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Griffin on Tech: Consultants crunch, digital ads boost Big Tech

Peter Griffin, Editor. 27 October 2023, 11:49 am

I don’t know about you, but I’ve been enjoying the lull in political news as we wait for the special vote results to be released and as Christopher Luxon keeps a lid on coalition negotiations.

But with National promising a flurry of changes in its first 100 days in office, it will be all go before long. It’s unlikely that thousands of public servants will be shown the door before Christmas, but the sooner the new Government gets headcount and consulting spending down, the sooner it can live up to its widely-questioned promise to deliver tax cuts.

With IT services comprising a large chunk of government consulting spending, the quick wins will involve letting contractors go for non-essential projects. Anyone responsible for employing tech contractors is going to have to think long and hard about how to extract more value from the contracting budget they will still have next year.

Writing on LinkedIn, Alicia McKay, Wellington-based founder of Consultants of Choice, has some advice on how to get more bang for buck from consultants.

“You’re hiring too many Big 4 firms,” she writes.

“Big 4 firms are a bloated, extractive model that depends on selling you big-shots and delivering you juniors. You're paying for the letterhead and prestige, and most of it is margin. Look for new, emerging and interesting consultants with specific expertise and build relationships there.”

Elsewhere in her article, McKay rightly points out that targeted use of consultants’ expertise and time can actually save you money. Arbitrary cuts to contracting budgets could end up costing taxpayers more in the long run.

“Consultants (at least, the ones you should be hiring) are significantly more expensive, per hour, and per day, than an FTE. If you're trying to minimise unit costs, you're chasing a false economy. If a $50,000 contract saves you 6 months and 6 people, it doesn't matter how many hours they spend getting you there. Targeted, expert time is a money-saver. Focus on the big picture.”

Some pragmatic insights there as the public sector faces the shake-up National touted on the election campaign trail.

Mixed bag for Magnificent Seven

A couple of key themes have emerged from the third-quarter earnings results of the Big Tech companies that used to be referred to as the FAANGs, but have morphed into a group dubbed the Magnificant Seven - Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.

Meta beat analysts revenue predictions as its digital advertising business rose 23%, a big rebound after a really tough 2022 that saw revenue decline for three consecutive quarters. It’s a good indicator that economic confidence is lifting, advertisers are increasing their spending again as they go after customers online. Meta is still bleeding cash pursuing its metaverse strategy (US$3.74 billion in operating losses at its Reality Labs division during the quarter). That brings to around US$25 billion the losses on virtual reality and metaverse technologies for the company so far. The digital ad rebound may however pacify major investors who have been increasingly worried that founder Mark Zuckerberg is taking Meta down a dead-end.

At least one New Zealand entrepreneur, Aaron McDonald, co-founder of Futureverse, is on the same page as Zuckerberg about the role the metaverse will play in the future of the internet - you can read my interview from SXSW Sydney with him here.

The other notable time from the earnings results is the poor performance of Google’s cloud business. While parent company Alphabet beat analysts' estimates for revenue and earnings, the cloud business didn’t meet expectations US$8.41 billion vs $8.64 billion. That’s in contrast to Microsoft, which saw its Azure cloud revenue exceed analysts estimates (US24.3 billion vs $23.5 billion).

Alphabet was pushed by the markets, its shares dropping 9.5% following its results announcement. It shows the momentum Microsoft’s big play in AI is giving the company, with Google lagging in getting customers into generative AI services.

Looming over everything is the uncertainty the Israel-Hamas war represents, particularly given the extensive presence of tech multinationals with R&D labs in Israel. Meta cited the war as a key reason for a broad revenue target looking forward. We are racing towards the  end of 2023, but there is still plenty of scope for curveballs and surprises. 


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