Exaba says MSPs lose storage margin to outside vendors

Exaba has published research suggesting many managed service providers are losing storage margin because they rely on infrastructure they do not own.

Backup and data protection remain a major revenue line for MSPs, even though few expect storage to drive growth.

The findings come from Exaba's 2026 MSP Economics Report, which surveyed 219 full-time IT services professionals in the United States. Respondents were senior decision-makers: 44 per cent were C-suite executives and 39 per cent were directors. More than 70 per cent managed more than a petabyte of client data.

The report describes what Exaba calls a margin paradox. Storage, backup and disaster recovery account for a large share of turnover at many MSPs, yet those same firms rank the category near the bottom of expected growth drivers. Strategic AI consulting and agentic automation deployments lead at 40.6 per cent, followed by increasing seat counts within existing clients at 33.3 per cent and upselling cybersecurity and compliance frameworks at 21.5 per cent. Cloud storage, backup and disaster recovery rank last at 4.6 per cent.

That gap matters because data protection still carries weight in the channel. According to the report, 52.5 per cent of respondents derive between 26 and 40 per cent of total revenue from data protection and backup, while another 10.5 per cent derive more than 40 per cent. At the same time, 62 per cent treat backup and disaster recovery as part of a broader cyber resilience package, while only 15.1 per cent still run it as a standalone profit centre.

Margin pressure

AJ Tills, Chief Customer Officer and US President at Exaba, said weak confidence in storage as a growth area is less about demand than about control over costs. The report found that 48.9 per cent of respondents keep most client backup data in the public cloud, while 40.6 per cent use specialist cloud backup vendors. Only 7.8 per cent run a proprietary or private data centre.

"Nine out of ten MSPs we spoke to do not operate their own infrastructure, so they're effectively at the beck and call, the whims, of other providers. They're losing that control. Sixty three per cent cited hidden egress fees and unpredictable storage costs as one of their biggest frustrations with existing vendors," said AJ Tills, Chief Customer Officer and US President at Exaba.

The report gives more detail on those complaints. A lack of integration with the wider security and SOC stack was cited by 65.3 per cent. Hidden egress fees and unpredictable storage costs followed at 63.5 per cent, while slow recovery times for large datasets stood at 56.6 per cent. When asked to identify the single biggest problem, respondents ranked those three issues at almost the same level.

The research also suggests pricing structures are a major source of pressure. Just over a third of MSPs, 34.7 per cent, use a cost-plus model that passes vendor storage costs through with a markup. Another 26.5 per cent price by the terabyte. That leaves many firms exposed when upstream providers change their rates. Only 36.5 per cent have moved to an all-inclusive fixed or tiered model.

That sits awkwardly with the direction many MSPs say they want to take. More than half, 53.9 per cent, expect value-based pricing built on business outcomes to be their most successful approach. That model becomes harder to sustain when a third party sets the underlying storage cost.

AI and seats

The report also points to tension in the current MSP business model. AI projects are the top expected source of growth, but they also create pressure elsewhere. Respondents see strategic AI consulting and automation work as a major revenue opportunity, yet many remain cautious. Sixty per cent said they were focused first on security and liability, and only 27.8 per cent were already deploying agentic AI.

Tills said another conflict lies between AI rollouts and traditional seat growth. Seat expansion has long been a dependable driver of recurring revenue for MSPs, but AI adoption may weaken that pattern if customers automate more internal work.

"The other conflict may not be so obvious. We're talking about the rollout of AI as a critical component of revenue growth going forward, but on the other hand the expansion of seats within existing customers is also a significant opportunity. When you put those two together, that's where the conflict lies. Our assumption is that the rollout of AI amongst customers is probably going to decrease seats. It might have a negative effect on seat growth. So we need to be careful about how these two business models play out in the future," said Tills.

Almost half of respondents, 42.5 per cent, said they had fully automated the commodity help desk through AIOps and self-healing agents. A third said they were phasing out the standalone help desk altogether. That marks a shift away from older service lines towards higher-value advisory and specialist work.

Even so, storage was not the biggest stated source of margin pressure in the survey. Rising vendor costs from AI software licences were cited by 37.4 per cent, while wage inflation for specialist tier 3 and security staff was close behind at 37 per cent. Cloud storage costs were named by 7.3 per cent, and tech bloat by 6.8 per cent. Exaba argues that storage remains one of the few areas where MSPs can exert more direct control by changing their operating model.

Data growth

The report sets the storage debate against a broader rise in global data creation, citing IDC's Global DataSphere and Statista. The world generated about 64.2 zettabytes of data in 2020 and an estimated 181 zettabytes by the end of 2025. That figure is projected to exceed 400 zettabytes by 2030. Over the same period, storage capacity rises more slowly, from 40 zettabytes to 92 zettabytes and then a projected 210 zettabytes. According to the report, the annual gap of 10 to 12 percentage points becomes a structural problem when compounded over time.

Client demand appears to reflect that pattern. The main reason customers are upgrading storage is massive data growth from internal AI and large language model experimentation, cited by 41.1 per cent of respondents. Regulatory requirements for long-term immutable archiving came next at 32.9 per cent.

At the same time, MSPs are changing how they spread risk. A hybrid cloud and local recovery model is being implemented by 40.2 per cent of respondents, while 35.6 per cent are spreading workloads across multiple providers. Only 12.3 per cent are standardising on a single hyperscaler.

Worked model

Tills used a 10-petabyte model to illustrate the economics behind Exaba's argument. The comparison covered three storage scenarios for a single MSP in year one, with all figures in US dollars and a 23 per cent compound annual data growth assumption.

Under Vendor A, a provider targeting a 20 per cent margin would resell at $17.69 per terabyte per month. That would generate $2,122,500 in annual revenue against $1,698,000 in total cost, leaving $424,500 in margin. Under Vendor W, also targeting a 20 per cent margin, the MSP would resell at $8.75 per terabyte per month. That would produce $1,050,000 in revenue against $840,000 in cost, leaving $210,000 in margin.

Exaba's model says its own approach would allow a 70 per cent target margin at a comparable resale price of $8.94 per terabyte per month. That would result in $1,073,000 in revenue against $322,000 in cost, leaving $751,000 in margin. The company says its current US price is $2 per terabyte per month.

Tills said the aim is to let MSPs run local object storage on their own hardware and under their own brand. Exaba describes LocalScaler as S3-compatible object storage software that runs on standard servers from Dell, HP, Lenovo or Supermicro and integrates with Veeam, Commvault and Rclone.

It says the product holds Veeam certification in backup and immutability, with performance certification still to come. Exaba also says it is SOC 2 Type 1 compliant, has achieved 96 per cent in DISA STIG, and is built for FIPS 140-3 compliance.

A move into hardware still carries practical hurdles for MSPs. The report found that supply chain volatility for specialised networking and AI components was the biggest challenge for 43.8 per cent. Power and cooling for high-performance storage followed at 29.7 per cent, while the shift to hardware as a service and its effect on cash flow was cited by 22.8 per cent.

Still, Tills argued that backup should no longer be treated as a side business in the channel.

"Backup is big business. It's not a side hustle. When you leave here today, rather than saying we also do backup, I'd rather you say we do backup. That's an exciting vision going forward," said Tills.