MSPs Are Being Commoditized - Here's the Way Out

The Commoditization Curve Is Accelerating — And the Old Playbook Can't Save You

Managed services providers have been talking about commoditization for years. What has changed is the rate. AI tools are compressing the gap between what clients expect and what they can access independently, and the per-user pricing model that has anchored MSP revenue is increasingly misaligned with how businesses actually grow. When headcount stops being the primary driver of technology complexity — when automations and agents replace human tasks — the MSP that bills per seat is betting against the very forces shaping the market. The question is not whether this shift is coming. It is whether you are positioned on the right side of it when it arrives.

• Client curiosity about AI has moved from casual questions about Copilot to formal requests for automation, workflow augmentation, and data analytics — and the MSP that cannot meet this demand will lose the relationship to someone who can.
• The per-user pricing model assumes growth means more employees. If AI enables businesses to grow without proportional headcount increases, the MSP's revenue model is structurally misaligned with client success.
• Commoditization is not a threat to be defended against — it is a signal to reposition. The MSPs that treat it as a reason to package tighter and price lower are accelerating toward irrelevance.

The Advisory Seat — Why Technology Questions Are the Wrong Starting Point

Every MSP claims to be a trusted advisor. Almost none of them actually sit in their client's executive planning meetings. The gap between aspiration and execution is not about capability — it is about the conversation. MSPs default to technology questions because that is what they know. But the business owner does not think in terms of servers, security scores, or ticket volumes. They think about hiring, market expansion, product launches, and competitive positioning. If the only value you bring to the table is a technology review, you have made yourself replaceable by any other MSP offering the same review at a lower price. The advisory position is earned by asking business questions first and letting the technology implications surface naturally — often in areas the client never connected to IT in the first place.

• The MSP has two structural advantages no other vendor enjoys: daily communication with the client and ownership of the technology environment. Most MSPs do not recognize the strategic leverage these create because they have never used them for anything beyond break-fix and ticket resolution.
• The advisory conversation starts with business planning — goals, growth strategy, hiring plans, market positioning — not with an IT assessment. If you ask about technology first, you have already commoditized yourself in the client's mind.
• The litmus test is simple: if your client grows, do you grow? If the answer is no, your agreement structure has created an adversarial incentive where protecting your book of business competes with helping the client succeed.

The Software Play — Why Every Massive MSP Exit Was a Product Exit

There is a pattern that recurs across the highest-multiple MSP exits of the past two decades, and it has nothing to do with the size of the managed services contract. IT Glue, ConnectWise, Enable — every one of them started as an MSP or MSP-adjacent operation that turned an internal tool or vertical solution into a standalone software product. The managed services book was the distribution channel. The software was the asset. AI has fundamentally altered the economics of this play. Development costs that would have required six figures and a dedicated team eighteen months ago can now be achieved at a fraction of the cost, with the MSP maintaining creative and strategic control over the product. The barrier to entry has collapsed. The strategic opportunity has not.

• AI has compressed software development costs by an order of magnitude. The MSP does not need a full development team to build a product — they need a strategic vision for what to build and a professional development partner to ensure it is built correctly.
• The productization path runs from bespoke client automation (project work) to repeatable solution (templated delivery) to packaged software (SaaS). Each stage adds enterprise value, but only the final stage creates the kind of recurring, ownable asset that commands premium multiples.
• The trap is doing bespoke work indefinitely without converting it into a product. Every custom automation that lives only in one client's environment is revenue without equity. The discipline is recognizing when a pattern has emerged and investing in the packaging.

Project Revenue Is Not a Consolation Prize — It Is the Growth Engine

The managed services industry has conditioned MSP owners to view project work as secondary to recurring revenue. That framing made sense in a stable environment where headcount grew predictably and technology stacks were standardized. It does not make sense in an environment where the most valuable client engagements involve custom development, workflow automation, and strategic advisory — none of which fit neatly into a monthly subscription. The MSPs that will thrive in this next phase are the ones willing to rebalance their revenue mix: maintain the managed services base for stability, but drive growth and margin through project work that leads to product ownership. Base the business on managed services. Make money on the projects.

