Wall Street vs. SMB IT Spending: The Great Disconnect

Wall Street vs. SMB IT Spending: The Great Disconnect

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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