No sooner had I given my session at MSPWorld on IT spending (largely based on Gartner’s forecast numbers) than I read a story in the Wall Street Journal saying that Gartner has revised it’s spending forecast. Instead of predicting a .5% increase, the research firm is now saying we will have a decline of .5% this year.
And yet, somehow I am not worried or concerned by this news. Sound crazy? Not at all. I’ll explain.
The currency fluctuations witnessed globally in 2015 are still with us. Largely impacting spending in countries like China, Brazil, and Russia, the modest decline in total IT spending can actually be good news for MSPs.
As capital assets become tougher to acquire, alternatives such as “as a service” business models become very attractive to customers seeking to preserve cash and stretch their IT budgets. This economic condition has traditionally been very good for MSPs positioned to help clients transfer capital intensive hardware and software purchases into operational expensed managed services.
VARs Beware
VARs dependent on reselling devices should take note. 2016 will not be a good year. Gartner predicts that device spending will decline by 3.7%, the largest of the 5 IT segments it tracks. IT services spending, on the other hand, is projected to grow by 2.1%.
Naturally this begs the question on why anyone would still have a majority of their revenue coming from VAR related transactions.
Analysis
The last few years have been VAR holdouts making last ditch efforts to transition into managed services organization. With pricing pressures such as these, it seems plausible the MSP market could see some significantly sized VARs enter the MSP profession this year.
MSPs who have significant revenues generated from hardware sales should also take notice. Transitioning this revenue as quickly as possible into recurring services revenue is the only logical course of action.
Hardware Vendors In Trouble?
Conventional wisdom would suggest the hardware manufacturers are in deep trouble in 2016. But, there is a way out. If these vendors figure out a way to leverage their products via leasing and hardware as a service models, they just might be able to see some decent growth this year; or at least not as much decline.
Furthermore, this spending forecast change should serve as a wake up call for hardware/software vendors placing all their hopes in the reseller community. Resellers are no more resistant to currency and spending pressures than anyone else. The one big difference between resellers and MSPs is the MSP has a lot more to sell to customers beyond just a transactional hardware device. Hardware vendors need to engage MSPs more effectively and realize they are not the same as resellers. Very few hardware vendors have come to this realization about MSPs.
While I am confident in this analysis, it is entirely possible, if not likely, that the spending forecasts from Gartner may actually change again, maybe even a few more times. Whatever happens this year, managed services is poised for significant growth for the companies prepared for services and not hardware activity.