Navigating Market Shifts: Inflation, AI Skepticism, Hardware Longevity

[00:00:00] It's Monday, July 15th, 2024, and I'm Dave Sobel. Three things to know today. Inflation's cooling, small business struggles, and baby boomer retirements are reshaping the market. Goldman Sachs, enterprise skepticism, and AI hype. What's next for generative AI? And embracing hardware longevity, focusing on high margin services and skills supplementation.

[00:00:25] This is the Business of Tech. Happy Monday everyone! There's some compelling new AI research, but I want to do the big picture first. Consumers are pushing back against price hikes as indicated by earnings calls from consumer-centric companies.

[00:00:42] The Consumer Price Index report shows inflation cooling off, prompting companies like PepsiCo and Conagra brands to consider value adjustments and address significant price increases. Delta Airlines has also experienced resistance from consumers who are unwilling to pay higher ticket prices.

[00:01:00] Consumers are becoming more cautious about raising prices due to customer sensitivity and stabilizing input costs, which may preserve their profits. And according to the Federal Reserve's Small Business Credit Survey, small businesses with one to four employees face larger revenue declines compared to their larger counterparts.

[00:01:21] About 40% of these small businesses reported declining revenue, while only 40% saw revenue growth. Profitability is also lower for the smallest companies, with only 42% turning a profit and 40% operating at a loss. Factors like inflation and labor shortages have a more significant impact on the smallest

[00:01:40] companies, which already operate in a lean manner. However, this doesn't mean those businesses are doomed to fail, as resilience and adaptability can help them weather challenging periods. And I spotted this data point. The retirement of baby boomer small business owners is expected to significantly impact

[00:01:59] rural America, with many businesses likely to close as 52% of U.S. employer firms are owned by individuals over 55, per 2022 U.S. Census Bureau Small Business Survey data. This silver tsunami could lead to a mass exodus of retiring business owners in the next 5 to 10 years. Why do we care?

[00:02:23] It's difficult for many businesses to think about market conditions 5 to 10 years from now. If you're a baby boomer listener, you're more likely to retire yourself than worry about that data point. But my data on the listenership of the podcast tells me most of you are younger than that.

[00:02:39] So in your client meetings, I'd start surveying the ownership to understand their operational time horizon. And I'd leverage this data point for planning for transitions and retirement. With intellectual property as the main asset for many businesses, ensuring it's organized and ready would boost the value of the business.

[00:02:59] Has the added side effect of preparing for AI too. But I suspect that most small businesses would have a discussion about the long-term value of the business as it relates to data, with an eye to business transition, and it would resonate.

[00:03:12] And for younger owners, you can acquire these ending businesses. Today's episode is supported by CoreView. Your customers need your Microsoft 365 expertise and CoreView has the only M365 management platform designed for MSPs. Manage hundreds of tenants, automate manual tasks and monitor compliance, all while intelligently comparing to the baseline.

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[00:04:01] Want to know more? Visit coreview.com slash MSP and find out more. Goldman Sachs published a research paper questioning the economic viability of generative AI. Stating that there is little to show for the massive spending on generative AI infrastructure.

[00:04:21] The paper raises doubts about whether generative AI will live up to its hype and become a transformative technology. Despite these concerns, Goldman Sachs acknowledges the potential for continued investment and stock market gains. The paper also highlights the optimism surrounding AI, driving growth in stocks like Nvidia,

[00:04:40] but warns that stock gains are already factored in and may not materialize. The paper concludes that AI's impact on corporate profitability will be critical. Goldman Sachs researchers expressed skepticism at the cost and transformative potential of generative AI, stating that the technology is unreliable and incapable of solving complex

[00:04:59] problems. The report compares the AI hype to other technologies like virtual reality and blockchain, which have yet to find widespread real-world applications. The skepticism surrounding generative AI extends beyond journalists and workers to financial institutions that have invested billions in the AI industry.

[00:05:19] And Nvidia's AI chips may generate a lower expected increase in corporate revenues, casting some doubt on the optimistic look of the AI revolution. Reports from Goldman Sachs, Barclays, and Sequoia Capital highlight the massive amount of capital being spent on AI infrastructure and the significant revenue companies will

[00:05:38] need to generate to justify these investments. The lack of revenue raises that skepticism about the feasibility of AI's potential. Unknowns such as cost savings, solving complex problems, and energy supply further complicate the outlook for AI's growth. And let's add to this.

[00:05:56] According to a study by Lucidwork, concerns over accuracy and costs are slowing down the adoption of generative AI in the enterprise. 44% of manufacturers are worried about the accuracy of generative AI output, leading to a more cautious approach and fewer AI investments compared to last year.

[00:06:14] The challenges of cost and accuracy are seen as fundamental to the business of AI and could potentially impact the industry's growth. Why do we care? We're rocketing into the depths of the pit of despair as it relates to AI, as the reality

[00:06:29] of the costs of the technology and finding practical uses begin to become the priority. For IT service providers, this means focusing on sustainable investments, client education, and the development of reliable and cost-effective AI solutions. Guide clients in identifying practical use cases where generative AI can deliver tangible benefits.

[00:06:50] And remember, right now, data is the key preparation. According to a report by Consumer Intelligence Research Partners, Mac owners are holding onto their devices for longer, with 68% of Mac owners having a device older than two years as of March 2024.

[00:07:09] This trend is attributed to incremental upgrades, longer-lasting hardware, and this shift towards streaming and web-based apps. The decline in Mac sales is similar to the dip in new smartphone purchases. And according to research by Computer Weekly, tech companies across Europe are facing a

[00:07:24] worrying lack of skills in artificial intelligence and cyber. The survey found that almost 40% of European IT workers identified a lack of AI skills as a problem, while 37% highlighted a shortage of cybersecurity skills. The report emphasizes the need for upskilling and reskilling in critical areas such as data

[00:07:43] science, machine learning, and advanced analytics to ensure long-term success in AI strategies. Why do we care? Good enough is extending hardware, and the cloud drives a lot of that. Don't fight it. Embrace it, as it's cost savings for customers, and services revenue is higher margin anyway.

[00:08:03] So embrace it. And focus on supplementing customers with the skills they need. Emphasizing software and service innovation, lifecycle management, and strategic talent development will be key to navigating the industry shifts and ensuring long-term success. Today's episode is supported by Huntress.

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[00:08:42] It's security awareness training, community engagement, and dedicated partner support with an average CSAT score of 99.3%. Security can only get you so far. Human expertise is what's needed to truly elevate and protect small businesses, and you get that with Huntress.

[00:09:01] Secure your clients and help them thrive with the number one rated EDR for SMBs on G2. Visit huntress.com slash MSP radio to find out more. Thanks for listening. Today is National Be a Dork Day. It's also National Give Something Away Day. Let's focus on that dork one.

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