Cloud consulting and managed services largely took the COVID-19 economic shock in stride, but will companies in those categories continue to prove recession-resistant businesses?
The industry will find out in short order. The U.S. gross domestic product (GDP) has declined for the second consecutive quarter, according to Bureau of Economic Analysis numbers published last week. GDP fell 0.9% at an annualized rate in the second quarter of 2022; GDP dropped 1.6% in Q1. That decrease over two quarters meets a widely cited, but unofficial, definition of recession.
Despite the uncertainty, some industry researchers and individual companies continue to forecast growth, and some have even raised their expectations. Consider the following:
- Capgemini, a systems integrator and MSP based in Paris, last week boosted its revenue growth objective for 2022 to 14% to 15% versus its previous forecast of 8% to 10%. The company, which does nearly a third of its business in North America, cited "strong demand momentum."
- ConnectWise's Service Leadership business last week reported that MSPs are "extremely optimistic for 2022," planning for 19% revenue growth. ConnectWise, headquartered in Tampa, Fla., makes software for managing MSPs.
- Gartner last month predicted the market for cloud managed services, along with cloud consulting and implementation, to expand 17.2% in 2022.
While cloud and managed services have shown considerable resilience in recent years, the current economic environment includes complicating factors, such as inflation and the war in Ukraine. Recent financial reports from the top cloud providers show continuing growth -- but with some nuances -- suggesting partners will be dealing with a mixed market in the coming months.
Microsoft, for example, cited 40% year-over-year growth in revenue from Azure and other cloud services for its June-ended fourth quarter. The cloud category saw year-over-year growth of 46% in Q3. Speaking last week at the company's earnings call, Amy Hood, Microsoft's CFO, noted that rate was about a point lower than expected, citing a "slight moderation in Azure consumption growth."
Amazon, meanwhile, also reported solid, but somewhat deaccelerating cloud growth. AWS revenue increased 33.3% year over year in the company's June-ended Q2, which compared with 36.6% in Q1. Amazon, however, believes rough economic patches help its cloud business as customers weigh the expense of in-house data centers.
"We're very happy with the growth rate [and] adoption of the cloud," said Brian Olsavsky, Amazon's CFO, speaking last week during a conference call.
Partners said they expect to encounter a variable market but one that still holds opportunities.
"While some large hyperscalers reported a slight growth deceleration in earnings [last] week, growth remains strong on a materially bigger base," said Christian Primeau, global CEO at Syntax, a managed cloud provider with headquarters in Montreal. "That said, cloud transformation projects are at risk of being negatively impacted if the situation were to worsen."
That's because organizations will have to prioritize which initiatives to keep or cut based on how economic trends affect their business, Primeau added. He cited the potential European energy crisis, a consequence of the Russia-Ukraine war, as an example.
"Should a company have to slow down production due to mandated energy restrictions, it would likely create a similar situation where businesses will prioritize their initiatives based on short-term benefits," he said. An IT services partner serving as a trusted advisor, however, can help clients navigate decision-making and keep the best mission-critical systems on track, he said.
Jeff Wile, executive vice president at Ensono, an MSP based in Downers Grove, Ill., also pointed to a role for partners in advising clients as they juggle IT priorities.
"During times of economic uncertainty, companies often look for areas to consolidate or deprioritize, which can turn into an opportunity for IT service providers," he said.
Jeff WileExecutive vice president, Ensono
The goal is to help customers optimize and boost efficiencies, he said, noting that businesses often seek such assistance during times of economic turbulence.
"As we see both slowing growth and increasing prices across the economy, I would expect some companies to focus more heavily on streamlining operating costs, including IT spend and cloud spend," Wile said.
Historical patterns, including the COVID-19 pandemic, suggest IT services growth will continue, even in a challenging environment. Primeau said economic downturns in past years have created high demand for IT outsourcing services as business look to optimize costs.
