Resilient Labor Market, IT Spending Surge, and Millennial Business Acquisitions

[00:00:02] [SPEAKER_00]: It's Monday, October 7th, 2024, and I'm Dave Sobel. Three things to know today.

[00:00:07] [SPEAKER_00]: U.S. labor market is resilient, but S&Bs are facing hiring challenges.

[00:00:12] [SPEAKER_00]: Data center spending surges 30% as enterprises balance AI growth with cloud and on-prem strategies, and

[00:00:19] [SPEAKER_00]: as boomers sell, millennials acquire. IT service providers can capitalize on the coming ownership shift.

[00:00:28] [SPEAKER_00]: This is the Business of Tech.

[00:00:32] [SPEAKER_00]: Friday saw the release of the September jobs report, which indicates a strong U.S. labor market,

[00:00:37] [SPEAKER_00]: with employers adding 254,000 jobs in September and a drop in the unemployment rate to 4.1%.

[00:00:45] [SPEAKER_00]: This data alleviates recession fears and suggests the job market remains resilient. However,

[00:00:51] [SPEAKER_00]: the robust job growth may delay aggressive rate cuts from the Federal Reserve as wage gains also

[00:00:58] [SPEAKER_00]: exceeded expectations, raising concerns about inflation. The next jobs report, due November 1st,

[00:01:04] [SPEAKER_00]: could be influenced by external factors like the Boeing strike and Hurricane Helene. Looking at the S&B data

[00:01:11] [SPEAKER_00]: in the September jobs report indicates a decline in small business job openings, with 34% of owners

[00:01:18] [SPEAKER_00]: unable to fill positions, the lowest since January 2021. Hiring attempts decreased to 59%, with 52% reporting few or no qualified applicants. Job openings fell notably in construction, while a net 15% planned to create new jobs soon.

[00:01:36] [SPEAKER_00]: Despite challenges in finding qualified workers, 32% reported rising compensation, although this is the lowest since April 2021. Labor quality concerns decreased to 17%, while labor costs remained stable.

[00:01:52] [SPEAKER_00]: Looking at the data from an IT employment perspective, the market showed signs of recovery in September 2024, with the unemployment rate for IT falling to 2.5% and the addition of 118,000 new tech positions.

[00:02:06] [SPEAKER_00]: Companies are increasingly focused on hiring talent for AI-related roles, driven by the need to innovate and deploy AI at scale.

[00:02:14] [SPEAKER_00]: Jobs postings for tech positions rose to over 516,000, with a notable increase in roles not requiring a four-year degree.

[00:02:23] [SPEAKER_00]: The current labor market is characterized by a slowdown in hiring and low layoffs, creating a no-hire, no-fire environment, where job seekers face stiff competition and are less likely to quit.

[00:02:34] [SPEAKER_00]: The hiring rate has fallen to its lowest since 2013, while layoffs remain at a historic low.

[00:02:40] [SPEAKER_00]: The sixth annual International Innovation Barometer by Aming reveals that 86% of global businesses now allocate specific budgets for AI R&D, with 84% believing AI positively impacts innovation.

[00:02:56] [SPEAKER_00]: A significant 41% have restructured R&D teams for AI integration, highlighting a shift in innovation priorities.

[00:03:03] [SPEAKER_00]: AI is increasingly viewed as a catalyst for collaboration and creativity, with 53% using it for data analysis and 39% for idea generation.

[00:03:14] [SPEAKER_00]: Integris' report on U.S. banks' IT spending in 2025 reveals a significant increase in IT budget awareness among bank executives, with 24% able to estimate their budgets, up from 6% in 2023.

[00:03:29] [SPEAKER_00]: Despite economic concerns, many banks plan to raise IT budgets by at least 10%.

[00:03:35] [SPEAKER_00]: Key priorities include cybersecurity, data analytics, and digital transformation.

[00:03:40] [SPEAKER_00]: While satisfaction with IT services has improved, 74% of banks still see room for enhancement, highlighting the need for continued investment in IT to boost operational efficiency and customer experience.

[00:03:54] [SPEAKER_00]: And Constant Contact's Small Business Now report reveals that 89% of small businesses globally are affected by inflation ahead of the 2024 holiday season, with 52% of consumers reducing spending at these businesses.

[00:04:09] [SPEAKER_00]: Many S&Bs are adjusting marketing strategies, with 46% cutting expenses and 39% raising prices.

[00:04:15] [SPEAKER_00]: The report highlights the importance of early holiday planning, as 42% of small businesses wait until October or later to prepare.

[00:04:24] [SPEAKER_00]: Key strategies for success include improving efficiency, offering promotions, and utilizing social media and email marketing.

[00:04:32] [SPEAKER_00]: Now why do we care?

[00:04:34] [SPEAKER_00]: Small businesses are struggling to fill positions, with hiring attempts decreasing and a marked decline in job openings.

[00:04:40] [SPEAKER_00]: This suggests two key things for IT service providers.

[00:04:43] [SPEAKER_00]: First, S&Bs are having trouble finding workers, which likely increases their reliance on technology to maintain operations.

[00:04:50] [SPEAKER_00]: Solutions like automation, AI-driven tools, and managed services can help fill these labor gaps, making IT services providers more critical to their operations.

[00:05:00] [SPEAKER_00]: While the broader economy shows strength, S&Bs might tighten their budgets, focusing on essential expenditures.

[00:05:07] [SPEAKER_00]: IT providers need to align their offerings around cost-saving technology or ROI-driven solutions to appeal to these cautious business owners.

