Will The Software Crash Affect The MSP?
What will the trickle-down effect be on managed IT service providers as software companies, some of which are buried in massive debt, see their valuations collapse?
The MSP tech stack is full of software applications and licensing, oh, how things get disrupted. Not to mention the software platforms MSPs themselves use. Most of which is in the hands of private equity.
Everyone is witnessing what’s going on in the software space, and it’s not pretty. The overnight decline in the value of some massive software platforms should have served as an alarm bell.
Unfortunately it’s going to get a lot uglier. I was thinking about Thoma Bravo, the private equity firm with the largest collection of software companies, managing around $181 billion in assets. This is a collective of around 75 companies. Has Thoma Bravo run out of luck with its software bet?
What happens if the assets of the world’s largest software portfolio lose 40%, 50%, or even 60% of their value?
What happens when the evaporation in value falls below the debt load?
The ramifications of Artificial Intelligence for private equity might cause far more havoc on the global economy than white-collar job losses, as debt-loaded assets whose values have evaporated become insolvent.
A common complaint you hear about private equity is that once they buy a company, they focus more on improving EBITDA over improving the software. Unfortunately in the case of the Artificial Intelligence disruption, it’s not about a lack of investments to innovate software, the disruption is about not needing the software at all.
As artificial intelligence weaves its way through businesses of all sizes, businesses will recalibrate not only human capital but also all business software resources. Business software will be challenged in ways many still refuse to comprehend.
When thinking about managed IT service providers, one can only think about ConnectWise, which is one of the software companies in the Thoma Bravo portfolio of assets.
Many would say that ConnectWise has had its run; according to Canalys in Q3 2024, Kaseya took the top spot from ConnectWise.
If what I see as major financial stress comes to the Thoma Bravo portfolio, will Thoma Bravo exit or even shut down assets that become unsellable? Think about it who would buy ConnectWise?
What happens to Kaseya? Kaseya is probably the most debt-heavy software in the entire IT services space. I remember when they paid $6.2 BILLION for Datto in 2022 an amount most thought completely absurd. Kaseya's debt is currently around 4 billion and held by syndicated institutional lenders.
It was only a matter of time before the software bubble burst; however, I don’t believe any of the investors in software over the last decade ever calculated the absolute tyranny that artificial intelligence could impose on the valuation of these investments.
Now, maybe my friends in the print sector who believe their print management software will take over the management of all IT assets will understand why I think that thinking is delusional.
For those IT service providers who believe that artificial intelligence is far from destroying the investments in software companies, I would say this: If the industry’s largest platform's value fall under the debt load, the trickle down affect will be substantial.
Let’s now think about the largest distributor on the planet, TD SYNNEX. Over the last half-decade, the percentage of total revenue contributed to software has grown. In their 4th quarter, the percentage of total non-GAAP gross billings contributed to software was 19%, a 23% growth Y/Y. Software is their largest revenue category.
Should a distributor, whose last fiscal year ended November 30th, 2025, with annual gross billings of $89 billion, be concerned when software is the largest percentage of their gross billings? I would answer YES!
MSPs must position themselves to navigate in a new technology world, which will be governed by artificial intelligence.
The MSPs who have not built platforms on the value of their organization's intellect will find themselves circumvented, as businesses will reevaluate all subscriptions and licensing across all the software they use.
MSPs must reevaluate their deliverables and open their minds to the reality that reselling cloud-based software will end; cloud software applications were the greatest driver of revenue growth for MSPs over the last decade. However, as the saying goes, everything eventually comes to an end.
In my thinking, Artificial intelligence will cause many of todays software platforms to become obsolete. One day, the word software might even be eliminated from the language of technology.
The customization capabilities artificial intelligence brings to business processes will improve at sonic speed levels. Giving businesses abilities to build applications based on specific business processes.
The future of the MSP business services will not be about reselling software applications. Those who have put in place teams capable of educating and creating artificial intelligence applications tailored to their clients will be the navigators guiding businesses through a new world, a world unrecognizable from the world of last year's MSP.
So, buckle up and prepare, a software bubble reckoning is coming.
Status quo is the killer of all that will be invented.
Ray Stasieczko, host of the YouTube Series, The End Of The Day With Ray!
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