Service providers are raising their prices to deal with talent shortages and higher employee compensation.
Gartner cited the IT services pricing trend last week in its updated global technology spending forecast. The market research company said higher prices contribute to the increased spending forecast for the software and services sectors. Gartner expects software spending to grow 9.8% to $674.9 billion in 2022, while IT services expands 6.8% to $1.3 trillion. IT spending, overall, will increase 4% to $4.4 trillion in 2022, according to Gartner.
The cost hikes come as service providers near or exceed their utilization limits. A utilization rate is the percentage of an employee's total working hours spent on billable projects. While IT service firms might target 75% to 88% utilization, the risk of burnout and attrition grows above that range. Attrition compels service providers to hire new workers -- at potentially higher salaries.
"Utilization rates, in some cases, are passing the breaking point," said John-David Lovelock, research vice president at Gartner, citing utilization rates in the mid-90s. "No one is in a comfortable … range anymore."
A number of IT services companies have reported labor cost and pricing challenges in recent months. Accenture, for example, cited an increase in labor costs due to higher compensation in a March 2022 filing with the Securities and Exchange Commission.
"We are increasing our pricing and changing the mix of people to reduce the impact of these compensation increases on our margin," Accenture noted. The pricing strategy, however, lags the effects of increased compensation, the company stated.
Associations representing MSPs, meanwhile, are also seeing an increase in what their members charge. Those groups, however, cite costs related to security services, rather than labor costs, as the key driver.
Government agencies and owners of critical infrastructure are under increasing regulatory pressure to shore up security.
"Prices are going up, chiefly for the security reason," said Charles Weaver, CEO at MSPAllaince, an industry association based in Chapel Hill, N.C., that represents the cybersecurity, cloud computing and MSP industry. "[MSPs] are adding new and necessary services to the existing baseline service level."
Government agencies and critical infrastructure owners, under increasing pressure to bolster their security, are turning to MSPs for help, Weaver said. MSPs, in turn, are adding security services to meet customer demand, incurring expenses in the process.
The situation is similar at The ASCII Group, an IT community based in Bethesda, Md., that represents MSPs.
"In speaking with our members and looking at the results of our recent billing survey, the consensus is that they are raising their fees as the cost of keeping their clients' data secure continues to rise," said Doug Young, COO at The ASCII Group. He said the price increases generally range from 5% to 10%, noting that clients have been understanding when MSPs explain the reason for the upsurge.
John-David LovelockResearch vice president, Gartner
Price increases also surface in other high-demand service areas. Cognizant, an IT services provider based in Teaneck, N.J., pointed to digital innovation projects as an example.
"Clients will pay out for skills and innovation and, frankly, availability for resources in digital," said Brian Humphries, CEO at Cognizant.
That said, price increases can and have lagged talent-related cost increases, Humphries noted, speaking during Cognizant's February 2022 earnings call.
DXC Technology, meanwhile, cited pricing trends in its analytics and engineering business. "We've definitely been able to increase our prices in that segment of our business," said Mike Salvino, president and CEO at DXC, an IT services provider with headquarters in Ashburn, Va. Salvino spoke during the company's fiscal third-quarter earnings call.
Service providers can expect the labor shortage and pricing effects to continue and perhaps even intensify. Factors such as Russia's invasion of Ukraine and the resulting dislocation of thousands of software engineers could exert additional pressure. The crisis has some influence on the skills shortage, as well as other issues such as supply chain disruption and inflation, Lovelock noted. "It is pushing a bunch of things that were already a problem," he said.
Gartner, however, doesn't expect Russia's invasion to directly affect global IT spending.
Kaseya agrees to acquire Datto for $6.2B
Kaseya and Datto, among the top players in the MSP software market, have agreed to join forces in a transaction valued at $6.2 billion.
An equity consortium, with Insight Partners as lead investor, is backing the all-cash deal in which Kaseya, based in Miami, will acquire Datto, headquartered in Norwalk, Conn. The acquisition is expected to close in the second half of 2022.
The companies have both expanded their product portfolios through acquisitions. Datto in 2017 acquired Autotask, which added the latter company's remote monitoring and management (RMM) and professional services automation (PSA) software to Datto's data backup and networking offerings. Kaseya has expanded from its RMM base to include PSA, data backup and disaster recovery, IT documentation and cybersecurity.
SADA sets $2.5B Google Cloud goal
SADA, a business and technology consultancy with headquarters in Los Angeles, has set of goal of driving $2.5 billion in customers' Google Cloud consumption under a three-year extension to its relationship with the hyperscaler.
In 2020, SADA unveiled a $500 million Google Cloud adoption objective. At the time, Tony Safoian, CEO at SADA, described that pact as the first revenue commitment of its kind and scale for the consulting firm. SADA's partnership with Google dates to 2006.
SADA said it will launch additional offerings building upon Google Cloud. In addition, the company's 2021 acquisition of ByteWave, a Google Cloud Premier Partner with operations in India, and the opening of a delivery center in Armenia position the company for expansion in Europe and the Asia-Pacific region, according to SADA.
Partner roster updates
- NTT Data Business Solutions AG, an SAP service provider in Bielefeld, Germany, is expanding its strategic partnership with SecurityBridge, an SAP security specialist also based in Germany. Under the arrangement, NTT Data Business Solutions is integrating SecurityBridge's security platform into its SAP software offerings. The partnership, which initially focused on the Northern European market, will expand globally.
