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Channel Braces for Economic Slowdown

Solution providers are bracing for a general tightening of IT spending budgets, but those delivering managed services say they have some immunity against a possible economic slowdown in the coming year. Managed services contracts with customers generate recurring fees for solution providers, which they say guarantees that at least some of their business should remain […]

Written By

Pedro Pereira

Dec 4, 2007

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Solution providers are bracing for a general tightening of IT spending budgets, but those delivering managed services say they have some immunity against a possible economic slowdown in the coming year.

Managed services contracts with customers generate recurring fees for solution providers, which they say guarantees that at least some of their business should remain unhindered by an economic slowdown.

“2008 will be a good year for managed services providers,” said Erick Simpson, vice president and CIO of Intelligent Enterprise, an MSP in Southern California.

Simpson delivered the keynote speech Dec. 4 at a conference by distributor Ingram Micro for partners in its Seismic managed services program. About 100 solution providers attended the event in Dallas.

Annuity-based services such as remote monitoring and management, help desk, remote online backup and e-mail protection offer channel companies an opportunity to tighten their relationship with customers that will help them ride out economic storms, Simpson said.

Simpson and like-minded solution providers reason that locking customers into recurring-revenue IT services contracts guarantees revenue that project-based services and product sales cannot ensure when customer budgets tighten.

Recurring-revenue models, said Ken Totura, vice president of channel sales at security vendor MX Logic, “tie you more closely to the needs, wants and goals of the customer.”

Mike Novotny, president and CEO of InterTech Computer Products, in Phoenix, said he feels good about prospects for the immediate future because InterTech’s services revenue covers the business’ overhead. But, Novotny added, product sales definitely have started to slow down.

“We’re not seeing a shortage of opportunities,” he said. “We are seeing a little bit of a slight decrease in actual product sales.”

Novotny said uncertainty in the marketplace as a result of doom-and-gloom scenarios and other factors such as the presidential election are making customers reevaluate IT spending plans.

Totura said in times of economic uncertainty capital expenses, including product purchases, are the first to be cut out of budgets. But fixed-fee IT services qualify as operational expenses that businesses are less likely to eliminate.

Greg Starr, owner of I.T. Works, a provider of telephony and networking solutions in New Boston, Texas, said the election is causing concern among customers about changes that may happen as a result of whoever wins the race. For instance, he said, business owners worry about possible changes in taxation and business legislation.

In anticipation of a slowdown next year, I.T. Works is putting extra effort into closing as many deals as possible.

“You can sit around and wait, and be in trouble, or you can get ahead of it,” Starr said.

Channel Braces for Economic Slowdown

Pedro Pereira

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