SMB Job Gains & Talent Shortages, Nebraska's Privacy Protection Act, Professional Services Expansion

[00:00:02] It's Monday, May 20th, 2024, and I'm Dave Sobel. Three things to note today.

[00:00:06] Small business job gains highlights the opportunity amid an economic cooldown

[00:00:11] and tech talent shortages. Nebraska passes a personal privacy protection act

[00:00:17] and professional services expansion on the rise. 85% of organizations to

[00:00:23] increase teams in 2024. This is the Business of Tech. Welcome to a new week.

[00:00:31] Let's look at market data. According to the April ADP National Employment Report,

[00:00:38] small businesses gained 38,000 jobs nationally. Most job gains were in the

[00:00:43] South and the leisure and hospitality industries saw an increase of 56,000

[00:00:49] jobs. However, the information sector experienced a decrease of 4,000 jobs

[00:00:54] possibly due to a skills mismatch and the impact of AI and automation. Pay

[00:00:59] gains for job changers also slowed in April. The April Consumer Price Index

[00:01:06] showed a cool down in inflation, reducing fears of re-acceleration. In the 12

[00:01:12] months through, a CPI rose 3.4%, a smaller gain than the 3.5% prior month.

[00:01:20] Quoting Axios, core CPI, which excludes energy and food costs, rose 3.6%

[00:01:27] compared to 3.8% in March. Over the last three months, core CPI rose at an

[00:01:32] annualized rate of 4.1%. That's down from 4.5% in March, still higher than

[00:01:39] that seen throughout the latter half of 2023 and far above the levels consistent

[00:01:44] with the Fed's 2% inflation target." Retail sales in the US were flat in

[00:01:50] April, with the core control group actually falling by 0.3%. It suggests a

[00:01:56] cooling economy and potential pullback in consumer spending, which aligns with

[00:02:00] the Fed's desire to ease policy. Canalysis found that global cloud

[00:02:05] spending increased by 21% in Q1, with AWS, Microsoft Azure, and Google Cloud

[00:02:11] accounting for 66% of total spending. The market is being driven by the

[00:02:16] convergence of AI and cloud, with customers focusing on AI integration and

[00:02:20] long-term commitments with hyperscalers. AI is also causing customers to

[00:02:25] re-evaluate their technology stacks, presenting opportunities for the channel.

[00:02:30] According to a report by Microsoft, sluggish adoption of AI in the UK could

[00:02:36] cost that economy £150 billion by 2035. However, prompt investment in

[00:02:43] digital technologies and skills could lead to an average societal ROI of more

[00:02:48] than 5 to 1 by 2025. The report identifies infrastructure issues, a lack

[00:02:53] of commercial awareness, and a shortage of skilled staff as key bottlenecks.

[00:02:58] Microsoft believes that strategic use of AI in the public sector could save £17

[00:03:03] billion by 2035. According to IDC market research, tech

[00:03:09] talent shortages will cost organizations $5.5 trillion by 2026,

[00:03:14] resulting in product delays, inability to compete, and loss of business. Skills

[00:03:19] gaps in IT operations, cloud architecture, data management, and software

[00:03:23] development have caused digital transformation delays for two-thirds of

[00:03:27] organizations. However, generative AI capabilities are helping to fill some of

[00:03:32] those gaps. IDC expects 9 in 10 organizations to be affected by talent

[00:03:36] shortages by 2026. And while I'm on employment, the child care industry in

[00:03:42] the US is facing a crisis, more centers closing, tuition rising, and staffing

[00:03:47] shortages. Census data shows the share of families without access to child care

[00:03:53] has increased since the pandemic-era federal funding ran out. However, states

[00:03:58] that provided additional funding saw a smaller increase in the number of

[00:04:03] parents without child care. As we look at the markets, the Russell 2000, that proxy

[00:04:08] for small businesses, is up from last week, specifically a jump on May 15th. The S&P

[00:04:14] 600, which looks at the smallest companies, is roughly even, having seen

[00:04:18] the same spike in the slow cooling after. Why do we care? Small businesses saw job

[00:04:25] gains, particularly in the South and leisure industries, while the information

[00:04:29] sector faces challenges due to impacts from AI and automation. Despite a cooling

[00:04:34] economy and tech talent shortages, opportunities do exist for providers in

[00:04:37] AI integration, cloud spending, and addressing skills gaps to drive client

[00:04:42] growth and ROI. So for IT service providers, I want to highlight certain

[00:04:47] basics. Address skills mismatches, particularly in AI and automation.

[00:04:51] Emphasize the value and return on investment of IT services to clients.