• Project-based revenue with a support layer contract (a monthly fee to maintain and support custom work) creates a natural bridge between one-time engagements and recurring revenue — without forcing everything into an artificial subscription model.
• The discipline required is the advisory conversation: understanding the client's business problem, quantifying the cost of the problem, and ensuring the proposed solution is economically justified before building anything. The MSPs that skip this step end up building $75,000 solutions for $10,000 problems.
• The MSP owner who is not using AI tools in their own business first — analyzing time entry, building internal dashboards, automating workflows — cannot credibly advise clients on the same. The mirror test matters: advise yourself before advising others.

Frequently Asked Questions

What does MSP commoditization actually mean?

MSP commoditization refers to the process by which managed services become interchangeable in the eyes of the buyer — where the primary differentiator is price rather than value. As AI tools give clients more direct access to technology capabilities and standardized MSP offerings become increasingly similar, the commoditization curve is accelerating. MSPs that compete on packaging and pricing alone are most vulnerable.

How can MSPs become true trusted advisors to their clients?

Earning the trusted advisor position requires changing the conversation from technology to business outcomes. Instead of asking what servers or software clients need, ask about their growth plans, hiring strategy, competitive positioning, and operational challenges. Facilitate executive-level planning conversations, and position technology as a component of business strategy rather than a standalone discussion. The goal is a regular seat at the leadership table, not just an IT review meeting.

Why is software development relevant to MSPs?

AI has dramatically reduced the cost of software development, making it accessible for MSPs to build custom solutions and eventually proprietary products. The highest-value MSP exits in history — IT Glue, ConnectWise, Enable — were all software plays. MSPs can leverage their client relationships to identify repeatable problems, build solutions, and scale them into products that create enterprise value beyond monthly recurring revenue.

Should MSPs shift away from recurring revenue?

No — the managed services base remains essential for business stability. The strategic shift is in how growth and margin are generated. Rather than trying to force every service into a monthly subscription, MSPs should embrace project-based work for new service offerings like AI implementation and custom development, while maintaining their MRR base. The formula is: base the business on managed services, make money on the projects.

What is the productization path for MSP services?

The path moves through three stages: first, bespoke work (custom automations and projects for individual clients), then repeatable solutions (templated versions of successful projects that can be deployed across similar clients), and finally packaged software (a SaaS product that can scale independently). Each stage adds enterprise value, but the real multiplier comes from product ownership rather than service delivery alone.

How should MSPs start using AI in their own business?

Start with internal use cases that directly improve your operations — analyzing time entry data, scoring service delivery quality, automating reporting workflows, and building internal dashboards. This builds competency, demonstrates ROI, and gives you credible experience to reference when advising clients. If you are not using AI to run your own business better, you are not positioned to guide anyone else through the same transition.

Episode Highlights

• 02:03 — Why the commoditization curve MSPs have been watching for years just hit an inflection point driven by changing client expectations and AI accessibility
• 09:02 — The case for custom advisory and development services as the key to decommoditizing your MSP — offering something that cannot be replicated through standard packaging
• 15:13 — The secret pattern behind every massive MSP exit: it was never the managed services contract — it was the software play built alongside it
• 22:43 — How to earn the executive seat at your client's table by asking business questions instead of technology questions
• 28:21 — The incentive alignment test: if your client grows, do you grow? And why the answer reshapes your entire agreement structure
• 34:41 — Enterprise value through product ownership: why increasing project work with a product you own may be the strategic move for the next phase of MSP ownership
• 40:24 — The productization path from bespoke automations to repeatable solutions to scalable SaaS — and why skipping stages creates unsupportable complexity
• 50:22 — The mirror test: if you are not advising your own business on strategy, hiring, and financial planning, you cannot credibly advise your clients

About the Co-Host: Gary Boyle

Gary Boyle is a Partner for Strategy & Business Development at Bering McKinley. With a background spanning network engineering, entrepreneurship, and strategic consulting, Gary brings real-world operator experience to helping MSP owners build stronger, more profitable businesses. His hands-on work with AI tools, software development workflows, and the BMK Vision platform gives him a practitioner's perspective on the opportunities and pitfalls facing MSPs in the current market.

Connect with Gary on LinkedIn →

About the Host: Josh Peterson

Josh Peterson is the CEO of Bering McKinley and host of The BMK Vision Podcast. Since 2004, Josh has worked with hundreds of MSP owners to build operationally sound, profitable businesses through consulting, peer teams, and direct coaching.

Connect with Josh Peterson on LinkedIn →

Related Resources from Bering McKinley

• M&A, Re-Signing Clients, and Enterprise Value with David Spire
• Strategies for Sustainable Growth for MSPs

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