Ongoing trends, such as the tight labor market, will also fuel demand for technology services providers. Talent shortages compel businesses pursuing digital transformation to tap such partners, Primeau said.
AWS rolls out MSSP specialization categories
AWS has broadened its program for managed security service providers (MSSPs).
The cloud provider last week launched six specialization categories for its Level 1 MSSP Competency. Those categories are identity behavior monitoring; data privacy event management; modern compute security monitoring for containers and serverless technologies; managed application security testing; digital forensics and incident response support; and business continuity and ransomware readiness.
Each specialization category includes the Level 1 Managed Security Services (MSS) baseline. AWS in August 2021 debuted the Level 1 MSS baseline, which provides 10 foundational capabilities for MSSPs, and the Level 1 MSSP Competency program. AWS lists more than 30 Level 1 MSSP Competency partners, including Accenture, Atos, Capgemini, Deloitte, DXC Technology, IBM, Infosys, Leidos, Mission, PwC and Tech Mahindra.
- Pax8, a cloud distributor in Denver, has expanded its reach in the New Zealand market with the acquisition of Umbrellar, a Microsoft cloud solutions provider. Umbrellar offers cloud managed services, migration, advisory services and cloud procurement.
- Syntax launched industry-specific centers of excellence. The centers focus on manufacturing; engineering, construction and operations; mining and natural resources; and professional services. Syntax is undertaking the rollout in conjunction with its llumiti subsidiary, which provides offerings around SAP.
- D&H Distributing will provide the Microsoft Surface for Business product line to its channel partners. The Harrisburg, Pa., distributor's Surface agreement covers Microsoft's Laptop 4, Laptop Studio, Laptop Go 2, Pro 8, Pro 7+, Pro X, Go 3, Duo 2, Studio 2 and Hub 2S. The addition of Microsoft Surface for Business is part of D&H Distribution's work-from-home and business continuity focus, according to the company.
- Three companies have banded together to offer a Microsoft Teams bundle: Ribbon Communications, an IP optical networking company in Plano, Texas; Poly, a video conferencing and business phone vendor in San Jose, Calif.; and TD Synnex, a distributor with headquarters in Fremont, Calif., and Clearwater, Fla. The bundle combines Ribbon Connect, a cloud service that links Teams to a telecom provider, with up to five Poly CCX 600 desk phones or P15 personal video bars. A video bar, a feature of hybrid conference rooms, is a device that includes a video conferencing camera, a microphone and speakers. The Teams bundle is available through TD Synnex and its channel partners.
- Aqua Security, a cloud-native security provider in Burlington, Mass., unveiled a partner program and portal. The Aqua Advantage Ecosystem program encompasses more than 250 resellers, service providers and technology partners. The program's partner resources include a dedicated partner manager, pre-sales and delivery services training, and joint marketing development support.
- Stairwell, a cybersecurity company in Mountain View, Calif., has entered a strategic partnership with MSSP Cyderes. The alliance makes Cyderes, based in Kansas City, Mo., the first MSSP to work with Stairwell's Inception threat hunting platform.
- BCX and CMC Networks, IT services providers based in South Africa, are partnering to provide software-defined WAN services. The agreement extends BCX's geographic reach, adding more than 110 service locations for enterprise customers in Africa and around the world, a spokeswoman for CMC Networks said.
- Presidio, a digital services and solutions provider based in New York, has appointed Manny Korakis as CFO. Korakis joins Presidio from Iqvia, where he was chief accounting officer, corporate controller and corporate treasurer.
- Logicalis US, an MSP and IT solutions provider with headquarters in Bloomfield Hills, Mich., has appointed Mike Stipe as vice president of its Microsoft practice. Stipe has previously worked for Arynga, Teleca, Motorola and Wind River.
- Nitel, a network-as-a-service provider in Chicago, has appointed Josh Dickinson as vice president of national partnerships. Dickinson co-founded Hypercore, a company Nitel recently acquired. At Nitel, Dickinson will develop the company's alliances with telecom solutions brokers.