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There’s Money for MSPs in AI. They’ll Just Have to Wait for Most of It
According to analyst Jay McBain, it could be five to 10 years before recurring artificial intelligence revenue is a reality.
A couple of weeks ago I referenced a post on LinkedIn by Canalys analysts Lisa Lawson and Jay McBain about the $15.4 billion channel ecosystem players will make on generative AI this year and the $158.6 billion they’ll collectively be making by 2028.
Those are eye-catching numbers, obviously, and they raised a lot of questions about who in the channel will be pocketing all that money, how they’ll be earning it, and how long a wait they have until their seat on the AI gravy train arrives.
TL;DR: it depends.
Blame me for that dumbed-down summary of a complex topic, not McBain, who had a more interesting take on the matter when we spoke earlier this week. If you’re an AI platform operator like Google (which talked almost exclusively about AI at its recent Cloud Next conference), a SaaS vendor like Salesforce (which tossed an AI hat of its own into the ring this week), or one of the roughly 200,000 other software vendors furiously building large language models into their products as you read this, you’re either profiting from gen AI already or will be soon.
“It’s a gold rush for everybody who builds software today to get this hooked in,” McBain (pictured) says.
MSPs, on the other hand, will need to be a bit more patient.
“There’s not a specific managed service to manage a large language model. There’s not a specific managed service that I can charge somebody every 30 days forever for tuning that model,” McBain observes. “I’m going to say it’s going to take five or 10 years to flush out how an MSP is going to make a dollar for every dollar that Microsoft or Google or others make in this generative AI opportunity.” And longer still, he adds, until they’re collecting the $6.40 that AWS partners potentially make on cloud computing for every buck Amazon takes in.
If that sounds like a long wait, he continues, remember that it took just about as long for MSPs to turn cloud computing into a profit center after that technology’s debut.
“There were no managed services even though the hype train was off the rails,” McBain says. “Now, in generative AI, it’s almost identical to that scenario.”
Which is not to say no one will be cashing in on demand for AI services near term, just that the service providers who do will mostly have names like Accenture and Deloitte, employees skilled in building and refining LLMs, and customers willing and able to pay big bucks for that work.
“It’s going to be Bank of America that writes the billion dollar check to reimagine banking,” McBain says.
SMBs, by contrast, are likelier to dole out their AI dollars in smaller sums, like the $30 per user per month Microsoft plans to charge for its Copilot service, a sliver of which will go to a partner of record.
That said, McBain counsels MSPs against hitting the snooze button on AI for the next five to 10 years. You can make some money from your clients today teaching them AI basics. “They’ve already asked you about gen AI because they saw it on the news,” McBain notes. Many will pay even more for help applying services like ChatGPT.
“You’re rethinking people’s roles. You’re rethinking processes and workflows and business logic,” he says, adding that it’s profitable work. “We’re talking 80% profit margins, and because you’re early in that early adopter phase, there’s not a million people who know gen AI and can compete with you and drive the cost to zero.”
If nothing else, McBain adds, at least start studying up on AI now, because a million competitors will be approaching your customers sooner or later.
“You want to be in there and stay the trusted advisor,” he says. “You can’t have a new gen AI firm down the street knock on their door and say, ‘forget about all the stuff you do today. You should be spending all your money with me.’”
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HPE Aruba doubles down some more on SMB networking
Two more nuggets from McBain:
One of the AI-related opportunities for VARs will be network upgrades. “The networking requirements of moving these models back and forth on-prem to cloud is going to sell a lot of networking gear,” he says.
SMBs will account for about $2 trillion of the roughly $4.7 billion that businesses worldwide spend on IT this year, which is to say 44%.
As it happens, Amol Mitra (pictured), vice president and general manager of global small and medium business at HPE’s Aruba Networking unit, cited those last figures in a recent conversation about two new SMB-focused products the company released this week and where they fit into the company’s SMB networking strategy. He supplied another figure of his own too: HPE expects businesses with less than 500 employees to spend $2.3 billion on network infrastructure this year, and 70% of that on wireless networking specifically.
“It’s a sizable opportunity, which we’re doubling down on,” Mitra says.
Aruba placed that bet four years ago, in fact, with the introduction of its made-for-SMB Instant On product line. Mitra is pleased with the results so far. Aruba products are responsible for 20% of HPE’s revenue at present, he says, as well as about half of its profit, “and the Aruba SMB business has fueled that growth.”
Mitra sees more growth coming. According to IDC, he notes, the networking market is about two years into a refresh cycle that will eventually inspire 40% of SMBs to upgrade their connectivity in response to exploding data volumes, increasing cloud traffic, rising demand for the performance boost offered by the new Wi-Fi 6 standard, and proliferating endpoints.
“We used to be carrying one device, you and me, and now we’ve got four,” Mitra says.
Aruba’s plan for capitalizing on all that leans heavily on simplicity. “We really want to make sure that the products are easy to use, easy to set up, plug and play,” Mitra explains. Or better yet, he adds, “plug and forget,” in the sense that “you don’t need to do a lot of maintenance once you plug it in” thanks to proactive troubleshooting functionality.
