Managed service providers are uniquely positioned to shine a light on IT priorities. A recent earnings call from IT services firm Infosys highlighted where customers may pull back services spending ahead of macroeconomic concerns.
While the company secured a few sizeable deals, there were signs of slowing growth in a few of the industries the company serves, according to Nilanjan Roy, CFO at Infosys, speaking last month during the company’s Q2 earnings call for the period ending Sept. 30.
Though Infosys’s customers in the retail segment increased focus on digital consumer engagement, supply chain transformation and legacy modernization, there were “some pockets of slowdown” in fashion apparel retail and general merchandisers, Roy said, according to a SeekingAlpha transcript.
Similar slowdowns hit the mortgage segment of the financial services industry and communications. Smaller verticals within the company, such as high-tech which covers AI, automation and big data, are also expected to increase caution around discretionary spend. In some cases, this has resulted in delays in deal closures.
Some of the industries Infosys serves, though, seem unencumbered by the larger macroeconomic trends. In manufacturing, customers focused tech spending on security, cloud migration and broader transformation initiatives with no signs of slowing, according to the company.
Overall, Infosys quarterly revenue reached $4.56 billion, up 18.8% year-over-year.
Slowing growth has been a theme this earnings season. AWS, Microsoft and Google Cloud experienced slower rates of growth this quarter. Amid the curbed spending trends, some businesses have offered assistance by working with customers on lowering costs with the intent to increase retention.
Health of MSPs
For managed services this quarter, overall growth is still strong — but slowing, according to Scott Bickley, practice lead focused on vendor management and contract review at Info-Tech Research Group.
Bickley pointed to a few different reasons for this. For one, deal margins spiked post-pandemic in 2021 and are now declining back to pre-pandemic levels. Staff attrition can also be partly to blame. Some managed service providers reached levels of up to 70% attrition, which has had a negative impact on contractor turnover and quality, according to Bickley.
However, managed service providers are positioned to fill voids during the tech talent crisis, but that’s only if they can find and retain talent, too.
“As macro-headwinds mount and skilled IT resources become scarcer for the vendor community, IT organizations are seeking to outsource more than ever – this makes a perfect storm resulting in higher prices, less transparency in contracts from the suppliers, and an overall tougher environment,” Bickley said in an email.
This could bode well for the MSP community because in times of economic distress companies look to outsource their IT needs to provide a more flexible organizational and cost structure, Bickley said.
This year, the IT services market is expected to reach $1.3 trillion driven by investments in business transformation, cloud migration and managed services, according to Gartner data. In 2021, total IT services spend hit $1.2 trillion.
“Growth is expected to slow further in 2023 to 8.5% reflecting expectations that enterprises will normalize the pace of spend after the acceleration driven by the pandemic,” Gunjan Gupta, director analyst at Gartner, said in an email.
For MSP, it will be key to stay nimble and prepare for changing cycles.
“All providers should plan on elongated sales cycles, slower decision-making, and delayed implementation of projects that have already been signed, especially for more complex multi-year transformations,” Bickley said.