MSPs celebrate growth as IT spending questions remain

Questions on the levels of IT spending from SMBs and other organizations will exercise in the future continue, even amongst recent significant MSP growth. Managed services generated nearly $8 billion in annual contract value in the second quarter of 2021, the biggest quarter in the history of an index created by Information Services Group (ISG) that tracks deals in valued in excess of $5 million.

That’s not only a 24 percent increase over the same quarter a year ago; the report also finds that level of growth represents a 13 percent improvement on the historic average. Much of the increased demand is being driven by applications and entire business processes that are being outsourced with greater frequency, the report finds.

Keep an eye on IT spending projections

However, before managed service providers (MSPs) get too giddy, a flash survey of 100 U.S. and European CIOs conducted by Morgan Stanley suggests overall technology budgets are about to decline by 4.4 percent this year. Previously, the same survey had been forecasting a 3.5 percent growth.

The primary cause of the expected decrease in IT spending is an expected dip in the economy. As usual, spending patterns will be uneven. The CIOs surveyed expect spending on AI, machine learning and process automation projects to continue to increase. However, a growth of 7 percent in those categories represents a 4 percent decline from the previous first quarter study.

It could also be the case that many organizations are starting to experience something akin to an IT spending hangover driven in part by the COVID-19 pandemic and digital business transformation initiatives. Most organizations have already made significant investments in remote computing. Digital business transformation initiatives are moving forward, but a decline in AI spending suggests the timetables for these initiatives may be stretched out as organizations appreciate the complexity of these efforts.

An Accenture survey of 4,000 global business and IT leaders also notes the savings organizations expected when moving workloads to the cloud might not be as great as anticipated. Nearly two-thirds of respondents said they saw on average up to 10 percent in cost savings by moving to the cloud. Only a small subset of 12 to 15 percent of respondents were found to seeing substantial gains.

Obviously, that creates a lot of opportunity for MSPs to work with end customers to optimize cloud computing environments. The challenge they may encounter is many organizations will be reevaluating the cost of deploying application workloads in the public cloud versus an on-premises IT environment that is once again accessible.

MSP growth often continues during an economic downturn

The number of organizations willing to rely more on external IT services providers usually increases during economic downturns. The challenge has often been holding on to those customers as the economy recovers and, more recently, as the number of cyberattacks aimed at MSPs increases.

Regardless of which direction to overall economy heads in the months ahead, MSPs might want to consider putting a little of their current largesse away for the proverbial rainy days that inevitably will come. It may be tempting to invest in all kinds of projects that were postponed during the pandemic. However, given recent events the most important asset for any MSP to have during a downturn is and always will be cash.

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