MSPs Face Economic Squeeze: Rising Costs, Cloud Management Growth, and New AI Threats

[00:00:02] It's Monday, March 31st, 2025, and I'm Dave Solval for Things to Know Today. The economic squeeze you need smart moves as costs rise and growth slows. MSPs see a surge in cloud management demand, Alexa gets smarter and Microsoft gets analytical, and phishing gets sneaky with DOH while Microsoft says bye-bye to passwords. This is the Business of Tech.

[00:00:27] The economy is facing a troubling combination of a growth, slowdown, and rising inflation, as reported in Axios. The Personal Consumption Expenditures Price Index, which the Federal Reserve uses to gauge inflation, experienced a core measure of 0.4% increase in February, marking the highest reading in a year. Year on year, the index rose by 2.8%, while core inflation is up at a 3.6% annualized rate over the last three months.

[00:00:57] Meanwhile, consumer spending is showing signs of weakness, with personal consumption expenditures adjusted for inflation rising only 0.1% in February, following a decline of 0.6% in January. The University of Michigan's latest Sentiment Survey indicates the consumer confidence has dropped significantly, with the headline index falling to 57 in March, a 12% decrease from February.

[00:01:23] Many Americans now anticipate 5% inflation over the next year, up from 4.3%. Additionally, two-thirds of respondents expect the unemployment rate to rise in the coming year, the highest level of pessimism since 2009. In a recent analysis conducted by TechIsle, the growing trend of small and medium businesses, as well as mid-market firms, shifting toward integrated security platforms is highlighted.

[00:01:50] The TechIsle survey reveals that while 56% of the smallest businesses prefer individual, task-specific solutions, this figure decreases as companies grow. 62% of mid-market firms still lead toward point solutions, yet 38% are now favoring comprehensive platforms. As organizations expand, the complexity of managing multiple tools becomes burdensome, leading to a demand for streamlined, end-to-end security solutions.

[00:02:20] The blog emphasizes that the operational challenges of a fragmented security stack are prompting businesses to seek unified platforms, which offer improved visibility, simplified management, and a better overall security posture. The strategic pivot reflects a necessary response to the increasing sophistication of cyber threats facing today's businesses.

[00:02:42] And the information reports that large cloud customers are slowing down their spending on artificial intelligence as prices decrease. Companies like Palo Alto Networks have discovered that open-source AI models from DeepSea can perform tasks at a fraction of the cost, reducing expenses by up to 95% compared to models from OpenAI.

[00:03:04] The trend has led businesses to reassess their AI budgets, with significant players like Thomson Reuters reporting that their overall AI spending has remained flat despite the introduction of conversational AI features. Experts suggest that this slowdown may only be temporary as falling prices could ultimately drive increased demand for AI technologies in the long run.

[00:03:28] Additionally, while larger enterprises are cutting back, startups focused on AI applications continue to increase their investments in the sector. Why do we care? The combination of slowing growth and rising inflation is a challenging scenario for managed service providers and IT services firms.

[00:03:46] Inflation drives up costs for both service delivery, i.e. labor and software licenses, and customer spending, while economic slowdown pressures clients to cut budgets. This squeeze can impact MSP profitability and make client retention more challenging. Economic uncertainty may also drive more businesses to outsource IT to control costs,

[00:04:10] potentially increasing demand for MSPs and IT services that can clearly articulate cost savings and efficiency improvements. In a climate of economic slowdown and inflation, MSPs must strategically balance cost management and innovation. Integrated security platforms and open-source AI offer pathways to maintain relevance while managing costs.

[00:04:33] Flexibility and clear value propositions will be critical to maintaining client trust and revenue stability in uncertain economic times. Are your customers getting the most from their Microsoft 365 Business Premium subscriptions? Are you delivering maximum value while ensuring best-in-class margins?

[00:04:55] Nerdio's new modern work features let you streamline the management of Microsoft technologies like Azure Virtual Desktop, Windows 365, Intune, and Defender. Reduce the need for multiple tools, consolidate your vendor stack, and deliver greater value to your customers. Help your customers maximize their investments, free up your team for strategic tasks, and drive meaningful business outcomes.

[00:05:18] With Nerdio Manager for MSP, a single flexible platform with mix-and-match plans ensures a flexible perfect fit for you and your customers. Deliver solutions that achieve real business impact. Visit GetNerdio.com to find out more. And some managed service provider specific insights.

[00:05:39] A recent global survey conducted by Flexera reveals that 60% of organizations are now using managed service providers to oversee some or all of their public cloud operations. This represents a notable increase from just 36% of small to medium-sized businesses utilizing MSPs last year, with nearly half now relying on them.

[00:06:01] The survey also highlights that Amazon Web Services remains the leading cloud platform, boasting a 79% adoption rate, while Microsoft Azure follows closely at 77%. Interestingly, a significant 86% of respondents are navigating multi-cloud environments.

[00:06:19] Despite rising cloud spending, with organizations expecting an average increase of 28% in 2025, cost management remains a critical challenge, with 84% identifying it as their biggest hurdle. As more than half of all workloads are now in the public cloud, organizations are increasingly looking to providers for help in controlling costs while enhancing deployment speed. Why do we care? Well, the Flexera survey underscores a critical shift.

