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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.

SMB MSP Channel fragmentation and role of IT vendor

The SMB IT channel has hit a point of fragmentation. Today, channel can be all things to all people but not in 2018 unless channel finds a way to generate more than 150% of revenue. Faced with an expanded SMB buyer community and requirements for specialized skills to support different solutions, the SMB channel is beginning to segment by focus area. Although the different specialties are starting from a common point today, Techaisle expects to see each develop unique characteristics over the next several years.

Highlights of Techaisle’s report on State of SMB Managed Services Channel include:

The business of the SMB channel: migrating to specializations

  • Overall, currently, the SMB channel has a reasonable balance between product and services revenue and engagements.
  • There is no ‘silver bullet’ leading to financial health in the SMB channel. Execution, not time allocation, is the key to sales success.
  • Sales cycles vary with several factors, including solution expertise. SMB-focused MSPs have relatively long sales cycles overall, but channel partners that are “very comfortable” with managed services have superior time-to-revenue results.
  • Four key specializations are emerging in the SMB channel and this fragmentation will accelerate in the 2015-2018 timeframe.

Managed services in the channel: pervasive as a delivery vehicle, becoming more of a specialty

  • MSPs are hardly the only source of managed services: more than 60% of VARs, SPs and SIs sell managed services today, and there has been an increase in managed services activity in all of these channels.
  • The variety and depth of managed services will make it difficult for non-specialists to keep pace with MSP specialists.
  • SMB preference for a single source of managed services will have an impact on managed services market and channel development.
  • SMBs have a definitive view of pricing and per user/ per device is not the way forward 

The role of the vendor in the managed services channel

  • Vendors must navigate a mix of generic channel requirements and requirements that are specific to managed services partners.
  • Generic requirements for end-to-end solutions are less important in managed services (where best-of-breed is paramount) than in other areas.
  • Vendors must understand and address the challenges faced by partners migrating to managed services specializations; this course will be complex and expensive.
  • Vendors will benefit from aligning with managed services partners’ value propositions, which are in turn well aligned with business outcomes (and business buyers).

Working with the SMB managed services customer: managed services addresses key buy-side imperatives

  • SMBs are more dependent on technology than ever before.
  • Since 2010, IT staffing has dropped in microbusinesses, and increased in small and midmarket firms. Accordingly, managed services acts as a substitute for IT staff in firms with 1-19 employees, and as a means of augmenting IT management in larger SMBs.
  • SMBs are struggling with IT complexity, and turning to managed services providers for support.

The survey data shows that channel partners struggle to transition from delivering some managed services to building viable businesses on a managed services model. To be successful, vendors will need to set objectives spanning a three-year period over which managed services specialization will emerge.

Many IT vendors will struggle with simply understanding this fundamental change in the market, and more will fail to understand the focus and investment required to grow with partners through this transitional period.

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SMB managed services adoption increases amidst acquisition challenges

SMB Current and Planned adoption
Techaisle’s SMB Managed Services adoption study (US, UK, Germany, Brazil, Mexico, Australia, China) shows that a substantial and rapidly-growing segment of SMBs across different geographies are using some combination of managed services to support IT and business requirements. Drilling into the US data, 40% of SMBs are currently using one or more types of managed services, increase of 21% from a year ago. Take-up of managed services within micro businesses is relatively low but doubles within the 10-19 employee size businesses. Techaisle survey data also shows that confusion around what managed services is and how they work has a negative impact on take-up in this segment, reinforcing the importance of education to building acceptance within this market.

Managed services usage rates are far higher within larger SMBs. Firms with 20-499 employees, who are trying to scale IT faster than can be achieved through in-house staff, are very avid users of managed services. Larger midmarket firms, where managed services is often a means of augmenting current staff (to deliver on niche specialities and/or to cover standard tasks so that in-house resources can move on to new initiatives), are also heavy users of managed services.

As impressive as these figures are, the ranks of managed services SMB users are poised to swell further within the next 12-24 months. Survey responses from companies with 1-9 employees indicate that the proportion of very small businesses using one or more managed services will double during this period. Growth within other SMB e-size segments will be less dramatic, but aggressive nonetheless.

