In late 2009 through early 2010 we’re seeing an unprecedented death rate of technology businesses involved in SMB (VARs, MSPs, technology experts), traditionally reseller-friendly companies going direct and the rapidly changing set of rates (from netbooks to computer service to “app store” software) for technology. The five part series titled “Death of a Services Salesman” will explore these trends, the causes behind them and hopefully give some clarity to the many that are rightfully asking: Are the good times in technology services gone for good?
What’s “local” anymore?
Before I even state the extremely obvious challenge SMB IT solution providers face from all fronts, I’m going to share the answer nearly all the providers in this space have given me in 12 years in this industry when asked how they build their business: referrals. The word of mouth, do a good job and hope the client is happy enough to recommend you to someone else. Or even ask/incentivize them to do so. Or join a business referral network.
Problem: There is no such thing as “local” anymore. The competition for IT services is now global.
Talk about the blue ocean strategy backfiring: Where people hoped they would find unlimited opportunity of untapped markets, they found more competition from more aggressive predators. Every day I am greeted to a spam bucket full of Indian programmers by the pound and by the minute, call center outsourcing, temp labor and skilled workers waiting to work for the fraction of what anyone would expect in United States. But do you want to know what the #1 predator in the blue ocean is?
Problem: Our suppliers are now our direct competition.
Competing against suppliers
This is nothing new, we’ve always known that large box makers have been direct. Some (Dell) have had direct as a motto and principal value. They always wanted a direct relationship with the client.
What is new in this equation is that these companies now deliver services. It was easy to ignore them when all they did was ship equipment – but now the equipment is shipped with the maintenance service already purchased, from warranty to monitoring to offsite backups to antivirus. The whole purpose the VAR industry served – that of taking something raw and turning it into a functional business tool that can deal with the real world networks (appropriate software, antivirus, licensing, configuration) is now done by the manufacturers.
The whole “MSP Revolution” was short lived, with Dell’s acquisition of Silverback the same core value MSPs were offering now became a checkbox on Dell’s site. And they aren’t afraid to make a phone call or even hold an order back until they talk to you about managing the purchase you’re about to make.
Competing against larger providers
In the previous blog post I discussed the strength in numbers.
With the recent economic problems caused in part by implosion of the banking system, the word “trust” has almost been wiped out of the dictionary. With all the (possibly criminal) activity the banks have committed, there aren’t fewer people doing business with Bank of America – the “too large to fail” is somehow less of a concern than the thousands of small banks that are small enough and failing in large numbers. It’s not fair but it’s business and the purchasing criteria has changed.
At Own Web Now we do business with a lot of managed services providers that service multiple states – not just two or three but a dozen – and they are the ones that are growing fastest. It could be that they are just aggressive by nature – but it’s more likely that the marketing message of “we are larger and more resourceful than your local mom & pop IT shop” resonates with the business owners that are spending their money on technology because their ambitions are larger than just the walls of their office.
Competing against the cloud
I’ve written hundreds of blog posts about this point and it’s something I don’t have anything new to say. Every software powerhouse has or is working on a cloud strategy that goes direct. It is so powerful that many service providers are forced to hand over their clients for 6% commission of $5.
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Some people live to compete. The rest die because they refuse to.
That’s at least my opinion. People that sat on the sidelines waiting for the “cloud” to materialize are now dying. Not because the cloud is taking their clients, but because their existing clients have downsized or closed doors and it takes time and effort to build a marketing and delivery system built around the cloud.
With nearly unlimited competition from suppliers and other providers, it’s harder to commit to larger marketing & sales efforts which inevitably allows the loss of client base to outpace new business.
The most amazing (to me) part of ignorance comes from the providers that have been around for a while, improved their marketing, their sales, their procurement and their reputation in the industry – but haven’t grown as a result of it. If you’ve improved everything but your bottom line that’s not success – that’s churning.
Thinking that local is a closed environment is the #3 reason IT solution providers are dying. I find many people face this problem with an immense sense of denial – even when confronted about their local competition most will say that they have less competition now than ever before (because they only view the people they can see – that are now bankrupt – as competition). The economy and the demand for services has changed. Sitting back and waiting for it to change back is an option, sure, but doesn’t it make more sense to just compete at a different level?
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