[00:04:56] Capitalize on increased cloud spending and AI integration opportunities. And

[00:05:00] consider you may need to invest more in building talent than expecting it to walk

[00:05:06] in the front door. Finally, owners have the opportunity to help with child care.

[00:05:11] I've covered this before and how it often breaks even or helps generate

[00:05:16] productivity when owners do so.

[00:05:22] Nebraska lawmakers have unanimously passed the Personal Privacy Protection

[00:05:26] Act, implementing a US Supreme Court ruling that protects Americans' right to

[00:05:31] privacy when supporting nonprofit causes. The law prohibits state officials from

[00:05:36] demanding or exposing personal information and donation records to

[00:05:40] nonprofits, ensuring citizens can give safely and privately. The law was

[00:05:45] supported by bipartisan legislation and various nonprofit groups. The US

[00:05:50] Department of State has expanded its list of security vendors beyond

[00:05:54] Microsoft following that major hacking incident last year. The breach would

[00:05:58] compromise tens of thousands of State Department emails, led to criticism of

[00:06:02] Microsoft's network security. The department now works with multiple

[00:06:06] vendors, including Palo Alto, Zscaler and Cisco, and has implemented various

[00:06:11] security measures to prevent future breaches.

[00:06:15] Why do we care? Well, another state with a privacy law. Interestingly,

[00:06:19] Microsoft security struggles have opened the door for competitors. Companies

[00:06:24] providing cybersecurity services might find new opportunities to partner with

[00:06:28] government agencies, emphasizing the need for strong, reliable and adaptive

[00:06:31] security measures. Is this an early sign the tides are changing on security?

[00:06:37] Slightly? A recent survey of 1005 IT professionals conducted by Certinia

[00:06:46] found that 81% of organizations are investing in AI primarily to increase

[00:06:51] efficiency, while 69% aim to enhance service quality and 66 seek to improve

[00:06:57] profitability. The survey also identified that 54% of respondents view

[00:07:01] AI adoption and navigating significant economic change as the top external

[00:07:07] challenges they'll face in the next 12 months. Other challenges including

[00:07:11] rising labor costs and increased competition, both at 49%. To overcome

[00:07:16] these hurdles, 61% of participants plan to rely more on AI, 60% aim to increase

[00:07:22] skill sets, and 57% intend to manage services more efficiently. Internally,

[00:07:28] the top challenges cited were improving productivity at 58%, increasing

[00:07:33] profitability 48% and balancing workloads 46%. Furthermore, 85% of respondents

[00:07:41] indicated their organization's intention to expand their professional services

[00:07:45] teams in 2024, with approximately 50% expecting a more than 10% increase in

[00:07:51] headcount. Almost every respondent at 99% expects their professional services

[00:07:57] to contribute significantly towards achieving key business objectives, with

[00:08:02] 63% recognizing professional services as a profit center for their organization.

[00:08:08] Why do we care? This is dense data and points to providers embrace of the

[00:08:13] technology around AI. What I want to focus on is the expansion of professional

[00:08:18] services. Often, emerging IT providers and MSPs concentrate only on recurring

[00:08:24] revenue, frequently fueled by the marketing message of many vendors. Now

[00:08:28] that said, most best-in-class providers have very healthy professional services

[00:08:34] businesses, which also often has the considered bad word, consulting, attached.

[00:08:40] Consulting is a valuable, critical part of the business. Right now, AI advice is

[00:08:46] needed, as the data shows. With as many breaches and security concerns as I

[00:08:54] report in this show, it should be obvious that cybersecurity is not just about

[00:08:58] technology, but also the human expertise needed to interpret and respond to

[00:09:03] complex threats. Huntress is focused on elevating SMBs and MSPs around the

[00:09:09] world. Huntress has a suite of fully managed cybersecurity solutions powered

[00:09:14] by a 24 by 7 human-led SOC dedicated to continuous monitoring, expert

[00:09:20] investigation and rapid response. And the proof is the execution. Huntress is

[00:09:25] the number one rated EDR for SMBs on G2. Want to know more about the platform?

[00:09:32] Visit huntress.com slash MSP radio to learn more.

[00:09:38] Thanks for listening. Today is National Rescue Dog Day. Shout out to the pups.

[00:09:44] Microsoft Build 2024 is later this week and it's expected to focus on AI

[00:09:48] advancements and new Surface hardware, including the introduction of Qualcomm's

[00:09:52] ARM-based Snapdragon X Elite chip. I'll report back when we know what's happened.

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[00:10:09] LinkedIn. This week, 3pm Eastern. I will talk to you again tomorrow. The

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