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Techaisle Blog

Insightful research, flexible data, and deep analysis by a global SMB IT Market Research and Industry Analyst organization dedicated to tracking the Future of SMBs and Channels.

2015 WW SMB IT spend nearing US$600B

Techaisle forecasts that global SMB IT spend could very well reach US$597 billion in 2015 which is an average of US$700 per full-time employee and slightly over US$8K per SMB business. Corresponding US SMB IT spend will most likely be US$180 billion in 2015. Techaisle defines SMBs with 1-999 employees.

At worldwide level, 42% of SMB employees will be mobile by end 2015. US will have the highest percent of SMB mobile employees at 53% and Asia/Pacific excluding Japan will be at 45%.

Going back a year, the 2014 combined cloud and managed services spend by US SMBs was US$48 billion representing 27% of total US SMB IT spend.

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The global small and mid-market businesses, SMB (1-999 employee size) market has been the growth engine for the IT industry at large. The reason is quite simply that SMBs account for over 80 percent of businesses in any country – developed or developing. And over the last few years there has been an ongoing change in SMB IT priorities – Techaisle calls this as “Value Shift”. It signals the change in priorities from Enablement to Empowerment and refers to the new priorities among SMBs to invest in tools and technologies that allow their employees to make better business decisions, improve market reaction time and better serve their customers. In other words, SMB business executives are looking to improve return on Human Capital as a way forward.

No doubt the trend is towards increased spending on cloud and mobility but there are some other key spending trends to note:

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Big Data in the Cloud - an ideal solution for SMB banks

Wall Street Journal carried an article on how regulatory burdens had made community banks “too small to succeed” despite performing better than larger banks regardless of being better capitalized and having lower default rates.

The advent of cloud technologies has the potential to change WSJ’s dire prognosis.

Cloud may have first been introduced as a means of reducing CAPEX and/or overall IT costs, but today, it is viewed by small and midmarket businesses as a means of increasing business agility and of introducing capabilities that would have been cost or time-prohibitive to deploy on traditional technology. Complementary to cloud, big data analytics presents the possibilities of connecting together a variety of data sets from disconnected sources to produce business insights whether for increasing sales, improving products or detecting fraud. SMB banks are a specific segment of SMBs who can derive the benefits of customer insight while meeting their mandatory regulatory requirements.

Techaisle classifies SMB banks as those below $10B in assets and medium sized banks as those between $10-100B in assets. SMB banks below $10B in assets often called “community banks” play a very important role in the ecosystem of SMB businesses. Although FDIC, OCC and FRB have different definitions of community banks, it is important to note that these smaller banks not only accounted for nearly half of the total of about $600B outstanding small business loans at the end of 2014 but also play a disproportionately major role in the $1.8 trillion residential mortgage origination market.

Unlike large banks, SMB banks are characterized by George Bailey in “It’s a Wonderful Life”. These banks usually have keen insights on their customers based on personal relationships and carry a tremendous amount of tribal knowledge about their customers which they use to make business decisions. While this corpus of knowledge may not be codified it does make a difference in their business operations. But is that enough in today’s hyper-competitive economy where the relationship is being increasingly controlled and dictated by customers?

Then there is another question, are these smaller banks doing enough to detect fraud? High-risk businesses that have been denied services by large banks tend to move their business to smaller banks who are less equipped to analyze these risks. These smaller banks are unknowingly exposing themselves to fraud as well as compliance risk. Regulations are agnostic to bank size and equally unforgiving of SMB banks as they are of large banks. A cloud-based analytics solution may just be the recipe for success for the smaller banks. In fact, these banks are no different than midmarket businesses (or even small businesses) in their objectives of adopting big data.

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Monitoring, analyzing and reporting very large volumes of data are typically the largest components of regulatory costs for SMB banks. Many often use antiquated technology and manual processes to manage their compliance requirements. Banks that are able to automate the process of managing data for regulatory requirements can have the added benefit of getting a unique view of their customers through one single technology solution.

