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.

Geographical mix

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).

Roles

Our sample focuses on senior MSP roles, capturing both strategic (e.g., CEO, COO) and technical perspectives (e.g., CTO, CIO).

Type of MSP

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%.

Annual Revenue

Respondents represent businesses with annual revenues ranging from $2 million to $20 million; companies exceeding $20 million were explicitly excluded.

Revenue Growth

We intentionally targeted healthy businesses demonstrating solid revenue growth, predominantly moderate (6–20%). Respondents reporting revenue growth below 5% were excluded.

Profit Margin

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%.

Sources of Competition

MSP struggle to differentiate with an increasing commoditization of their services and pricing pressure. Security acts as a differentiator.

Q: What three things matter the most to prospective end-customers in deciding their MSP?

Differentiation in 2025

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.

Q: How are you differentiating yourselves in 2025?

NPS of Leading Software Vendors

Microsoft maintains its market leadership and continues to strengthen its position. Meanwhile, incumbent, PE-backed providers face significant dissatisfaction among their end-customers.

Q: Based on your overall experience, how would you rate each software vendor on a scale of 1-10?

Ways to Discover new Software

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.

Q: Please rank the following sources based on how influential they are in your process of discovering new software, from most to least important.

Microsoft Expertise

A majority of respondents have developed substantial expertise in Microsoft solutions, reflecting widespread adoption across the MSP landscape.

Q: Does your MSP have Microsoft Expertise?

Microsoft Exposure in End-customer Base

A significant share of MSPs now see Microsoft as their end-customers’ primary vendor with large exposure

Q: What proportion of your end-customers use Microsoft as their primary vendor?

Microsoft Spend

And see themselves and their end-customers increase their usage and adoption over the next 24 months.

Q: How do you expect Microsoft usage by you or your end-customers to change over the next 24 months?

Microsoft Service Delivery by Module

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.

Q: Do you currently offer the product? How long does it take to deliver? How much are you charging per tenant?

Microsoft Module Deployment Effectiveness

However, in practice, tools are not effectively use across their end-customers.

Q: How effectively are the different modules used across your Microsoft end-customers?

Secure Score Presence in Cyber Insurance Policies

One reason might be a lack of awareness/education for secure score integration into your insurance policies.

Q: Have you seen Secure Score referenced in any of your end-customers’ cyber insurance policies?

Time Spent Configuring per Tenant

MSPs frequently dedicate considerable amounts of time to tenant configuration activities.

Q: How many hours per month does it typically take to harden Microsoft Tenants for your end-customers?

Microsoft Lighthouse Usage

Lighthouse has achieved moderate adoption among MSPs, with most respondents indicating light to moderate usage.

Q: Do you use Microsoft Lighthouse to manage policies and configurations?

Interest in Lighthouse Alternative

Despite current Lighthouse adoption, there is strong demand for alternative solutions, particularly among existing Lighthouse users.

Q: Would you like to buy a tool that manages Microsoft policies across tenants?

Spend per Tenant for Lighthouse Alternative

Respondents indicated a clear willingness to invest on a per-tenant basis, with spending expectations ranging from $20 to $80 per month.

Q: How much would you be willing to spend per tenant/month on an alternative management tool?

Interest in Alternative Tools

MSPs are actively seeking alternatives to Lighthouse due to its limitations in automation, multi-tenant management, and compliance.

Q: Would you like to buy a tool that manages Microsoft policies and configurations across tenants other than Lighthouse?

Revenue mix 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.

Q: Please specify the percentage of your total revenue generated by each service you offer.

Time spent by service

MSPs spend the most time on IT lifecycle services and infrastructure, while security—especially advanced security—remains a smaller but critical focus.

Q: Please specify the percentage of your internal hours spent on each service you offer.

Internal 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.

Q: What are the three most painful things about your internal workflows today?

Security Hardening

80% of MSPs perform monthly security hardening for their Microsoft Tenants.

Q: Do you currently perform monthly security hardening for Microsoft Tenants for your end-customers?

Time Spent Security Hardening

Two thirds of MSPs spend between 1 and 5 hours per tenant per month hardening Microsoft Tenants.

Q: How many hours per month does it typically take to harden Microsoft Tenants for your end-customers?

Hiring Challenges

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.

Q: Please comment on which services require the most expertise and the services that are the most difficult to hire or retain talent for

Tool they wish they had

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

Q: Please name or describe a software tool you wish you had, but that is too expensive, not user-friendly enough or does not exist

AI internally

AI is increasingly becoming a priority for MSPs to build internal capabilities and future proof their business.

Q: How much priority is AI implementation in internal operations?

AI Profit Impact

Most respondents anticipate AI will generate positive, albeit moderate, financial impact.

Q: AI is becoming strategically critical internally for most MSPs?

AI Externally

MSPs start thinking about externally facing AI solutions as a new revenue opportunity.

Q: How much priority is AI implementation in external offerings?

MSP Role in AI Purchases

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.

Q: What is your role in helping end-customers purchase and use AI products?

MSP confidence in AI delivery

And there is high levels of confidence among MSPs regarding their ability to deploy AI solutions.

Q: How confident are you in your current ability to deploy AI across both resources and manpower?

End-customer Adoption Stages

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.

Q: Percentage of end-customers at each AI adoption stage?

AI Use-Case Interest

Over 33% of respondents identified Copilot as the leading use case driving end-customer interest, highlighting its clear market leadership and significant growth potential.

Q: Rank AI use case interest among end-customers.

1. Microsoft Copilot
2. Workflow automation
3. Internal chatbots / knowledge search
4. End-customer support
5. Private GPT
6. Marketing

Demand for Copilot

There is clear and strong demand for Microsoft Copilot among end-customers.

Q: How would you categorize the demand for Copilot across the AI use cases?

Challenges with Copilot

Key insights into deployment barriers include technical integration and skill gaps.

Q: Where do you see technical challenges in rolling out / deploying Microsoft Copilot across your end-customers today?

Dawn Capital LLP is a limited liability partnership incorporated in England & Wales (with registered number OC321845) and is authorised and regulated by the Financial Conduct Authority.

This report contains highly confidential and proprietary information about Dawn Capital LLP, its business and personnel. As a result, this report is provided on a confidential basis. By accepting this document, you agree that you will not use any of the information contained therein, including that regarding the business, operations, financial condition, or trade secrets of any of the investment partnerships managed or advised by Dawn Capital LLP (the “Funds”) and/or their respective portfolio companies, except with respect to your participation as an investor in said Funds.

This report is provided for information and discussion purposes only and does not purport to be comprehensive. No representation is made, or assurance given, that the statements, projections or forecasts are correct or that the objectives of the Funds and/or the portfolio companies will be achieved. No representation, warranty, express or implied, is given by any person as to the accuracy or completeness of the information and opinions contained herein and no responsibility or liability is accepted for the accuracy or sufficiency of any of the information or opinions, for any errors, omissions or misstatements or for any other communication, written or otherwise, in connection with the Funds and/or the portfolio companies. No information in this report will form the basis of any contract or an inducement to enter into any contract.

Accordingly, to the maximum extent permitted by law, neither Dawn Capital LLP nor the Funds and/or the portfolio companies nor any of their respective officers, employees, members or affiliates shall be liable for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on any information or opinions contained herein or in any other communication in connection with the Funds and/or the portfolio companies. Accordingly, no reliance whatsoever should be placed on this report or its contents.

NO PERSON MAY DISCLOSE OR REPRODUCE ANY PORTION OF THIS REPORT WITHOUT THE PRIOR WRITTEN CONSENT OF DAWN CAPITAL LLP.