IT Market Trends, Cybersecurity Concerns, and Real Estate Opportunities in 2024

[00:00:02] It's Monday, June 17th, 2024, and I'm Dave Sobel. Three things to know today. The IT market on the rise, cooling inflation, and AI drive positive projections for the rest of the year. Rising payment fraud concerns among small businesses, KeyBank's 2024 survey findings, and that ProPublica report.

[00:00:21] Microsoft ignored warnings about the critical vulnerability exploited in the SolarWinds attack. This is the Business of Tech. We look at the market on Mondays, so let's dive in.

[00:00:33] Inflation in the US appears to be cooling down, with the Consumer Price Index being cooler than expected for the second consecutive month. The CPI for May remained unchanged and the core measure rose at the slowest pace since August 2021.

[00:00:47] While some categories showed a decline in price increases, rental prices have yet to show a decline. At the Fed meeting last week, the expectation was that there would be only one rate cut this year, not three.

[00:01:01] Artificial intelligence and other catalysts are driving the IT market back to growth mode, with IDC revising its global growth forecast from 4.1 to 8%. However, such factors as inflation, AI distractions, AI impediments, geopolitics, protectionist policies, and talent shortages could impede growth in the second half of the year.

[00:01:23] And according to the latest PWC Pulse survey, CEOs believe that competitors who do not change their current business model will be out of business within three years. Executives agree they can execute business model changes at scale, and many have already started or completed reinvention initiatives.

[00:01:43] A recent global survey conducted by Channelnomics and Pax8 reveals that small and mid-sized businesses rely on resellers, integrators, and service providers to support their artificial intelligence projects. The survey highlighted the challenges faced by SMBs in implementing AI, such as insufficient infrastructure and security risks.

[00:02:02] However, SMBs recognize the importance of AI adoption for their market position and are ready to invest in AI systems and tools. And in a keynote speech at Pax8 Beyond last week, Jay McBain from Canalys outlined five trends shaping the channel's future.

[00:02:19] These trends include channel growth, a focus on cybersecurity, millennials driving shifting buying patterns, marketplaces on the rise, and the end of third-party tracking cookies.

[00:02:31] McBain emphasized the growth of the MSP industry, the opportunities in cybersecurity, the importance of understanding millennial buyer behavior, the significance of marketplaces in the digital first era, and the value of second-party data owned by the channel. Why do we care?

[00:02:49] Two perspectives to consider, the impact on your firm and the impact on customers. For the IT services industry, stabilized inflation means more predictable costs and potentially lower borrowing costs if the Fed opts to hold rates steady or cut them.

[00:03:04] This could encourage more capital expenditure on IT projects and technologies. However, that persistent high rental price should continue to strain operating costs, particularly for businesses with significant real estate footprints. There does appear to be strong interest in AI-based solutions, and leaning into customer desires is a smart play.

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[00:04:09] Visit coreview.com slash MSP and find out more. According to the information, private equity firms are increasingly buying out poorly performing 2021 IPOs, offering a way for shareholders to salvage their investments and CEOs to receive lucrative compensation packages.

[00:04:29] These buyouts typically involve all-cash deals, quick cash infusions for CEOs, additional shares in the private company's upside exit value and tax advantages. Squarespace's recent deal with private equity firm Permura serves as an example of the trend.

[00:04:48] And from small business trends, small business owners are increasingly concerned about payment fraud, unauthorized transactions, and fund transfers, according to KeyBank's 2024 Small Business Survey. Other fraud concerns include identity theft, malware and ransomware attacks, phishing, and email scams.

[00:05:07] Small businesses are often targeted due to limited resources compared to larger firms. Owners need to have a plan in place and dedicate resources to prevent these threats.

[00:05:16] And also from small business trends, many cities in the U.S. are experiencing high vacancy rates in retail and office spaces, creating opportunities for new businesses to secure commercial space at discounted prices.

[00:05:29] Cities like San Jose, Chicago, Santa Monica and Boston have significant vacancy rates, while others like New York City are experiencing rebounds. Lower vacancy rates benefits communities and consumers, leading to more vibrant shopping districts. Why do we care?

[00:05:46] I didn't have a theme specifically here, but I did want to note each. The MSP market keeps focusing on IPOs of software vendors. It's important to remember that it is a much rougher road than previously. With all this talk of cybersecurity, how much is linked back to fraud?

[00:06:03] This seems like a missed opportunity. And finally, there may be some opportunities here in changes in the real estate market. Companies moving into these vacant spaces will likely need IT infrastructure setup, cybersecurity measures and ongoing IT support.

[00:06:17] Providers should monitor these real estate trends and consider partnerships with real estate firms or local business development orgs to position themselves as preferred IT service vendors for those new tenants. I also had to follow up on Microsoft's evolving story and the criticism the company faces regarding security.

[00:06:36] Last week, Microsoft President Brad Smith faced questioning from the House Homeland Security Committee regarding the company's handling of reported security flaws in its products.

[00:06:46] The criticism came after a ProPublica investigation revealed that Microsoft ignored warnings about a product flaw that left millions of users, including federal employees, vulnerable to attack. According to that ProPublica report, Microsoft dismissed an employee's warnings about a vulnerability later exploited in the SolarWinds Orion attacks.

[00:07:07] The vulnerability, known as Golden SAML, allowed threat actors to maintain access to compromised environments undetected. Microsoft now recommends migrating to its newer Microsoft Entra ID system. Microsoft's product team rejected proposed fixes due to concerns about business impact and competition with rival companies.

[00:07:28] Cybersecurity firm later disclosed the weakness, but Microsoft did not publicly warn customers. The flaw was only addressed after the SolarWinds attack occurred. Microsoft has announced that it will prioritize security over artificial intelligence following major cyberattacks by Russia and China.

[00:07:45] The Cyber Safety Review Board found that the event was made possible by a cascade of avoidable errors and a security culture that requires an overhaul. Smith stated that cybersecurity will be a higher priority than AI, with CEO Satya Nadella taking personal accountability for security.

[00:08:02] And from ITPro, Microsoft plans to tie executive bonuses to their department's security performance to improve its cybersecurity practices. The decision comes after high-profile security breaches and criticism of the company's corporate culture. The move aims to ensure buy-in from business leaders and drive significant culture changes towards security.

[00:08:24] Why do we care? Microsoft's handling of the vulnerability and subsequent criticism highlights the importance of transparency and proactive security measures. IT providers must learn from this situation to maintain trust and credibility with their clients. Transparency about vulnerabilities and timely communication are critical in mitigating reputational damage.

[00:08:45] I may be dismissive of the long-term ramifications of cybersecurity, but covering it up always makes it worse. The decision to link executive bonuses to security performance is what will drive change. Full stop. That's what matters here. Are you an MSP navigating the evolving landscape of Microsoft 365 and Copilot?

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[00:09:41] Educate your clients on the benefits and adapt your services to include enhanced security measures. Don't just adapt to change, lead it. Elevate your MSP business with Skykick and Microsoft's Copilot. Visit skykick.com slash MSP radio to learn more and start transforming your services today. Thanks for listening.

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