[00:06:48] Organizations, especially small ones, are turning to MSPs for public cloud management. This rise from 36% to nearly 50% among small businesses indicates a growing trust in providers to manage complex cloud environments. While the shift to MSP-driven cloud management is promising, beware of potential commoditization. As more MSPs offer similar services, differentiation will be key.

[00:07:14] Consider specialized cloud cost optimization services or advanced analytics to stand out. And despite increased reliance on the cloud, cost management remains the most significant pain point. Organizations are grappling with rising cloud expenditures, expected to grow by 28% this year. Clients are not just seeking technical management, but strategic financial oversight.

[00:07:40] Amazon's new AI-enabled assistant, Alexa Plus, is set to launch today, although not all features will be available immediately. Some capabilities, such as ordering takeout through Grubhub and visually identifying family members, will take months to roll out, according to internal documents reviewed by the Washington Post. While Alexa Plus can assist with ordering an Uber and providing cooking suggestions starting today, access will be limited to owners of newer Echo Show models.

[00:08:08] Customers can also expect a new document reading features, but with limitations, including a message stating that the deletion of uploaded files is not yet supported. Amazon also introduced Nova Act, a new general purpose artificial intelligence agent capable of controlling web browsers to perform simple tasks autonomously. Nova Act is expected to enhance the upgrade of Amazon's voice assistant.

[00:08:32] Nova Act achieved a score of 94% on the Screen Spot Web Text Benchmark, outperforming competitors from OpenAI and Anthropoc. Microsoft has announced the launch of Deep Reasoning Artificial Intelligence from Microsoft 365 Co-Pilot, named Researcher and Analyst, which will be rolled out in April. These innovative tools are designed to enhance research and data analysis capabilities within the platform.

[00:08:58] Researcher leverages OpenAI's advanced research AI model to conduct complex multi-step inquiries, while Analyst uses OpenAI's O3 Mini Reasoning model to transform raw data into actionable insights, including generating spreadsheets and executing Python code. Microsoft emphasizes that these agents can automate a wide range of tasks through rule-based workflows.

[00:09:23] The company has stated that these new features will be accessible to Microsoft 365 Co-Pilot license holders in an early access program. Why do we care? As new AI capabilities emerge, the focus should be on practical applications that enhance business outcomes rather than follow the hype. And here are several possibilities for you.

[00:09:45] A newly discovered phishing-as-a-service operation, dubbed Morphing Meerkat, is employing advanced techniques such as DNS over HTTPS to evade detection. Active since at least 2020, the platform allows attackers with minimal technical knowledge to launch scalable phishing attacks. It can impersonate over 114 email providers, including major names like Gmail and Outlook, and has been sending out spam emails that prompt urgent actions.

[00:10:14] Half of the traced emails originate from internet services in the UK and the US. Victims are lured into clicking malicious links that redirect them through a chain of compromised sites, ultimately leading to fake login pages tailored to their email domains. Once credentials are entered, they are exfiltrated by the attackers. Security experts recommend tightening DNS controls to mitigate risks associated with these types of phishing attacks, as noted by Infoblox.

[00:10:43] Microsoft is transitioning its sign-in process across platforms like Outlook, Xbox, and Microsoft 365 to support passwordless authentication methods, including pass keys, facial recognition, and fingerprint scans. The overhaul, which will begin rolling out this month, aims to simplify and enhance user security for over 3 billion Microsoft users worldwide. The new system will eliminate the need for passwords during account creation using a one-time security code instead.

[00:11:13] Additionally, users will have the option to choose between light and dark themes for a personalized experience. The changes are part of Microsoft's broader effort to streamline the authentication user experience, making it more intuitive and secure. The Pentagon has warned government officials regarding the messaging app Signal, stating that Russian hackers are targeting it.

[00:11:33] A department-wide email reported by NPR highlighted a vulnerability in Signal's linked devices feature, which is being exploited to spy on encrypted conversations. The warning follows a significant security breach involving the Trump administration, where high-level officials inadvertently included a journalist in a group chat discussing military strikes in Gamma. The Pentagon had previously prohibited the use of mobile apps for sensitive information, emphasizing the need for caution in communications.

[00:12:01] As the situation develops, officials are urged to remain vigilant against phishing attempts that could compromise their accounts. Why do we care? I wanted to specifically highlight the threat to DOH, as well as the significant change to the way users may see logins with Microsoft. Providers should proactively assist clients in transitioning to passwordless environments.

[00:12:24] Educate users on the benefits and guide them through configuring new authentication methods, especially within Microsoft 365 environments. The change represents an opportunity to upsell security services related to identity management and user training. And as for Signal, of course it's now a target. Thanks for listening. It's World Backup Day, as well as National Teeter Day, National Bunsen Burner Day, and National Crayon Day.

[00:12:51] If you can combine those, I'd be super impressed. Nerdy Ocon will be held in Palm Springs, California from April 7th through 9th. Visit NerdyOcon.com to learn all about it. And a notice? I did find out that political ads were running on my feed as of last week. That has been rectified. You will hear no more political ads on the show. And if you do, let me know about it. The Business of Tech is written and produced by me, Dave Sobel, under ethics guidelines posted at businessof.tech.

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