Market conditions in the tech sector have been extremely tough in 2022, leaving technology developers, suppliers, hardware and software vendors, and service providers, including MSPs, to adapt to slowdowns by decision-makers, which impact revenue forecasts and budgets.
This is top of mind this month as so many organizations are working on 2023 budgets, with CFOs doing their best to work with business units to identify ways to conserve spending, without compromising great customer experiences and new offerings that can deepen and grow customer relationships.
With growing uncertainty in the overall global economy, Gartner sees IT spending holding steady at 3 percent growth for 2022, recently predicting worldwide IT spending will total $4.5 trillion this year, up 3 percent from 2021 in dollar terms, but more (5.9 percent) when currency fluctuation is factored in.
Gartner’s latest forecasts show that many leaders report they are cutting back on equipment, causing spending on devices to shrink 5 percent to $768 billion in 2022. (Gartner earlier forecast worldwide PC shipments would decline by 9.5 percent in 2022 driven by a collapse in consumer demand).
Growth in cloud, software, data centers, and IT services are making up the difference in device spending drops, with growth in cloud spending up over 22 percent in 2022, up from 18.4 percent growth in 2021.
Included is the category for cloud consulting and implementation and cloud managed services, which are set to grow 17.2 percent in 2022 to reach $255 billion, helping to drive the overall IT services segment to 6.2 percent growth in 2022.
“While the macroeconomic data is of great concern to all businesses, we are seeing unstoppable growth in Managed Services,” said John Street, founder, and CEO of Pax8, a growing provider of a cloud marketplace designed to help MSPs serve their end customers with the best of XaaS. “Business leaders understand the importance of digital transformation and its role in ensuring more efficient operations while at the same time delivering excellent customer experiences. While IT spending is under scrutiny and even pressure at a high level, smart businesses are investing in the kind of technologies, including cloud services, that strategically reduce costs through more automation, intelligence, and insights. They no longer must worry about the massive and often unpredictable costs associated with having to own and operate their own infrastructure, but they do need to pay attention to how their digital future is being designed and optimized – which is why we are seeing such tremendous growth in the MSP space.”
Pax8 announced earlier this year a significant new round of investment of $185 million, citing increasing demand for their cloud commerce marketplace platform. Led by SoftBank Vision Fund 2, the equity round increased the company’s valuation to $1.7 billion. Existing investors also contributed, including Catalyst Investors, Sageview Capital, Blue Cloud Ventures, and Liberty Global Ventures.
Pax8 has cloud-enabled more than 250,000 businesses with its 20,000 managed services partners and its award-winning platform, marketplace, education, support, and solutions. The company offers organizations a unique approach and simplifies the IT buying experience for SMBs through the IT channel ecosystem. Pax8 solves challenges around billing and provisioning and provides the automation businesses require for scale.
“As we continue to evolve our technology and marketplace to meet the needs of SMBs, the new investment will provide capital to accelerate innovation and continued expansion into new global markets,” Street said at the time. “This strong funding round reflects the powerful work Pax8 is doing to enable and grow SMBs through our partners, employees, technology, education, and support. Year over year, we continue to experience record-breaking growth, and we look forward to working with SoftBank to continue elevating our performance.”
“Through its marketplace, Pax8 is empowering SMBs with technology solutions they would otherwise not have access to while simultaneously granting software vendors distribution capabilities to a hard-to-reach customer segment,” said Kristin Bannon, Investment Director at SoftBank Investment Advisers. “I am thrilled to join the Pax8 Board and partner with the company on its hyper-growth technology strategy for the platform and cloud marketplace, and new opportunities for the company and its ecosystem of partners.”
While growth continues to surge at Pax8, Street is encouraging their team to be conservative when it comes to spending, in line with the way their culture has been built – with every employee taking ownership of ensuring they set and reach individual goals, while also contributing to team projects and ensuring internal coordination that reduces duplication of efforts and confusion.
Street wrote in a recent letter to the Pax8 global team, which expanded earlier this month when Pax8 acquired Umbreller, “The markets continue to be very volatile and, as a result of these uncertain market conditions, most tech companies are putting the brakes on growth. Many are even cutting back on personnel. Investors are fearful of the market uncertainty.”
Street characterized Pax8’s situation as “quite different.” “We have seen amazing growth for several years running, and our growth continues to be strong. With our additional funding, we are busy innovating and investing in new ways to help our partners grow. Pax8 is continuing to hire new talent while also adapting to the market conditions as they unfold.”
While Microsoft, which is a major Pax8 partner, laid off 1,000 employees recently, Street made it clear that recruiting efforts continue, explaining a strategy to build agility into the organization, so “we can be more responsive to market conditions, whether they improve or deteriorate.”
Overall, the Managed Services sector is continuing to grow at a steady pace, boosted by remote work, the need for new IT skills, the lack of talent available, and the challenges of adapting to massive shifts including the continued move to all things cloud.
Grand View Research reports that the global MSP market was valued at $239.71 billion in 2021 and is expected to grow to $267.35 billion this year, and underscores the importance of adaptation, especially at a time of economic uncertainty.
