Small Businesses, Big Challenges, and the Rise of MSPs, Apple's iPhone Sales Dip and Microsoft's AI Dilemma

[00:00:02] It's Monday, February 3rd, 2025 and I'm Dave Sobel. Three things to know today. Big firms keep getting bigger and small businesses need a new game plan. Apple's iPhone sales slip, Microsoft's AI bets are facing doubt, but the profits keep rolling in. And fast growth, big milestones, TeamLogic IT hits a billion dollars lifetime and plans for 500 locations by 2030. This is the Business of Tech.

[00:00:31] The latest gross domestic product report indicates that the American economy is maintaining steady growth, expanding at a rate of 2.3% annualized for the last quarter of 2024. This follows a 3.1% growth rate in the previous quarter. Strong consumer spending, which contributed nearly three percentage points to the overall figure, remains robust due to low unemployment and rising real wages.

[00:00:56] Notably, spending on goods surged by 6.6%, marking the fastest quarterly growth since the pandemic recovery, while service sector spending rose 3.1%. Despite some sectors slowing down, such as business investments, which fell by 2.2%, the economy shows resilience with evidence suggesting a strong demand, particularly in the auto industry. An article from the Washington Post examines whether America remains a nation of small businesses.

[00:01:25] While small businesses make up about 60% of American businesses, a shift has occurred since the Great Recession. Now 53% of Americans work for companies with 500 or more employees, a stark contrast to past decades. A key quote from the article, quote,

[00:01:55] End quote. End quote.

[00:02:41] End quote. End quote. End quote. End quote. End quote. End quote.

[00:03:03] End quote. partnerships grow, a significant 76% of small businesses plan to increase their investments in providers over the next year. Why do we care? These reports collectively point to a resilient

[00:03:32] but shifting economic landscape, one where large enterprises continue to dominate, small businesses are struggling to keep pace, and MSPs are emerging as critical partners for small businesses trying to stay competitive. I want to dwell here on the small business data. The continued dominance of large enterprises presents a challenge for smaller firms. The Post's findings show that over half of American workers are employed by companies with 500 or more employees, and businesses with fewer

[00:04:01] than 100 employees are losing ground. This means small businesses face structural disadvantages in scale, capital access, and procurement. Large firms keep consolidating market power, making it harder for smaller players to grow. And SMBs increasingly need specialized help, particularly in technology. to stay competitive. Small businesses are losing ground. There's absolutely opportunity here.

[00:04:26] That said, I want to highlight that a well-entrenched idea that the American economy is driven by small businesses may increasingly be less true. With as many breaches and security concerns as I report in this show, it should be obvious that cybersecurity is not just about technology, but also the human expertise needed to interpret and respond to complex threats. Huntress is focused on elevating SMBs and MSPs around the world.

[00:04:56] Huntress has a suite of fully managed cybersecurity solutions powered by a 24 by 7 human-led SOC dedicated to continuous monitoring, expert investigation and rapid response. And the proof is the execution. Huntress is the number one rated EDR for SMBs on G2. Want to know more about the platform? Visit huntress.com slash MSP radio to learn more.

[00:05:24] Let's take a look at the earnings calls for two of the big tech players, Apple and Microsoft, who both released their numbers. Apple shares experienced a notable surge in aftermarket trading, despite the company reporting a decline in iPhone sales and a significant drop in revenue from its China market. For the last quarter, Apple earned over $69 billion from iPhone sales, missing analyst expectations of $71 billion. Apple's iPhones constituted approximately 55%

[00:05:50] of its total revenue. In contrast, overall revenue for the quarter rose 4% to $124 billion, surpassing estimates. Apple's net profit also increased to over $36 billion, with earnings per share rising to $2.40. The company's services division grew by nearly 14%, generating almost $26 billion in revenue. Apple has reported a record gross margin of 46.9% in the fiscal first quarter earnings,

[00:06:18] surpassing the previous high of 46.6% for March of 2024. Microsoft's stock plunged over 6% after issuing a weaker-than-expected revenue forecast, despite beating Wall Street estimates with $69.63 billion in revenue and $3.23 per share in earnings. Growth slowed to 12.3% year-over-year, the weakest since mid-2023, with concerns centered on its cloud and AI business.