According to Shirish Netke CEO, Amberoon, a provider of Big Data solutions for banks, “A lot of the data that is required for regulatory compliance can also be easily parlayed into getting insights on the banks customers and improving business”. Amberoon has built a banking solution for SMB banks provisioned on the IBM SoftLayer cloud.

Security & privacy (especially FFIEC requirements), traditional inhibitors of cloud adoption, are a legitimate concern for banks. After all, banks are the custodians of individual’s money, facilitators of trade and commerce and life-line of businesses. However, it may be argued that these inhibitors have already been successfully addressed by service bureaus. A very large percent of SMB banks outsource their core banking system to service providers such as Fiserv and FIS Global who have built very large scalable service bureaus with the economies of scale afforded by centralizing technology resources.

Aptly put by Noor Menai, CEO of CTBC Bank. “Outsourced technology services are nothing new in the banking industry. There is a compelling reason to use big data technologies in banks if they are available at an affordable cost in a secure manner. Cloud has the potential to provide both”.

Big data analytics in the cloud can be an execution advantage, and may even propel the SMB banks to leap ahead of larger banks on solutions that address both regulatory necessities as well as gain competitive edge from customer analytics. Historically, Siebel, an on-premise solution, was usually deployed in large enterprises and was out of reach for smaller businesses. Salesforce, a cloud solution, changed the perception, adoption, usage, affordability and provided immediate business outcomes. Today Salesforce is used by both SMBs as well as large enterprises.

Combining the benefits of cloud with the advantages of big data analytics may just be the prescription that SMB banks need for business growth (cross-selling, upselling services), meeting regulatory requirements such as KYC/AML/BSA and deep-diving into fraud detection.

One should also not forget that big data implementations require a unique combination of technical, operational and business skills to be used in a sustained manner. Needless to say, these skills are in short-supply but affordable by deep-pocketed larger banks. While some smaller banks including community banks can spend the money to experiment with big data pilots, they do not have the capacity to go through expensive iterations to get it right. While larger banks have the luxury of choosing between on-premise big data versus cloud big data, for smaller banks the choice could very well be between either doing big data on the cloud or perhaps not doing it at all. The remaining question therefore is – which big data cloud supplier will take the lead in educating, evangelizing and then executing on the needs of SMB banks.

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SMB and midmarket Cloud adoption driving increased IT services outsourcing

Techaisle’s SMB cloud computing adoption survey shows that 90% of US SMBs and 77% of SMBs at worldwide level are either using or planning to engage with external professionals for cloud assessment and/or cloud implementation.

Both small and midmarket firms are using outsourcing, but they are doing so in different ways. In many small businesses (and most micro-businesses with fewer than 20 employees), outsourced IT services take the place of internal staff. In midmarket organizations, outsourcing provides specialized skills to augment in-house capabilities, and/or delivers additional bandwidth to address staff shortages.

Drilling down into the US market, data shows that in both small and midmarket businesses these outsourced resources are deployed across a wide range of areas and that cloud is prominent in this mix. There are several reasons why SMBs engage with external professionals and consultants. At least within midmarket businesses, 42% use external providers for cloud implementation whereas 31% of small businesses use consulting organizations for cloud readiness assessment and strategy development. Data further goes on to show that 35% of SMBs usually decide to use the supplier that helps them in formulating cloud strategy. Overall, data finds that 39% of SMBs are planning to outsource cloud migration services within the next one year. Looking at the same data from a regional geography lens, it is found that the trend of outsourcing cloud services is higher than the US in Asia/Pacific, similar in Europe and somewhat lower in Latin America.

There is an important learning in the survey data for channel partners and IT services organizations. Simply reselling cloud solutions (SaaS, IaaS, PaaS) is not a long-term and sustainable strategy. They must be the trusted cloud advisor for the SMB end-customer. Fully 80% of midmarket firms planning new cloud initiatives are evaluating cloud options with only 7% focused on evaluating suppliers. Combining this data with the fact that 94% of SMBs are already using some form of cloud solution, one gets a picture of a midsized enterprise market that is in the process of assessing where and how the use of cloud should expand through the enterprise. Small businesses, on the other hand, have a roughly normal distribution across different stages of cloud expansion with 24% reporting that they are gathering information and 30% evaluating suppliers.

