Mon Mar-18-2024: 2024 Economic Paradox, CompTIA: IT Channel Optimism, Microsoft's Co-Pilot Strategy

[00:00:00] It's Monday, March 18th, 2024, and I'm Dave Sobel, three things to note today.

[00:00:07] The 2024 Economic Paradox, rising inflation concerns clash with surging small business

[00:00:13] optimism.

[00:00:15] Compti is reported unveils a surge in the IT channels optimism for AI and tech services

[00:00:20] growth, and Microsoft's co-file it strategy, Musk's open source gambit, and open AI's

[00:00:26] App Store Hurbs.

[00:00:28] This is the Business of Tech.

[00:00:32] Today's episode is supported by Huntress.

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[00:01:24] Let's start the week with a market review.

[00:01:27] The Russell 2000, a proxy for small businesses was down last week.

[00:01:30] The SMB 600 which looks at the smallest companies was also down.

[00:01:34] Both saw drops on Thursday.

[00:01:37] SBA reports show a surging confidence among small business owners and consumers under

[00:01:42] the Biden-Harris administration, with inflation falling, recession fears subsiding, and consumer

[00:01:47] spending rising.

[00:01:49] Economic optimism among small businesses has hit a 22-year high with the majority of business

[00:01:55] owners feeling optimistic about the national economy.

[00:01:59] The latest inflation report suggests that the disinflation trend of 2023 may have stalled

[00:02:04] in early 2024, elevated inflation readings in January and February raised doubts about

[00:02:10] the narrative that inflation has been quashed and interest rate cuts are imminent.

[00:02:15] The gasoline prices surged, commodity prices showed signs of increase, and services inflation

[00:02:20] remains a concern.

[00:02:22] In February saw a year over your increase of 3.2%, higher than January's 3.1%.

[00:02:28] The consumer price index also increased by 0.4% month over month.

[00:02:33] The core CPI, excluding food and energy prices increased by 3.8% year over year.

[00:02:39] The food index showed a 2.2% increase while the energy index saw a decline of 1.9%.

[00:02:46] The shelter index increased by 0.4%, and the job market showed an increase in the unemployment

[00:02:52] rate to 3.9%, average hourly earnings rose by 4.3%.

[00:02:59] Early data suggests that US consumer spending may weaken despite a strong job market and rising

[00:03:04] wages.

[00:03:05] Sales bouts back slightly in February, but January's drop was worse than initially estimated.

[00:03:11] Other indicators such as slowing employment for those without a college education and

[00:03:16] increased credit card and auto loan delinquencies also hint at a loss of momentum in consumer

[00:03:21] spending.

[00:03:23] According to Castle Systems Office swipe data for 10 major metros, office occupancy levels

[00:03:29] on the busiest day of the week are at a 62% level of their February 2020 average.

[00:03:35] Why do we care?

[00:03:40] First I want to highlight the Russell 2000 and S&P 600.

[00:03:44] The Russell 2000 is a stock market index that measures the performance of the 2000 smallest

[00:03:49] companies included in the Russell 3000 index.

[00:03:52] London's FTSE Russell Group manages it, and is widely regarded as a bellweather of the US

[00:03:58] economy due to its focus on smaller companies that operate primarily in the US market.

[00:04:04] The S&P 600 is a stock market index established by S&P global ratings that covers the small

[00:04:10] cap range of American stocks.

[00:04:12] It's a capitalization weighted index, meaning that the market capitalization in each company

[00:04:16] determines its weight in the index.

[00:04:18] I'm going to work to include this data in our analysis and consider those short term.

[00:04:23] The Russell for example is broadly up for the year.

[00:04:26] Small businesses are optimistic for the year, and the uncertainty is around inflation

[00:04:31] and interest rates.

[00:04:32] Companies might need to reassess their cost structures, pricing strategies, and financial

[00:04:36] planning to navigate potential fluctuating costs and consumer price sensitivities.

[00:04:42] That will be industry specific so as always know your customers.

[00:04:49] We also have the latest state of the channel report, Feng Tump Tia.

[00:04:53] IET channel companies are optimistic about the growth potential of technology services,

[00:04:57] business solutions, and generative AI.

[00:05:00] The report reveals that companies see the increasing complexity of technology and the

[00:05:04] availability of AI tools as key drivers for customer demand.

[00:05:08] Additionally, the shift from products to services is becoming more prominent with IT services

[00:05:13] projected to have the highest spending in 2024.

[00:05:17] Rich Freeman over at Channel Hallock dilded into it and here are some of the highlights

[00:05:21] of the data.

[00:05:23] Only 25% of channel firms offer automation services, including AI.

[00:05:28] However, this number is expected to rise with 47% of these firms planning to sell generative

[00:05:32] AI solutions this year.

[00:05:35] Bung Partners whose businesses are in a better shape now than two years ago, 55% plan to

[00:05:41] sell AI this year compared to 32% of partners in worth shape.

[00:05:46] Competition and pricing pressure, particularly from online marketplaces like AWS and Microsoft,

[00:05:51] are the primary factors driving on profits and revenues for partners.

