Sramana Mitra: Talk a bit about the trends of your industry. Let me be very specific about what industry we’re talking about. Let’s talk about the SME IT services industry. What do you see?
Fred Voccola: This is super exciting. The growth that we’re seeing for SMEs and SMBs in IT infrastructure and technology consumption is astounding. In the enterprise world, from 1992 to 2006, IT infrastructure spending grew at a rate of about 4 times GDP growth. Technology infrastructure was the largest single investment made by the Fortune 500 companies.
You go back to 1992. Most knowledge workers didn’t even have a PC. By 1998, the number of PCs per knowledge worker is around 1.5. The reason was there’s so much benefit and efficiency and gain. The difference between then and now is that back in 1992, the technology required a lot of complexity. It wasn’t as consumable and easy to use as it is today.
Fast forward, here’s another crazy statistic. In the SMB sector, IT infrastructure spend has grown at a rate of about eight times GDP growth. That’s just massive. What’s happening is small to midsize businesses are increasing their spend tremendously on technology because it’s consumable and technology has now come downstream so the SMEs can receive the same benefits that the enterprise has. A classic example of this would be your local dental practice.
Fifteen years ago, there might have been a word processor. Now, not only are they fully digitized but their x-ray machines and all the things that they use to do all the things that dentists do are all network-enabled. If their network died, they can’t serve their customers. Their phones are VoIP phones. They have a patient scheduling system. It’s the same equivalent of a reservation system for a restaurant chain.
Without that technology, the dental practice will fail. That’s all IT. Here’s the challenge and the opportunity. The challenge for the dental office or for the university is that the dental office is made up of eight employees. There’s not a technologist in there. There’s no one that can manage the network, that can backup all the files, and do what they need to get done, but they know that they need to be doing this in order to be a successful business.
What’s happened is the second phase of outsourcing of IT. It’s going to local managed service providers. For fees of $500 to $2,000 per employee, these managed service providers will outsource and provide all of the technology needs of small to midsize businesses. We’ve seen this SMP sector explode on the fastest-growing areas of the US and the western European economies. There’s not enough data coming out of Asia yet. We’re talking over 144,000 MSPs around the world employing over three million technicians.
That number was about a fifth of that when Kaseya first started in 2002. The macro trend is, technology consumption drives incredible value to small to midsize businesses and small to midsize enterprises. Many of these businesses don’t have an IT person, so they consume from a managed service provider. The companies that do have small IT departments can’t keep up with the technology and what’s required.
They are starting to outsource specific functions to these managed service providers to deliver them the areas of expertise that they just can’t afford and can’t develop internally. It’s a huge paradigm shift, and it’s allowing a lot of these small and midsize business to compete with the enterprises because the technology that used to be there is shrinking rapidly. It’s a fascinating phenomena to witness.