It is interesting to note the difference in scale between the two market segments. The midmarket results reflect a more strategic approach to outsourcing focused on the skills that are most important to meeting high-priority, emerging business requirements. This starts with cloud migration and SaaS services, and testing of these applications; advanced software systems like ERP and CRM come next and the other capabilities follow from there. The top three areas that midmarket businesses are planning to outsource are implementation of cloud packages such as ERP/CRM, cloud migration services, and mobility/mobile app development. Small businesses are giving equal importance to many different outsourcing initiatives, such as, cloud infrastructure rollout and support, cloud migration/SaaS services, mobility/mobile app development as well as custom software development.

 

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SMB Channel Partners – Top 10 Business Issues, IT Offerings

Top 10 SMB Channel Partner Business Issues

Figure below from Techaisle’s SMB Channel Partner Trends coverage lists top 10 business issues being addressed by SMB channel partners in the next one year - a question that parallels the one that Techaisle uses to develop perspective on SMB buy-side business issues.

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There are many ways that SMB channel partners can attack these business issues; in some areas, cloud is part of the problem, while in others, it helps form some of the solution. For example, cloud creates a requirement for new products and processes, which opens opportunity for firms that are effective in rolling out new offerings, but cloud itself is a major source of channel business uncertainty.

Improving productivity as well as improving quality of products and services are the top 2 business issues - they are ranked way higher than business growth and customer acquisition. It makes for a compelling attention that channel partners have realized the shift in technology and its acquisition and SMB channels are struggling to address these issues. Improved productivity is also often seen within the channel as a core attribution of managed services delivery – but growth in managed services portfolios will very likely encompass cloud-based systems. Cloud allows for new offerings to be brought to market quickly. And given the growth of cloud within the SMB market it could be fairly stated that cloud is central to both increasing business growth and keeping pace with competition. The impact of cloud on business activities expands beyond the SMB buy-side community into the channel itself. Cloud’s virtues are therefore apparent in several of the business issues that are of most concern to SMB channel businesses.

It is interesting to point out that "improving sales and marketing" is also among the business issues being addressed by SMB channel partners, but it not within the top 10 business issues.

Top 10 Current & Planned IT Offerings

Figure below lists the top 10 current and planned technology offerings, which can be treated as the starting point and the “next steps” in SMB channel migration. The findings illustrate the breadth of business opportunities available to the SMB channel – and also, the essential pervasiveness of the cloud as well as managed services.

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Cloud is at the core of many of the IT solution offerings enumerated in both the “current” and “planned” lists, for example, managed services and of mobility management. It is intrinsic to social media, VDI, desktop as a service and IoT. It is the best, most cost-effective and most scalable approach to supporting collaboration and BI/Big Data. And cloud enablement and management is the key objective of deployments of server virtualization and converged infrastructure, and the key requirement for on premise/off-premise data integration.

Today, many of these IT solution offerings and their associated channel capabilities are largely commingled but within the next three years the depth requirements associated with these will force them to concentrate on some areas and de-emphasize others. Techaisle believes that channel organizations serving the SMB market will become increasingly defined by pursuit of one or two of four primary product/delivery areas.

There will also come points in the SMB Channel Partner migration where the connection between the starting point (for example, mobility) and the next application (for example, Big Data) will become tenuous. These cases will call for partner-to-partner collaboration structured around meeting evolving SMB customer needs. There is already evidence that firms adept in partner-to-partner collaboration are better positioned to build successful businesses in areas such as cloud than those that cling to a "go it alone" approach in all situations (Source: Techaisle’s Winning Strategies of Successful SMB Cloud Channel Partners). Partners and vendors who are effective in inculcating these relationships within their ecosystems will both achieve above-market growth rates. In the meanwhile IT vendors and distributors should really pay attention to the top business issues being faced by SMB channel partners. 

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