I’m sorting through a lot of market data – let’s focus today on managed services and IT services specifically, as there is information to look at here.
The managed services market is projected to grow significantly, reaching an estimated USD 393.02 billion by 2025, according to Straits Research. Factors driving this growth include the increasing need for specialized managed service providers to handle complex IT infrastructures and reduce staffing costs. The rising trend of Bring Your Own Device, or BYOD, boosts productivity and creates market opportunities, as businesses seek managed services to ensure data security across personal devices. North America currently leads the market, accounting for the largest share, with a compound annual growth rate of 12.2%. Europe and Asia-Pacific are also witnessing substantial growth, fueled by the adoption of cloud services and the digital transformation of businesses.
A new report from ResearchAndMarkets.com highlights the rapid growth of the Managed Data Center Services market, projected to rise from $446.3 billion in 2023 to $1 trillion by 2030, achieving a compound annual growth rate of 12.9%. The increasing demand for cloud computing, data security, and complex IT infrastructure is driving this growth. Notably, the Managed Colocation segment is expected to reach $364.2 billion by 2030, with a CAGR of 12.1%.
Service Leadership, Inc. has released its Q3 2024 Index revealing a slowdown in managed service revenue growth, returning to pre-COVID levels, despite profitability remaining strong for Managed Service Providers (MSPs). The average adjusted EBITDA for MSPs is at 13.2%, while private equity-backed MSPs reported 17.3%. In contrast, Value-Added Resellers (VARs) experienced significant growth, with total revenue increasing by 12.6%. Notably, Europe saw a robust 6.9% growth in managed service revenue, while North America and Australia faced declines. A drop in project services revenue impacted profitability across the board, with Europe experiencing the largest decline at -10.6%.
N-able Inc reported its third-quarter 2024 earnings, achieving revenue of $116.4 million, which surpasses analyst estimates of $114.87 million, marking an 8.3% increase year-over-year. Subscription revenue also saw a notable rise, reaching $115 million, a 9.3% increase compared to the previous year. N-able’s adjusted EBITDA rose by 22.7% to $44.8 million, with an adjusted EBITDA margin of 38.5. Despite facing challenges like fluctuating foreign exchange rates, N-able remains optimistic, updating its full-year revenue outlook to $462 million and an adjusted EBITDA margin outlook of 37%.
In the third quarter of 2024, Google’s cloud business outpaced its competitors, growing 35% year-over-year to $11.35 billion, while Amazon Web Services grew 19% to $27.45 billion, and Microsoft Azure saw a 33% increase. Analysts at Argus Research highlighted this growth as a sign of Google’s increasing traction in artificial intelligence, noting that the cloud’s operating margin reached 17% for Google. In contrast, AWS maintained a robust operating margin of 38%. Despite the competitive landscape, demand for AI services continues to exceed supply, with Microsoft and Amazon both indicating a need for enhanced capacity. The global cloud market reached a staggering $84 billion, with Amazon Web Services, Microsoft, and Google Cloud leading the charge, collectively holding 68 percent of the market share. According to Synergy Research Group, this represents a significant growth of roughly $16 billion, or 23 percent year-over-year. The market has seen an impressive surge, growing by nearly $16 billion over the last four quarters compared to $10 billion in the previous period.
Why do we care?
I wanted to rebaseline the IT and managed services industry considering the potential shifts ahead. The appeal of managed services is clear: they allow organizations to outsource specialized functions, especially cybersecurity and IT operations, to experts without maintaining extensive in-house teams. Service Leadership’s Q3 2024 Index indicates a return to pre-pandemic revenue growth rates in managed services, and the divergence between MSP and VAR performance indicates a shift in client spending. As VARs capitalize on selling and integrating new technology products, MSPs may need to reassess how they balance managed services with potential project-based work or product resale, especially as revenue growth normalizes. The sugar high is over.