How do you explain the following: masterIT, a managed services provider in Tennessee, recently told me annual revenues are on track to grow 30 percent this year. And Rackspace‘s CEO yesterday said business demand for cloud services is insatiable. Yet Wall Street and foreign markets have tumbled amid growing debt fears in the U.S. and Europe. So what’s the real economic outlook for MSPs and cloud services providers (CSPs)? I have some hopeful, educated guesses…
First, a disclaimer: Generally speaking, I don’t believe that a “bad” economy or a recession can be “good” for business. But I do think there are some counter-intuitive trends at work in the current IT market, particularly the SMB space.
During meetings at CompTIA Breakaway this week, I heard the same question from three different people: ETG CEO Mike Jones, Red Hat North America Channel VP Roger Egan, and Juniper Americas Channel Chief Frank Vitagliano. They asked: What’s the single biggest trend I’m tracking among our readership?
My Reply
Back on Wednesday (Aug. 3), I told them the biggest IT trend is the complete disconnect between Wall Street and the SMB IT market, particularly when it comes to managed services. Less than 24 hours later, Wall Street suffered its single-biggest daily decline in roughly three years.
Was it something I said?
Until debt fears are addressed, I suspect big enterprises may wind up pausing their IT spend in many areas — which has triggered some stress within the halls of Cisco Systems, Juniper and other big IT providers in recent months. (Cisco’s next earnings call is Aug. 10, and Juniper’s recent earnings statement triggered concern on Wall Street.)
But in the small business space, I think spending will continue on managed services. Instead of hiring IT staff members, SMBs seem increasingly hooked on managed services and cloud services. Those SMBs want a virtual CIO and IT as a predictable, monthly utility bill.
Yes, we may see an SMB slowdown in certain IT segments — such as desktop PC refreshes. And if some SMBs implode amid the debt crisis, then some MSPs will lose valuable monthly recurring revenue (MRR). But I think broader SMB spending trends — mobility and cloud, in particular — will continue.
Reinforcing My Optimism
Back on July 28, masterIT CEO Michael Drake told me: “masterIT’s top line will be up over 30% this year, and the bottom line will more than double.” Is that a unique story? Perhaps not. Peer MSPs that attended the TruMethods Schnizzfest conference in June “have the same story,” Drake told me.
Instead of worrying about the economy, Drake is focused on talent acquisition. masterIT is recruiting to fill three engineer positions and a virtual CIO post.
Wall Street is freaking out. But MSPs on Main Street USA seem to be performing well amid the debt fears. Fingers crossed, I hope the MSP momentum continues.
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Tags: Cloud Services | CompTIA Breakaway | ETG | Frank Vitagliano | Juniper Americas | masterIT | Mike Jones | Rackspace | Red Hat | Roger Egan | SMB IT Spending | SMB Technology Spending | TruMethods
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Joe, you’re half right. I spoke with many of the same people you did at the CompTIA Breakaway conference, and heard roughly the same things. I couldn’t agree more that most of the tech vendors and solution providers — particularly those involved in services or the diversification of their portfolio with services — are doing quite well. However, they’re doing well at the expense of the deteriorating economy. The tools and automation delivered is costing jobs and deflating wages in end user organizations (my analysis: http://channelnomics.com/2011/08/05/tech-mission-elimination-jobs/).
What’s the real disconnect: Well, Wall Street wants more jobs, but they don’t want to see public companies add fixed costs and expenses. That’s reflected in the current jobs report, which found many of the 117,000 jobs added in July were temporary and part-time. The tech industry will continue to do well, but it is not a net-contributor to economic growth they way it was 10 and 15 years ago.
Call me a curmudgeon; it’s just my two cents…
Larry,
Good to see you this week at Breakaway. It took me awhile to realize it but I actually make a living being half-right. The 50% of folks who disagree with me on some issues tend to share some great analysis to back up their perspectives… such as the data points you shared.
I think the “tech industry” is a mixed bag. There are those who are in transition (MSFT, CSCO, etc.) and those who will welcome more customers with open arms (RAX, CRM, AMZN, etc.).
And jobs are being created — in selected segments. Google is hiring 6,000 people in 2011. Rackspace headcount jumped to 3,700 employees in June 2011 vs. 3,000 in June 2010. That’s incredible growth — but it’s not universal growth across all IT segments.
-jp
Joe:
I like your characterization of the companies in transition and those that welcome new customers with open arms. The interesting part is that a few years ago who would have put Microsoft and Cisco on the transition list. It goes to show that in the tech market not only do the products mature fast and age poorly, so can the companies. It seems that success locks the company into a path that prevents them from adapting to the market as it changes.
Mitchell Cipriano
http://www.demandbydesign.com
Mitchell: Your thoughts remind me of “the innovator’s dilemma”
-jp
[...] Wall Street vs. SMB IT Spending: The Great Disconnect I spoke with many of the same people you did at the CompTIA Breakaway conference, and heard roughly the same things. I couldn't agree more that most of the tech vendors and solution providers — particularly those involved in services or the … Read more on MSPmentor [...]