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?
When did it start slowing down?
The demand for IT services in SMB actually slowed down before the release of SBS 2008. I remember conversations with my partners rather vividly because nearly everyone back then thought the temporary slowness was due to the coming releases of Windows 7 and Small Business Server 2008. If you go back even on Vladville or Karl’s blog you’ll see a number of posts talking about how SBS 2008 might be the last server you ever sell.
Yes, the hindsight is 20/20 but it clearly marked the end of big deals in SMB. Which brings me to the 4th reason why the SMB solution providers are dying: thinking that it’s the economy.
It’s not the economy…
It’s not the economy. Or more specifically:
Problem: It’s the economy you remember.
That economy is long gone. It ain’t coming back. Much like dialup Internet service providers aren’t posed for a comeback, or the days of AOL keywords, technology that gets obsoleted over time is not closely tied to the general economic swings.
Critical components of every economic system are supply and demand. And supply is affected by substitutes: items that buyers are willing to purchase as an alternative to your product/service that produces a similar benefit. Strap on your seat belt, we’re about to travel through time:
Kicking the Delorean up to 88mph..
Welcome back 1997. Your desktop cost $2,000. Your laptop cost $3,000 and weighted as much as a briefcase will in 2010. Sony introduces Vaio F505, a slim light weight laptop that costs $4,000 and with a 10” screen represents the future in which most computers will be sold with slim 10” screens.
You need to connect your business to the Internet. You’ve got a choice of a dialup connection with Exchange 5.5 doing ETRN, a dedicated ISDN (one channel or two) or a T1 or better starting in four figures a month.
It’s time to get rid of that Novell server and try this new Microsoft NT thing. Problem is, you need to hire a network engineer and those start at $40,000. Business is business, time to invest in the company and use the technology to get to the next step. So you hire that engineer, do some situps, do a 100 pushups a day in your office and one day you’re strong enough to lift a copy of Computer Shopper.
You need a server, a switch or a hub, a CSU/DSU, a tape backup system… Wait, what’s that? A company that can figure out all this mess for me and possibly save me thousands of dollars?
Back to the Delorean and to 2010:
Problem: The “value” that VARs used to deliver (that of technical expertise) is no longer deemed to be of premium value. Our rate sheets are from the days of $4,000 laptops, $2,000 desktops, $10,000 server deployments. Those times are over.
We no longer need a company to contract a purchase of Internet access complete with a CSU/DSU, router, switch, firewall. We can now go down to a Verizon or Sprint store and they’ll hand us Internet that can fit into our pocket and be shared with 5 other people.
You no longer need an MCSE to offer technology advice.
Newspapers are dying.
It’s a different age all together.
A single engineer can manage thousands of workstations from a remote office (or a remote country at a far lower rate) and the opportunities for a network engineer went from every company needs one to only Fortune 500 needs a few.
And much like the Skynet system in Terminator, the more perfect the automation system of controlling all these devices and networks gets, the less need there is for a human being to watch after every one of them. The machines are controlling the machines.
Best Practices Change Over Time
If you’re in break’n’fix, “trying to go to managed services” is an opportunity that has passed you by. As discussed in the previous post, the competition is fierce and it’s coming down to competition on price.
The services we used to rely on servers for have gone to the clouds. The workstation has been replaced by the laptop and the laptop has been watered down by the netbook. The future is on the touchscreen. The last person still serving an engineering firm that needs to have a local file server for really large CAD drawings will turn off the light.
The best practice of where files sit, how they are backed up, who can access them and who controls who can access them has changed.
Problem: The mere fact that we’ve left the days of technological entropy and further adoption of technology no longer causes further spending and chaos is amazing. The age of highly compensated engineers has been replaced by the age of Geniuses working in retail stores advising you which of the 5 computer models is right for you. Unfortunately, for most people the difference between a professional service and a $10/hr Genius is indistinguishable.
…
While the temporary recovery in the economy and the technology refresh cycle may give some hope that the things are finally turning around, the reality is that the new economy with all its new technology, automation and alternatives has permanently changed the cost structure and the expectations small businesses have of their technology.
When you no longer need a technology department because you can get one in an Apple or Verizon store then you no longer need a CIO and you no longer need a VAR or an MSP. Most of the VARs and MSPs were established on building and managing networks for companies with under 100 employees. With that demand disappearing, so does the need for many technology companies and it’s the #4 reasons why IT solution providers in small business are disappearing.
…
Now, the beauty of business is that it doesn’t have a life limited by age. It has a life limited by imagination and opportunity. So the days of building and managing networks is not enough to sustain a growth or revenue levels – so what?
We’re not selling dialback ISDN plans in 2010, are we? Are we crying to have those days back? Heck no, the opportunity for developing solutions on top of high speed Internet is far greater than the markup we used to get on a single service solution.
The connectivity and automation have brought us a global opportunity, not just one limited by the amount of time we’re willing to spend in a car to reach a client. As have tastes – you no longer need a flight and a round of golf to make a deal.
While the world will always need a bicycle shop and a VCR repair man, the world moves forward for a reason – things get better! And with it, we have to as well – because there is a lot more money to be made and much more interesting problems to be solved.
Join me tomorrow for the final post in this series, exploring the further Death of a Services Salesman and what is coming out of it’s ashes.
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