Economic Conditions Pressure Recurring-Revenue Model

Service models are seen as a means of generating predictable and recurring revenue, but customers question the value and necessity of cloud and managed services amid increasing recessionary conditions.

The service model is beginning to show cracks under the pressure of economic uncertainty and the prospect of a recession. Once unshakable service-based companies that operate on recurring-revenue models report slowdowns in new sales, increasing scrutiny of customer spending on existing services, and repatriation of workloads to traditional on-premises data centers.

The current 2023 economic forecast is for a mild recession in the United States in the first half and zero growth for the full year. Europe will not fare as well, though, as the war in Ukraine continues to disrupt energy supplies, cause food prices to increase, and curtail the availability of manufacturing inputs. Asia is a bit murkier; Japan and South Korea are already in the economic doldrums, while China is reporting its slowest growth in decades. Globally, growth will decline to less than 3% as even emerging markets won’t offset the recessionary conditions in mature markets.