Surviving the Recession: Business Services

However, even providers of managed, hosted IT services are seeing a slowdown, said Antonio Piraino, senior analyst at Tier 1 Research. “No one’s lost any customers, but there’s a general slowdown…Enterprises have said, ‘We don’t want to pull out managed services, but we want to spend a little less.’”

Perhaps the most fertile ground for managed services will be among small businesses, where budgets are typically tightest. But the SMB market as a whole will be treacherous in general for some time. Paetec, which focuses largely on small and medium-sized businesses, is seeing a slowdown in purchases of new IT and telecom equipment such as phone systems. And the carrier is responding with financing options for customers and bundles that tie equipment and services to long-term, high-margin contracts. “That is 90% of the conversation right now when I’m in sales calls,” Chesonis said. “[Customers] need additional support, but they just don’t have the dollars internally to execute those contracts. So we provide them that solution.”

Of course, customer financing carries its own risks, as telecom equipment vendors famously found during the turn-of-the-century telecom bubble, when some customers ended up not being able to pay. And managing that risk will be important for any service providers engaging in that kind of activity. But many of them are fortunately armed with the lessons they learned in the telecom crash. “The industry learned an awful lot from that,” Insight’s Rosenberg said. “In fact, the telecom industry is probably better prepared for this [downturn] than other sectors because of the lessons learned [in the telecom crash] about getting too far ahead of yourself.”

Still, while fear may permeate the business world for the near future, some fears will fuel telecom service revenue. For example, network security may be an especially recession-resistant sector. According to Infonetics Research, the network security software and appliance market grew 4% sequentially in the third quarter, as drivers in the sector outweighed the pressures of tightening budgets. “Contraction caused by declines in corporate revenue is being offset by more pressing drivers, including regulation and compliance, cost-saving security investments, service provider spending on security, and the explosive growth in the number, variety, and volume of threats,” said Jeff Wilson, principal analyst for network security at Infonetics, predicting double-digit annual growth for security products through 2010.

“The risk [of not having adequate security] may lead to even more costly outcomes than not spending the money,” Passmore said.

But service providers will need to be mindful of their customers’ overall economic concerns rather than just the price of a particular product. For example, service providers will no doubt push videoconferencing as a lower cost alternative to travel (AT&T stepped up its telepresence offering this week), but business customers realize that if their employees need a lot of training in order to use the new videoconferencing system, then their costs will not be limited to the price of the gear itself. “You need the services and support in place to help people who want to just click it and start using the thing,” Pelino said.

Overall, surviving the recession will require service providers to avoid getting lost in despair. While the outlook for 2009 appears dark, Rosenberg said a new administration in Washington could greatly mitigate the market’s decline. And if proper action is taken, the downturn could be relatively short-lived. “I think that by next summer or certainly by fall, people will be saying, ‘Gosh, that was bad,’” he said. “They won’t be saying it’s over or that things are back to where they were, but they’ll say, ‘Gosh, that was a bad one.’”