Tech Market Insights: Jobs Report, AI Investment Surge, Service Leadership, ConnectWise's Future

[00:00:02] It's Monday, June 10th, 2024, and I'm Dave Sobel. Four things to know today. The May jobs report shows strong hiring, wage growth, and sector gains. Service leadership data shows record growth and profitability for fourth consecutive year. AI investment surge highlights a shift in venture capital priorities and

[00:00:21] Connectwise's future public, private, or platform play. This is the Business of Tech. Monday means markets on this show, and here's some solid data. The May jobs report shows strong hiring and wage growth, contradicting the narrative of a cooling labor market. Payrolls increased by 272,000,

[00:00:44] with notable growth in healthcare, government, and leisure and hospitality sectors. Average hourly earnings rose 0.4% last month, and wages are up 4.1% over the last 12 months. The report raises doubts about a potential rate cut by the Fed that led to a surge in treasury

[00:01:01] yields. The unemployment rate increased to 4%, prompting concerns about underlying weakness. That said, there are issues in the white-collar labor market. Job applicants are facing a lengthy and complicated hiring process, with employers reluctant to let workers go, and not in a hurry,

[00:01:19] to hire. While the labor market may be good for quelling inflation, it's frustrating for job hunters. Additionally, the new remote working world is disrupting work friendships, adding to America's worsening loneliness crisis. According to new data from the Bureau of Labor Statistics,

[00:01:36] a record share of working-aged women are employed, surpassing pre-pandemic levels. The increased unemployment in the childcare sector has enabled more women to work, contributing to the comeback story. However, the employment number in May 2024 is only slightly higher than it was nearly

[00:01:53] a quarter-century ago. IT employment in the U.S. fell to 2.5% in May, while job postings increased to 209,000, according to a CompTIA report. It indicates a growing demand for tech talent and a potential pent-up demand for digital growth initiatives. AI-related occupations accounted

[00:02:12] for 12% of job postings, and data scientist roles saw a 24% month-over-month growth rate. Why do we care? Strong job growth, particularly in critical sectors like healthcare and government, suggests a stable economic environment which should translate into steady demand for IT services

[00:02:31] across those sectors. The significant growth in AI-related and data science roles indicates where the industry is headed. IT service firms should invest in upskilling their workforce in those areas and consider expanding their service offerings to include AI and data analytics

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[00:03:41] with Trinity Cyber. Visit trinitycyber.com slash msp4 to learn about their discounted MSP pricing options. Service leadership has released its 19th annual IT solution provider industry profitability report, revealing unprecedented growth rates for technology service providers for the fourth consecutive year. The report highlights record profitability, high company valuations,

[00:04:08] strong MSP revenue growth, and the impact of hyperautomation and customer experience on the industry. Providers are expected to sustain impressive growth rates and profitability by adopting innovative technologies and improved business processes. In an analysis by Rich

[00:04:24] Freeman and Channelholic, the report also found a correlation between high customer satisfaction and profitability. Surprisingly, private equity-owned MSPs had higher net promoter scores than their smaller counterparts, indicating higher operational maturity. PE-backed MSPs also showed faster gross margins and EBITDA growth than non-PE providers. However, MSPs without private

[00:04:51] equity funding performed better regarding gross margin percentages and adjusted EBITDA growth. Why do we care? Some data-driven insights, investing in tools and processes that improve customer interactions can drive higher customer satisfaction and focus on personalized services

[00:05:10] and proactive support to boost NPS and consequently profitability. While PE-backed MSPs show faster growth in gross margins and EBITDA, non-PE MSPs perform better in gross margin percentages and adjusted EBITDA growth. That indicates that non-PE MSPs might be more efficient in their

[00:05:29] operations despite slower growth rates. Providers should evaluate their growth strategies in the context of operational efficiencies. And the distinction between PE-backed and non-PE-backed providers highlights the diverse paths to success, understanding the dynamics can help providers position themselves more strategically in the market. But I'm not entirely done with

[00:05:54] market data. An article in Newcomer discusses the state of venture investing and the impact of the AI industry on the startup downturn. While AI deals have increased, the overall venture capital funding remains below previous peaks. The software as a service sector is particularly affected

[00:06:12] as enterprise customers cut costs. The article highlights the longer recovery period and the rise of down rounds. It also mentions the influence of interest rates, the challenges faced by emerging managers and the limited number of IPOs. Why do we care? Providers themselves are looking for VC

[00:06:32] money, yet the ecosystem around them is. Expect a lot less that isn't AI-driven. Oh, and about those IPOs... So let's talk events for a moment. Apple's WWDC launches today as does PAX 8's Beyond. I'll cover

[00:06:51] them later in the week. I want time to go through the stories and do a better analysis. And last week was ConnectWise's IT Nation Secure, which I thought I was done covering until I spotted two

[00:07:02] more stories I did want to cover. First, CRN did the inevitable, is ConnectWise selling or going public story? Which as always got the same answer of no answer. Now usually I wouldn't cover it as there's no information there. But it becomes interesting when paired with a second story.

[00:07:20] Bloomberg reported that Tama Bravo is considering raising $3.5 billion in private debt financing for ConnectWise. The funds will be used to refinance existing debt and for an acquisition. Tama Bravo was also in talks with banks for additional funds. So why do we care? There's always a

[00:07:40] ConnectWise sell or go public story around their events because it gets clicks. But it's missing the third possibility that they continue to be a platform. I'll offer a theory. We know Enable is

[00:07:51] looking to go private. A war chest of $3.5 billion when the company is valued at $2.5 billion means it would do the trick. ConnectWise is investing in their no-platform, Osseo, and Enable needs to.

[00:08:05] It's a solid match. Now, disclosure, I'm an Enable shareholder. Note that the IPO market for tech has cooled as I reported in the previous story. The likelihood of ConnectWise pushing to IPO is down

[00:08:18] generally and Enable pulling out of the public market is another indicator of where this is going. But that doesn't mean that investors won't find other ways to extract value. It's not in the cards, everyone, to IPO. I'll talk to you again tomorrow.

[00:09:28] Or buy our Why Do We Care merch at businessof.tech. Finally, if you're interested in advertising on this show, visit mspradio.com slash engage. Once again, thanks for listening to me. I will talk to you again on our next episode of the Business of Tech.

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