Better Times Ahead For Service Providers?

Much time is being spent in our industry trying to figure out who the winners and losers might be if we end up going through a "sustained economic uncertainty cycle". 

That's industry double-speak for a downturn, folks.

Clearly, vendors that have a clear and immediate TCO payback will be well served.

But what about service providers?  Could they see a surge in business?

Why This Is Interesting To Me

By "service provider", I mean any entity that charges for usage, rather than sells you IT stuff outright.

This includes outsourcers, for example.  Or SaaS providers.  Or anyone who charges your by how much you use of the service, including vendors that have "on demand" (hardware) or subscription (software) offerings for their customers.

Depending on whose datasets you look at, you can find plenty of evidence for a long, slow secular shift to more and more IT spend going through these pay-for-usage channels, rather than traditional outright sales to organizations.

And you have to ask -- will the new state of the economy accelerate this trend?

Why This Might Be The Case

The first argument might be as simple as a general scarcity of IT budgets for new requirements. 

Anything from a server refresh to a new enterprise application takes serious cash: both in the form of capital expenditures as well as staff to implement the new technologies.

Leasing has been a typical approach to "smooth out" at least the capex part of the equation, but many customers tell me that leasing isn't nearly as attractive as it once was for a variety of reasons.

A "pay as you go" model takes much of the large up-front investment off the table.  Sure, you might end up spending more money than if you did it yourself, but you've got the flexibility to go small or large, or cancel entirely if business conditions change.

And I think that will be very attractive to many businesses in the near future.

The second argument might be around ease of getting to new cost-savings technologies.

As an example, most people would agree that running in a virtualized server environment is usually more cost-effective than the physical alternative.  But what if you don't have the investment required to get to that environment?  Not just server licenses, we're talking supporting infrastructure (storage, backup, DR, management, etc.) as well as the skills to get you there and run you efficiently when you get there.

Sure, the resulting cost structure is better, but can you invest what's required to get you to that state?  And, how quickly can you get there?

Another example that's closer to home for me is advanced storage technology: bigger drives, data deduplication, spin-down, intelligent use of flash, and so on.  All of these are relatively new technologies, so if you're on that 3-5 year refresh cycle, it'll be a while before you'll have the opportunity to ditch your existing gear and get the newer (and more efficient) kit.

Not only that, do you have the skills in place to get the new technology into your shop, and use it effectively?

Again, another area where a service provider might get you to that newer cost structure sooner than you can do it yourself.

And the third argument might be "transparency of costs". 

I still run into many IT shops that haven't gone the step of creating a real (or virtual) bill back to the business for the services they provide.  Trust me, in these times, business people will want to have complete visibility and transparency into what they're paying for everything, including IT.

And if they can't get that from their in-house provider, they may be interested in shopping outside the company.

Any Way You Look At It, A Down Economy Might Be Good For Service Providers

Now, I'm not saying that everyone in the service provider business will make out like bandits in the next year or so. 

But, with the right strategy -- and the right value proposition -- I can see many large organizations willing to take a sales call and listen to new pitches from a service provider that they might not have been that receptive towards in the past.

I also think that traditional IT vendors will have to become more adept at providing consumption-based models for their wares, rather than the traditional sales model. 

Whether it's "on demand" pricing for hardware, subscriptions for software, or bundling in on-site personnel required to use the technology effectively, I'm guessing that we'll be seeing far more of this sort of thing in the near future.

What do you think?

Courteous comments welcome as always!