option in the previous decade when a bunch of nimble new SaaS management vendors appeared at a time when legacy RMM vendors were still entirely device oriented. Were I to make a prediction for 2026 in this season of prediction lists, in fact, it would be that at least one of the AI-native startups I’ve been writing about has been acquired by a name-brand RMM/PSA vendor by this time next year.

A welcome investment in the spirit of MSP community

Truth be told, I’m not much into the annual prediction list phenomenon, but as long as I’ve made one prognostication I might as well make another, extremely easy one: today’s large, private equity-backed MSP rollups will continue to get larger this year.

That’s partly due to dynamics I won’t belabor here after having done so multiple times in the past, partly because interest rates are slowly subsiding, partly because U.S. private equity firms are sitting on some $1 trillion of investible “dry powder,” according to Pitchbook, and partly because private equity deal volume will rise 5% this year, according to EY. That’s down from 2025’s projected 8% uptick, but still a move in the positive direction following multiple years of decline.

Like everyone else in the industry, Dave Sobel has noticed the rise of PE-funded mega MSPs too. Unlike many in the industry, he doesn’t hate it.

“I love the PE guys,” insists Sobel (pictured right above), whose Business of Tech podcast I cite regularly. “I hope that they’re wildly successful, because it’s good for the whole space.”

That said, he continues, citing data from ConnectWise’s Service Leadership unit, 81% of MSPs do less than $10 million top line annually at present and 67% do less than $5 million. “Those are small businesses,” Sobel notes, and unlike PE-owned firms with access to centralized services from experienced professionals, they have to learn everything from sales and marketing to billing, hiring, and beyond more or less on their own through trial and frequent error.

Which is pretty much how it worked for everyone in managed services large or small two decades ago when Sobel, an MSP himself at the time, met fellow MSP Karl Palachuk. Both men, though, were big believers in something else I’ve written about here a few times, a defining quality of managed services rarely found in other professions: the power of communities to help people otherwise figuring everything out on their own help each other reach greater heights.

Palachuk, in particular, was already one of the most respected authorities on managed services success when I met him and Sobel both in 2006, and his Managed Services in a Month: Build a Successful, Modern Computer Consulting Business in 30 Days remains a classic some 20 years after its publication. He eventually exited his managed services practice to focus full time on Small Biz Thoughts, the MSP blog he built over time into a sprawling, widely trusted community and educational resource for MSPs.

So it should probably have been less a surprise to me than it was to learn that MSP Radio, Sobel’s media business and Business of Tech’s parent company, has acquired both Small Biz Thoughts and sister organization IT Service Provider University in a deal made public yesterday and percolating for a long time before that.

“We’ve been talking about this for two decades,” Sobel says. “We both have an idea of the way we should serve this community.”

For Palachuk (pictured left above), who will serve as strategic advisor and instructor at MSP Radio during a two-year transition period, the sale opens more room for the work he most loves doing. “I want to write a lot, and I don’t have the time for that when I’m trying to run a community and a training center and all that stuff,” he says.

For Sobel, the deal offers more ways to get the vendor-neutral content he’s been distributing through Business of Tech out to MSPs.

“I do podcasting and video and TikTok and all of those. Karl’s got an incredibly strong newsletter offering and webinar production capability,” Sobel says. “It just all fits together so nicely.”

It also, he adds, represents a “teachable moment” for his MSP audience and Palachuk’s MSP community in that the deal enabled both buyer and seller to scale what they’d grown without accepting a nickel of private capital.

“I went to the bank with a business plan and pitched them my business plan and they gave me a loan,” Sobel explains. “I’m looking at this saying, ‘if you want to do an expansion, you don’t have to take VC money or PE money.’”

For Sobel and Palachuk both though, and from my perspective as well, the really nice thing about this deal is that as enormous volumes of money continue pouring into the construction of massive MSPs with potentially global reach, there will continue to be a place for the long, long tail of smaller providers to keep the go-giver mentality that’s long distinguished the MSP community alive, not to mention a place to get something Sobel says has grown hard to find: “an independent set of thoughts that are not driven by external money factors.”

The inside skinny on IntuneForMSPs

Remember IntuneForMSPs, the new Microsoft initiative I wrote about a few months ago designed to drive Microsoft 365 subscriptions by getting more MSPs using its Intune management tool? No? OK, first read my story about it here. Then tune into the latest episode of MSP Chat, the podcast I co-host, for a firsthand explanation of what it’s all about and why it matters for MSPs from Jason Ulacio of inforcer, one of two IntuneForMSPs launch partners.

Also worth noting

This was a holiday week, so there’s not a lot also worth noting beyond Meta’s very interesting acquisition of Manus, a mostly enterprise agentic AI startup, for a sum believed to be north of $2 billion.

I will, however, gladly introduce you to the Alliance of Channel Women’s freshly named board of directors for 2026-2027. I don’t know them personally, but I guarantee you they’re as busy as you are and have agreed to dedicate some extremely scarce time to an extremely worthy cause anyway. Thanks and congratulations to all of them.