Since early 2003, this blog (and it’s blogger.com predecessor) chronicled the Fast Times at SMB high, the rise and fall of several business models and the lessons learned along the way to building wealth and solutions for the SMB technology marketplace. From the network engineer to SPF to IT Consultant to VAR to MSP to Master MSP era’s, it’s been a fun ride and it’s also been 10 years since I’ve had a real vacation (instead of 2-3 days here and there).. so.. as both I and my company move on to the next chapter in our lives, I figured it would be fitting to sum up the last 10 years of SMB IT and explain how and why things are changing.
The Cloud Prior to 2002
From roughly 1997-2003, the SMB world was preoccupied with simply establishing a presence. From the massive buildout of LANs across small businesses to building web pages, this was the era during which people figured there was a world beyond @aol.com or @compuserve.com. Microsoft was taking over the network dominance from Novell and for the most part the IT businesses of this time were high on skill and highly compensated for it.
My first job in 1996 involved me talking to SMBs and helping them write connection scripts for Trumpet Winsock. With the release of Windows 95 the obstacle of connecting to the Internet was nearly eliminated and it created the largest surge of small business users trying to get to it. Along with it came the IT Consultant who no longer had to have a tremendous amount of networking skill – just listen to the customer and know who to call for help.
This was also the moment at which technology became affordable and available. Purchasing computers immediately prior to this era required setting aside thousands of dollars to place the order, waiting weeks if not months for your 486 or that shiny new Pentium, upgrading your modem or USR Courier firmware every fall – naturally, you wanted to consult more than the sales guy when parting with so much money or reading books (yes, books – thick ones with no pictures) to get up and running. Prior to this it wasn’t simply enough to want something and have money to buy it – you had all sorts of considerations and limitations in place. People had to find out if they were on copper or SLIC lines, they learned their distance from the central office or DMARC.
This era ended with the ability to walk into Best Buy and walk out with everything you needed 20 minutes later.
With this mass availability of technology the biggest business for SMB consultants was connecting all these computers, printers and “the Internet.”
Primary business: LAN buildouts. Most of us made money on the side designing web sites, setting up an online presence, upgrading networks to Windows 95, NT4 and dreaming about XP.
SMB, The Cloud and 2003
This was the year that everything changed. Windows XP had taken off, Microsoft announced Office 2003 and SBS 2003.
For the first time, ever, it was the user that was put in charge. SBS 2003 was in fact designed to allow the business owner to manage things, not the IT department.
There was a catch here. Because things got so easy for people that were computer savvy, suddenly if you were in business but not on the Internet you were at a huge disadvantage.
Computers got cheap. Internet access got even cheaper. The demand for all things IT skyrocketed. We got mobile.
It also marked a gold rush of SMB IT jobs. Prior to this, most SMBs didn’t have an IT department, the closest they got to one was having one of the employees kids come after school to fix computer problems. But troubleshooting network connectivity wasn’t as easy as changing the screen resolution or creating desktop shortcuts. Enter the “IT Consultant”
This was also an era in which being an SMB IT Consultant went from a highly profitable hobby to an actual professional that had to talk about more than just technology. Because the job of connecting everyone and everything became more time consuming, it also became extremely expensive: justifying costs, explaining the tradeoffs, presenting alternatives and being a part of planning stages was the new norm.
It also shifted many of the existing companies from being technology enthusiasts to focusing on the business. The rise of VAR came from the rapidly declining costs of hardware, software and directly from the decrease in complexity. Because the costs started shifting from the cost of purchase to the cost of deployment and support, established SMB IT companies started reselling a lot more than just their time or their one vendor they were certified/authorized for.
Primary business: Network infrastructure. Beyond computers and monitors, IT in small business became less of a tool and more a part of the process. Margins on hardware declined but margins on support and billable hours exploded.
2004-2005 The Dawn of Cloud
Now even laptops were affordable. Internet was everywhere and it was free. It started showing up at Starbucks and McDonalds. Email became free and Google’s Gmail launched with 1GB of storage.
SMB IT started to mature and the support personnel that came with it was under more fire to respond quickly to problems and outages. Businesses started relying on technology more and demanded it on mobile devices. At home. On the road.
Assuring the uptime and eliminating ugly encounters with large service bills gave rise to managed services model. VARs could now get a more predictable level of revenue and eliminate the surprises that came with ad-hoc support.
The key here was that network control became decentralized: you no longer had to be in the office to work and the IT provider no longer had to stop by to fix the problems or perform maintenance tasks.
Primary business: VAR. The more dependent companies became on technology, the more stuff they bought and wanted it connected and sync’d to their existing infrastructure.