Instant On products are cloud-manageable and predictably priced as well, Mitra says. “We don’t have any subscription fees, no licensee fees,” he notes. “We don’t have anything that we go back to our customers on and ask them for if they want to enable a new feature or they want to enable something extra ordinary, because it’s all built into what they had initially paid for and the hardware price.”
The two new systems unveiled this week—a Wi-Fi 6 access point with a 2.5 GbE uplink called the Instant On AP22D and a “stackable” 2.5 GbE-capable switch called the Instant On 1960—are the latest examples of that strategy in action. Together, according to Mitra, the two systems make a great “one-stop shop” combination for manufacturing facilities, college dormitories, and other environments supporting lots of connected devices.
“They’re ideal for a hotel where you have an IP phone and you may have a TV and you need wireless access within the room and you need a switch which can connect all these ethernet devices in a room,” he says.
For the moment, Mitra continues, the AP22D and 1960 fill the last remaining gaps in the Instant On line. New ones will emerge for sure in the future though.
“The performance needs will continue to grow and IoT devices will continue to grow, so we need to continue to expand the portfolio,” Mitra says.
How CyberFOX is navigating the cyberinsurance storm
The folks at Tampa-based security vendor CyberFOX, meanwhile, have something a little more urgent than mounting network performance requirements on their mind: Hurricanes.
Hurricane Lee (currently bearing down on New England, and best wishes to my friends in that part of the world) was still forming in the Atlantic when I spoke with David Bellini, the company’s CEO, and Adam Slutskin, its chief revenue and strategy officer, a week ago. Hurricane Idalia had made landfall in Florida barely more than a week earlier.
Storm activity like that has made getting home insurance difficult for many in the state, including Slutskin (pictured), who recently lost his coverage. “My insurance company didn’t renew me,” he says.
It’s a dynamic no doubt familiar to MSPs who’ve seen what cyberinsurers do these days when one of their clients gets breached. “It’s kind of like a hurricane,” Bellini observes. “All of a sudden they want to raise your rates or drop you.”
Indeed, while a few crazy optimists like me think we might just be headed for a welcome change, cyberinsurance continues to be not a security-related headache for MSPs but the security-related headache.
“We’re having over 10,000 conversations a month [with MSPs], and guess what we’re hearing? Cyberinsurance, cyberinsurance, cyberinsurance,” Slutskin says.
That’s actually fortunate for CyberFOX, he continues, because insurers increasingly require businesses to have password management software like the company’s Password Boss product and privileged access management software like its AutoElevate solution.
“You need to have cyberinsurance and you need to also have the kind of tools we have to be able to get cyberinsurance, and at the very least get favorable rates,” Slutskin says.
The persistence of cyberinsurance as a pain point for MSPs, he adds, motivated the strategic alliance CyberFOX announced last month with cyberinsurance provider FifthWall Solutions. For the moment, the deal allows CyberFOX partners to offer their clients a free requirements gap analysis, but the two companies will eventually use real-time telemetry sharing to help businesses get lower rates, per similar arrangements insurer Cowbell Cyber has in place with Sophos and Trend Micro.
In the meantime, CyberFOX has two new rollouts coming this year. The first, likely to arrive next month, will let technicians login to administrative systems securely without knowing or providing an admin password, a feature designed to eliminate a tedious chore MSPs must otherwise perform every time a tech leaves the company. “When one of those guys changes jobs, I’ve got to go change every single local admin password,” Bellini says.
The other forthcoming release is a new blocklisting product that will bar ordinary users from accessing a customizable list of tools only hackers are likely to use, like PowerShell. “A normal user does not need to use PowerShell,” Bellini observes.
Just put into beta testing last week is a major Password Boss update (version 6.0) that will include dark web monitoring. “It’s basically going out there and looking at the dark web to see if any of your passwords have been compromised in real time,” Bellini says.
A security awareness training solution is in the works as well, he adds. That system, like Password Boss and AutoElevate, will aim to help smaller businesses with tight budgets fill often expensive security needs.
“Our mantra is really products that are one-tenth the cost of the CyberArks and the BeyondTrusts, the big boy products, but covering 80, 90 percent of the benefits,” Bellini says.
Also worth noting
ConnectWise’s MDR solution now integrates with Microsoft Defender for Business. I’ll have more on this next week after an upcoming conversation with EVP and GM of Cybersecurity Raffael Marty.
MetaGeek, Auvik’s Wi-Fi management unit, now offers portable Wi-Fi and spectrum Diagnostics via an alliance with Oscium.
Acronis has added advanced automation functionality to its Cyber Protect Cloud solution.
Kaseya’s new Remote IT and Security Management certification and accompanying training course seek to help the IT industry fill its still enormous tech skills gap.
Syncro has taken its collaboration with remote access vendor Splashtop to the next level by giving users of its RMM platform an enhanced suite of Splashtop features.
Pax8 has introduced a new and accelerated process for onboarding emerging “private offer vendors” often available only on hyperscaler marketplaces to its line card.
Congrats to Holly Hunt, national sales director of indirect channels at Comcast Business, for being named Big Impact Winner for Q2 by the Alliance of Channel Women.
Partners of cloud operator Vultr now have access to multicloud application management functionality from Virtuozzo.