How organizations prefer to acquire IT products and services naturally varies widely from one organization to another. However, savvy managed service providers (MSPs) will need to pivot as macroeconomic conditions continue to change.
For example, when interest rates are high, there may be less of a tendency to want to finance the acquisition of IT platforms. High interest rates are coupled with general uncertainty about the economic outlook. These factors are impacting sales of IT products and services sold via distributors such as Ingram Micro and TD Synnex.
A recent report has been published by the market research firm International Data Corp (IDC) in collaboration with the Global Technology Distribution Council (GTDC). It finds software sales only increased 1.1 percent in the fourth quarter compared to a year ago. This includes cybersecurity and storage software, which had seen continued strong growth previously. Similarly, sales of network infrastructure technologies only grew 1.7 percent year-over-year, with wireless local area networks revenue down more than 30 percent year-over-year.
This decline is likely tied to a drop in personal computer sales in the post-pandemic era. This only grew 7.6 percent compared to double-digit percentage sales increases in previous years.
Multiple routes to market provide flexibility
Lower interest rates tend to foster increased sales via distributors that finance the sales of IT products and services. Of course, not every IT product or service sale moves through distribution channels. Many resellers of IT products and services also have direct relationships with vendors. They then acquire products and services on behalf of customers. On the other hand, many customers simply prefer to acquire products and services themselves either directly from a vendor or via resellers such as CDW and Insight.
Other factors that influence preferences include the degree to which organizations prefer to treat IT as capital versus operating expense. Rather than finance the acquisition of IT products and services, many organizations in the age of the cloud prefer to treat IT as an operational expense, so limited capital budgets can be used to acquire, for example, heavy equipment.
Regardless, each product acquisition represents an opportunity to provide a managed service. One reason so many MSPs resell infrastructure is that it makes it simpler to sell managed services as part of the overall sale.
Dependence on managed services remains high
The demand for IT products and services will vary widely by geography and vertical industry. Meanwhile, the overall market for those offerings remains relatively strong. There have been a significant number of layoffs among providers of IT products and services in recent months. Mostly, those moves are the result of pressure to increase profitability rather than any fundamental changes to the economy. The truth is most organizations have never been more dependent on IT to manage their operations. This leads to the percentage of revenues being generated that will be allocated to IT is only going to increase.
The challenge, as always, is finding the skills required to manage all those IT resources. Even in the age of artificial intelligence (AI), it remains difficult for organizations to find and retain the IT talent and expertise they still so desperately require.
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