2005 – 2008 The Fall of Steel
As the small IT solution providers were building their management cloud, they were simultaneously discounting the relevance and eventual success of large software companies who no longer wanted middlemen at the gate. The entire SMB IT food chain turned from steel and towards services.
IT providers faced their second major growth challenge in a decade: maintaining technical expertise while supporting/migrating/project planning of legacy systems.
For the first time we no longer were preoccupied with the faster, newer processor or the next big OS – we were spending more time trying to keep the old stuff up.
It was also the beginning of the end. With software/hardware companies at odds with the clients and partners that dealt with the client issues, someone had to fix the problem.
Primary business: Support.
2008 The Fall of Bear Sterns & Global Depression. The rise of IT consumerism.
To this day, the most popular Vladville post is the one covering the fall of Bear Sterns that plunged us into a depression/recession. Almost immediately following March 16, 2008 folks stopped looking forward with technology as an investment and focused on it’s cost.
This was bad news for pretty much everyone. Large companies gutted their IT departments. Small companies froze projects, purchases and more.
This was the era of “Do we really need ___?”
This was the tipping point for the cloud in SMB. Up to this point, the sales were largely based on the solution fit and the new features that solved problems. The discussion went from buying something new and towards using something less expensive.
At the same time, technology became more personal and the division between work PC and home PC blurred with the new wave of smartphones, web sites and online services. The more cool stuff people used, the more of it ended up in the business.
Suddenly workers were not willing to wait for the IT department to get things online or to allow something that restricted their control – they just signed up for an online service and eliminated the middleman. In SMB, we were the middleman.
Primary business: Support.
2008 – 2011: Cloud, Cloud, Cloud
The title sums it up. IT providers, to both large and small companies, were dealing less with steel and cables and more with consumer devices, online services, hosted services and gadgets.
The era of buying something that would break and then cost you to fix it was replaced with the subscription service that (once it broke) could be substituted with another. When it was no longer needed it got handed down (iPod, iPad, iPhone) or repurposed.
Primary business: Pimpin’ – anything that could be marked up, measured or required IT assistance got a plan attached to it.
The Future
The future, or the end of the past I’ve outlined so far, is surprisingly similar.
The frustration of IT Solution Providers over not being able to move ahead quickly is met with the rapidly declining demand for their services. The consumers (not clients anymore) are willing to pay for certain services but that doesn’t make IT Solution Providers profitable or produce a reliable revenue stream. User friendly gadgets and user friendly online services seamlessly integrate with one another and with social networking and Google, solving problems is easier than ever.
The error margin is widening and tolerance for failure is higher as we have alternatives. If the computer is dead, you pick up your tablet. If it’s dead, you go to your smartphone. If you don’t have reception, you’re never too far from free wifi. Service companies get by without even posting a phone number on their web sites and support is peer based through social networking sites and forums. The value of the human interaction, while desirable, is not compensated enough for it to exist.
This is a far cry from a highly competent, highly skilled and full service IT solution provider. They are deemed too expensive. Meanwhile, a large cloud service provider loses tens of thousands of accounts and escapes without a scratch.
Let me make this clear: This is the end of IT Service Provider business as we’ve known it.
Without being able to pick the low hanging fruit (remote managed services) IT Solution Providers will find a harder time trying to pay off the huge investment in the tools and training they bought to build the business up in the first place. It’s not like all the servers and IT demands are suddenly going to disappear and be replaced by the iPad or the next Android tablet, but with the consumers ability to find quick and cheap alternatives the profitability and business viability of your typical IT Solution Provider is questionable.
That is a difficult thought to swallow but as you can read in this post, it is not the first time our industry and our profession has faced a challenge. What is new is that at some point the paths of software/hardware manufacturers and those that support their solutions diverged. The software/hardware manufacturers won – they are selling more stuff than ever but the support jobs that existed to get that technology in the hands of consumers aren’t needed. They made devices cheaper, software more reliable, user experience more friendly and the consultant unnecessary.
Everything has become a subscription service. There will still be edge cases, a slim minority that will either never be able to accept that or use it. But business is seldom about edge cases and IT services aren’t luxury goods.
It is time to take a good hard look at what makes money and what doesn’t, what sells and what doesn’t, and what the marketplace is actually demanding. In my career I’ve been blessed enough to build and sell computers with a $1,000 margin, collect thousands of dollars for a migration that took half a day, get thousands of dollars just for offering my opinion on a conference call and get paid for seeing the progress bar move from left to right.
Those days are gone. So is Vladville’s coverage and fascination with it. I have a month-long vacation coming up to reflect on the past decade of the fun in this business and look forward to coming back and talking about what’s next. In the meantime, I encourage you to sign up for our Own Web Now blog and Looks Cloudy site.
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