[00:05:16] [SPEAKER_00]: They could position themselves as problem solvers, offering tools that increase efficiency with fewer employees.

[00:05:24] [SPEAKER_00]: And some data around IT spend.

[00:05:27] [SPEAKER_00]: Data center spending is surging as enterprises adopt AI and cloud providers expand their capacity, with capital expenditures on cloud infrastructure increasing by 38% year-over-year in the first half of 2024.

[00:05:41] [SPEAKER_00]: Infrastructure investments are expected to exceed $400 billion this year, driven by demand for AI-optimized servers.

[00:05:48] [SPEAKER_00]: The balance between data centers and cloud services is shifting, with data center spending growing 30% year-over-year, outpacing cloud services revenue growth.

[00:05:59] [SPEAKER_00]: Major hyperscalers like AWS, Microsoft, and Google are heavily investing in infrastructure to support AI workloads, contributing to a significant increase in compute capacity and future data center projects.

[00:06:12] [SPEAKER_00]: Over in the information age, I spotted two data points.

[00:06:16] [SPEAKER_00]: A recent study by Citrix suggests 25% of UK organizations and 42% of US firms are either considering moving or have already migrated at least half of their cloud-based workloads out of a hyperscale public cloud platform back to on-premises infrastructures.

[00:06:34] [SPEAKER_00]: Another report by Flexera finds that 89% of companies are now following a multi-cloud strategy, making use of public and private clouds, or a hybrid of the two.

[00:06:46] [SPEAKER_00]: Research by Agilitas reveals that IT channel leaders are optimistic about forming collaborative partnerships as the industry shifts toward a service-based model.

[00:06:56] [SPEAKER_00]: Key priorities include enhancing customer experience, with 85% of businesses prioritizing this, and a focus on sustainability.

[00:07:04] [SPEAKER_00]: The report indicates a strong confidence in balancing social issues with profit, particularly among managed services providers and value-added resellers.

[00:07:13] [SPEAKER_00]: And a survey from Rocket Software and Forrester Consulting found IT leaders are wary of the potential risks of IT overhaul programs, with one-third believing they are highly disruptive to operations.

[00:07:25] [SPEAKER_00]: Common roadblocks encountered during modernization projects often lead to reduced productivity, but there are broader considerations at play, per the study.

[00:07:35] [SPEAKER_00]: Some of the most common hurdles faced by IT leaders include costly and time-consuming application rewrite projects.

[00:07:42] [SPEAKER_00]: Just over half, at 51%, of respondents admitted to having attempted at least six rewrite projects as part of a cloud migration strategy.

[00:07:52] [SPEAKER_00]: Why do we care?

[00:07:54] [SPEAKER_00]: With capital expenditures on cloud infrastructure increasing by 38% and data center spending growing faster than cloud services revenue, IT services providers can benefit by focusing on infrastructure solutions, whether in data centers or cloud architectures.

[00:08:08] [SPEAKER_00]: This is especially critical as companies look to balance between on-prem and cloud solutions.

[00:08:14] [SPEAKER_00]: IT providers should step in as strategic partners, offering modernization services that focus on minimizing disruption and providing clearer paths to ROI.

[00:08:24] [SPEAKER_00]: Incremental cloud migration, hybrid strategies, and reducing the need for costly application rewrites will be important selling points.

[00:08:32] [SPEAKER_00]: Business Insider had an article highlighting how boomers are selling their small businesses as they retire, presenting a $10 trillion opportunity for millennials.

[00:08:45] [SPEAKER_00]: Many millennials are interested in acquiring existing businesses as a pathway to wealth building, especially in a challenging housing market.

[00:08:53] [SPEAKER_00]: While the process can be complex, with fewer than a quarter of listed businesses selling each year, those who successfully navigate the acquisition can benefit from established brands and customer bases.

[00:09:05] [SPEAKER_00]: The trend reflects a shift in ownership dynamics, as many younger potential successors are not interested in taking over family businesses, leading to a growth market for millennial buyers.

[00:09:17] [SPEAKER_00]: Why do we care?

[00:09:18] [SPEAKER_00]: So this is an interesting opportunity and a trend to be aware of.

[00:09:22] [SPEAKER_00]: First, for IT services organizations, as millennials seek to acquire established businesses, they will likely look to modernize and digitize operations to compete in a tech-driven economy.

[00:09:33] [SPEAKER_00]: Many boomer-run businesses may have outdated technology, minimal online presence, or inefficient IT services and systems.

[00:09:42] [SPEAKER_00]: For IT service providers, this presents an immense opportunity for IT providers to offer modernization, automation, and digital transformation services.

[00:09:50] [SPEAKER_00]: Second, for younger owners, there's an acquisition strategy of finding older companies to acquire as those owners look to retire.

[00:10:00] [SPEAKER_00]: Looking to reach an audience of thousands of MSPs and IT service providers?

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[00:10:41] [SPEAKER_00]: I'm looking forward to that discussion.

[00:10:45] [SPEAKER_00]: Thanks for listening.

[00:10:46] [SPEAKER_00]: Today is National Forgiveness and Happiness Day, as well as National Frappe Day, so you know what the gift is.

[00:10:53] [SPEAKER_00]: I'll be doing two live broadcasts as part of SMB TechFest on October 17th and 18th, so make sure to sign up and join the event.

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[00:11:04] [SPEAKER_00]: Link in the show notes.

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