- Zimperium, a Dallas-based mobile security vendor, added Carahsoft, a government IT solutions provider, to its partner roster. With growing threats to mobile devices and applications, the partnership will bring mobile security protection to public sector organizations at federal, state and local levels. Carahsoft, with headquarters in Reston, Va., will make Zimperium's FedRAMP authorized solution available to the public sector through its reseller partners and serve as Zimperium's Master Government Aggregator.
- Bluecrux, an IT services and consulting company, and OMP, a supply chain software and consulting company, made their partnership official with the goal to propel global supply chain transformations in life sciences, fast-moving consumer goods and chemicals companies. The two companies, both based in Belgium, had already worked together for 10 years with several Fortune 500 companies using OMP's AI-driven Unison Planning solution for data management and resiliency.
- Adaptiv Networks, an SD-WAN-as-a-service vendor in Gatineau, Quebec, inked a channel partnership with 4Voice, a Boca Raton, Fla., provider of cloud-based, customized business phone offerings for SMBs.
Partner program launches and updates
- Storage cloud vendor Backblaze, based in San Mateo, Calif., expanded its partner program with two new features: Backblaze B2 Reserve and the Backblaze Partner API. Backblaze B2 Reserve brings features and incentives for cloud storage adoption and revenue growth, including capacity-based annualized SKU and additional migration services. The Backblaze Partner API aims to simplify the process for independent software vendors to add B2 Cloud Storage in their own platforms. This API enables the vendors to add additional cloud services to their portfolios.
- Katalon, an Atlanta-based software test automation solution provider, rolled out a revamped partner program and partner portal to support partners in helping customers adopt and scale test automation. The program offers resources for brand development, services differentiation, go-to-market acceleration, and training and support. Partners can use the new partner portal as a single place for resource access and opportunity management, as well as to stay informed on Katalon's strategy. The program features four tiers of demonstrated customer success: Member, Silver, Gold and Platinum.
- Deep Instinct, a cybersecurity company in New York, unveiled a partner program that focuses on expected partner margins rather than discounts and is based on whether a deal comes through the partner or the vendor. The Stratosphere partner program also offers incremental margin based on loyalty points. The program and points system will debut May 1, 2022.
- Adtran, a Huntsville, Ala., company that offers multi-gigabit fiber access and extension products, rolled out its Broadband Partner Program. The channel reseller program offers tools that partners can use to take advantage of federal broadband infrastructure funding and grow their addressable market, according to the company.
- Accenture Ventures invested in Good Chemistry Company, a Vancouver firm that applies quantum chemistry to the field of materials design. Good Chemistry's Qemist Cloud platform -- designed for developers -- combines cloud, AI and quantum computing. Accenture Ventures is the venture capital arm of Accenture, which has been exploring quantum computing applications. In addition, Accenture Ventures invested in Titan Space Technologies, an orbital compute platform.
- Faster root-cause analysis is the top IT monitoring challenge MSPs face and also the leading AIOps capability for winning deals. That's a key takeaway from an OpsRamp-commissioned survey of 211 managed services executives. Forty-six percent of respondents cited speeding up root-cause analysis as their No. 1 monitoring headache, while 48% pointed to that same task as most critical operations management feature for landing new customers. OpsRamp, based in San Jose, Calif., sells digital operations management software to MSPs.
- Trustwave, a managed security services provider in Chicago, launched two services for Palo Alto Networks' Cortex XSOAR and Cortex Xpanse offerings. The XSOAR service lowers the cost of infrastructure and security orchestration, automation and response, while the Xpanse service offers a single-pane-of-glass view of alerts and tickets, a Trustwave spokeswoman said. In other news, Trustwave said it obtained a Netskope Services Delivery Specialization as a part of the Netskope Evolve Partner Program.
- MSP360, a backup and IT management solutions provider for MSPs, has expanded its alliance with cloud storage vendor Wasabi Technologies. MSP360 Managed Backup now supports Wasabi's storage regions in Frankfurt, Germany; London; and Paris.
- GFT Technologies, an IT services and software engineering firm based in Stuttgart, Germany, has hired Mike Egan as senior vice president of sales. Egan, based in the company's New York office, will lead client units focusing on banking, industry and insurance. He joins GFT from Virtual Clarity, which DXC acquired in late 2021. GFT has been expanding its reach in the North American market.
- Jay McBain has joined Canalys as chief analyst and will lead the market research company's Channels Analysis North America program. McBain was previously principal analyst at Forrester, where he covered channels, partnerships and ecosystems.
- Avant, a technology services distributor in Chicago, appointed Stephen Semmelroth as senior director of security. He will lead the company's Security practice division. Semmelroth's security background includes founding and selling a cyber-recruiting company.
- ThoughtSpot, an analytics company in Sunnyvale, Calif., appointed Kuntal Vahalia as senior vice president of worldwide channels and alliances. Vahalia joins Thoughtspot from MuleSoft, a Salesforce company.
- Lightbits, a software-defined storage company in San Jose, Calif., appointed Charla Bunton-Johnson as vice president of global alliances and channel. Bunton-Johnson was previously channel chief at WekaIO.
Additional reporting by Kristen Gloss.