[00:06:45] Azure revenue rose 31%, just below the 31.8% forecast, triggering a 4.5% drop in after-hours trading. Capital expenditures hit $22.6 billion, exceeding projections and raising investor concerns over AI monetization. CEO Satya Nadella reassured that costs are declining and performance is improving, but questions linger on returns.

[00:07:07] Azure growth, while still strong at 31%, is showing signs of slowing, with Microsoft projecting flat growth for the third quarter. Notably, 13 percentage points of Azure's growth were attributed to artificial intelligence services, marking a 157% increase from the previous year. Microsoft's AI revenue is soaring, surpassing $13 billion annually with 175% year-over-year growth. However, competition is intensifying.

[00:07:35] Chinese AI model DeepSeq is reportedly delivering similar performance at lower training costs. Doubts about the adoption of Microsoft 365 CoPilot are rising, with a recent Gartner survey indicating lukewarm demand beyond pilot projects. Why do we care? Apple's results show a clear trend. Hardware, particularly the iPhone, is becoming a less reliable growth engine while services are stepping up.

[00:07:59] Apple's record 46.9% growth margin highlights a fundamental advantage, its ability to charge premium prices while maintaining cost efficiency. However, it's largely fueled by services rather than hardware. Microsoft's earnings reinforce the AI paradox. Massive investment, strong revenue growth, but unclear monetization.

[00:08:20] The market's reaction to Microsoft's numbers signals skepticism about AI's near-term financial returns, despite the 175% growth in AI revenue. For IT service providers, the biggest takeaway is AI-driven cloud growth isn't guaranteed. Clients are selective. The real opportunities lie in helping enterprises optimize AI investments rather than just selling any hype.

[00:08:45] Team Logic IT, a national franchise of managed IT services, has reported a successful year last year, achieving a 14% growth in comparative sales. This marks a significant milestone, as the company has surpassed $1 billion in total sales since its founding in 2004. The organization opened 34 new locations this year, bringing its total to 300 locations across North America.

[00:09:09] Recognized for its impressive growth, Team Logic IT was ranked number one in the IT services category of Entrepreneur Magazine's 2020 Tour, Franchise 500. Additionally, in the Orange County Business Journal's annual list of the fastest-growing large private companies, Team Logic IT secured the sixth spot based on a two-year revenue growth of 36.5%. The company aims to expand to 500 locations by 2030, solidifying its position as a leader in the industry. Now, why do we care?

[00:09:38] So, $1 billion divided by 20 years, roughly, is $50 million. That's entirely unfair, as that isn't how revenue growth works. It's much more likely that 2024 was between $200 million and $300 million in revenue. With 300 locations, the average revenue per location is somewhere in the $700,000 to $1 million range. For comparison, larger MSPs can see of more than $1 million per location, while smaller ones might do between $500,000 and $700,000.

[00:10:08] It suggests Team Logic IT is operating in a competitive mid-market space, aligning with strong S&B-focused MSPs. The takeaway is that the franchised IC service models are proving viable, but they rely on repeatable service delivery and brand strength. Competing with them means differentiating through deep expertise, flexibility, and high-touch service models. Are you ready to get your brand in front of the tech leaders shaping the future of managed services?

[00:10:37] Here at The Business of Tech, we offer flexible sponsorship opportunities to meet your needs, whether it's live show sponsorship, podcast advertising, event promotion, or custom webinars. From affordable exposure options to exclusive sponsorships, our offerings are designed to fit businesses and vendors of all sizes looking to make an impact. Prices start at just $500 per month, making our packages a fraction of typical event sponsorship costs.

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[00:11:33] Want to make you aware of Nerdy Ocon, which will be held in Palm Springs, California from April 7th through 9th? Visit nerdyocon.com to learn all about it. The Business of Tech is written and produced by me, Dave Sobel, under ethics guidelines posted at businessof.tech. If you've enjoyed the show, make sure you've subscribed or followed on your favorite platform. It's free and helps directly. Give us a review, too.

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