[00:05:55] 36% of partners view these marketplaces as their main competition, although this is

[00:06:00] last in the 49% reported in older research.

[00:06:05] Other significant competitors include other channel firms at 40%, vendors going direct

[00:06:10] at 35%.

[00:06:12] 29% of partners are enrolled in one to four programs at 11% are enrolled in nut.

[00:06:18] Our partners are increasingly satisfied with their vendors with 33% reporting high satisfaction

[00:06:24] up from 18% last year.

[00:06:28] Channel leaders in the IT industry are positively about the market conditions, with optimism levels

[00:06:32] reaching a five-year high for the two-way survey by Al-Ghiliatus.

[00:06:37] The survey also highlighted the growing interest in artificial intelligence of the need

[00:06:41] for businesses to prioritize efforts in areas such as emerging technology, company culture,

[00:06:47] sustainability and customer experience.

[00:06:50] Emerging the gap between leadership and employees, adopting innovative technologies and demonstrating

[00:06:54] a sustainability strategy are key challenges for channel players.

[00:07:01] Why do we care?

[00:07:03] IT service providers not yet offering AI solutions.

[00:07:06] It's time to explore and integrate these technologies into your portfolio.

[00:07:10] That's my take.

[00:07:11] That doesn't necessarily mean AI in everything.

[00:07:14] It's about something versus nothing.

[00:07:16] The value of a clear vision and strategy for integrating AI into your business at whatever

[00:07:21] speed works for you.

[00:07:25] Microsoft is asking investors to temper their expectations for quick financial returns

[00:07:30] from co-pilot, emphasizing the need to convince customers that the substantial monthly

[00:07:35] cost worth it.

[00:07:37] While testers have mixed feelings about co-pilot's usefulness and price tag, Microsoft believes

[00:07:42] it justifies the price point in scenarios involving sophisticated information retrieval

[00:07:47] and task completion in Office 365, Teams and Outlook.

[00:07:51] However, other portfolio parts such as Excel and PowerPoint are still in the learning

[00:07:56] phase.

[00:07:58] Microsoft is focused on helping customers realize the value of co-pilot and building a business

[00:08:02] case based on time savings and productivity enhancements.

[00:08:06] They are optimistic that co-pilot will be profitable to venture in the long term.

[00:08:12] Elon Musk has open sourced the code for his AI chatbot, Rock.

[00:08:17] This move is part of the ongoing battle between Musk and OpenAI over the control of the future

[00:08:21] of AI.

[00:08:22] The controversy over open sourcing, Jeremy Vai has divided the tech world with Musk advocating

[00:08:27] for transparency while others argue regarding the technology.

[00:08:31] Musk aims to level the playing field by open sourcing his code and compete with OpenAI's

[00:08:35] popular chatbot.

[00:08:37] The model leads an architecture where released not the training data under the Apache

[00:08:42] 2P0 license.

[00:08:45] Per report to the information, OpenAI's chatbot App Store launched by CEO Sam Altman has

[00:08:50] had a slow start.

[00:08:53] Developers offering chatbots through the store have reported a lack of customers and limited

[00:08:57] support from OpenAI.

[00:08:59] Access to the store is currently limited to paying customers of chat GPT and developers

[00:09:03] are not yet able to charge for their apps.

[00:09:07] Third party plugins for chat GPT have been found to pose a security risk, allowing unauthorized

[00:09:13] access to sensitive data.

[00:09:15] Security flaws within chat GPT and its ecosystem enable attackers to install malicious plugins

[00:09:20] without user consent, potentially hijacking accounts on third party websites.

[00:09:25] OpenAI has taken steps to address these issues including discontinuing the installation of

[00:09:29] new plugins.

[00:09:30] Additionally, researchers have discovered an LOM side channel attack that exploits token

[00:09:35] length to extract encrypted responses from AI systems.

[00:09:39] Highlighting the need for countermeasures to protect sensitive information shared in

[00:09:43] private AI assistant conversations.

[00:09:47] Why do we care?

[00:09:49] The trade idea is that companies should focus on building and communicating clear business

[00:09:53] cases for the AI.

[00:09:59] Now that is wrong.

[00:10:01] Instead, I'd offer that being the guide for customers to examine, evaluate and review

[00:10:06] AI business cases is the consulting opportunity to take advantage of.

[00:10:10] Today's stories cover a spectrum of business models.

[00:10:13] Will you make money on applications like Copilot?

[00:10:16] That one looks broadly true or implementing models that are not available to you.

[00:10:21] What is the problem with the AI?

[00:10:23] Is it an answer?

[00:10:24] And that's a feature, not a bug.

[00:10:28] Hey software vendors, interested in supporting the show and getting recognized in the

[00:10:37] simple way?

[00:11:07] Thanks for listening.

[00:12:33] Finally, if you're interested in advertising on this show, visit mspradio.com slash engage.

[00:12:40] Once again, thanks for listening to me and I will talk to you again on our next episode

[00:12:46] of the Business of Tech.