The combination of increased reliance on technology as a key element of business success (as shown in the study), burgeoning complexity and cost constraint has created a “perfect storm” for use of managed services. SMBs are not just dealing with more technology, but with more complex technology.

SMB Managed Services acquisition challenges
A question exploring the issue of “what are the toughest challenges faced by SMBs when purchasing managed services” in the Techaisle SMB Managed Services Adoption Trends survey found four broad challenges: 1/ identifying solutions that address operational support requirements, 2/ selection of qualified providers, 3/ presenting a valid business case to senior management, and 4/ available funding.

The primacy of these issues changes with employee size:

  • Microbusinesses (1-19 employees) struggle most with finding appropriate suppliers – MSPs who understand and can work with companies that lack internal IT resources.
  • Small businesses (20-99 employees) struggle most with providing a valid business case to management. These firms are on the line separating the “managed services as a replacement for in-house staff” approach of microbusinesses and the “managed services as a means of augmenting IT management” approach of larger SMBs. At least in some cases, management considers outsourced services to be an either/or proposition rather than an “and” and needs help in understanding why a mixed approach to IT service delivery makes both technical and economic sense.
  • Available funding is the key issue for smaller midmarket (100-499 employees) businesses. These firms are pulled between the need to keep pace with IT opportunities and requirements (as defined by larger competitors) and the need to watch cash flow very carefully (as is the case with small businesses).
  • Larger midmarket firms (500-999 employees) are challenged primarily by identifying solutions addressing operational support requirements. These companies have specific needs and require complex solutions. It’s telling that it is also a challenge for these firms to find qualified suppliers and to develop a business case that can be absorbed by senior management.

SMB's use careful evaluation of supplier and platform
Techaisle’s corresponding SMB Channel Partners trend study (survey across several countries) and The State of US SMB Managed Services Channel study shows that the percent of US SMB channel partners offering managed services has increased to 71% from just below 70% in 2013.

There is a tight connection between managed services supply and demand. The interaction between SMB buyers and the firms that supply managed services is important to the vibrancy of the managed services market. The SMB Managed Services Adoption Trends explored some of the key issues in supplier evaluation and managed services sourcing. Once a relationship has been struck, SMBs and managed service providers need to connect effectively through the managed service delivery platform. Survey results indicate that there are five key elements that are integral to a compelling platform and SMBs use an average of 3.2 factors for MSP evaluation criteria.

SMB MSP fragmentation and coming channel transformation
Techaisle believes that the channel is at the beginning of a migration from generalist to specialist firms that will play out over the next few years. The variety and depth of managed services will make it difficult for non-specialists to keep pace with MSP specialists. Techaisle survey trend data clearly reveals that SMB channel partners have hit a point of fragmentation: they can be all things to all people today, but not in 2018. On this topic and more in Techaisle’s channel subscription services consisting of:

Related research areas

  • SMB Channel Trends
  • The State of SMB Cloud Channel
  • The State of SMB Managed Services Channel
  • The State of SMB Virtualization Channel
  • The State of SMB Mobility Channel

and corresponding SMB coverage:

  • SMB Cloud Adoption Trends
  • SMB Mobility Adoption Trends
  • SMB Managed Services Adoption Trends
  • SMB Virtualization and Converged Infrastructure Adoption Trends
  • SMB Collaboration Adoption Trends
  • SMB IT Decision Makers: TDM vs. LoB
  • SMB Big Data Adoption Trends
  • SMB Security Adoption Trends
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SMB Wheel of Productivity spins to cloud-based customer service applications

In a recent Techaisle's global SMB Cloud computing study, SMB IT and business decision makers were asked “Which one of the following is most important - increasing your customer base, Improving customer satisfaction, deriving better customer insights or delivering to customer needs? Clearly, these are all essential objectives; Techaisle’s intent was to understand which are most important in shaping current IT priorities. The research found that 35% of SMBs are most focused on improving customer satisfaction.” Customer satisfaction is an especially pressing issue within midmarket businesses: 39% of firms with 100-999 employees selected improving customer satisfaction as their top customer-focused priority, an even higher proportion than was logged for “Increasing customer base” (31%) within the midmarket.

Techaisle’s SMB “Wheel of productivity” data shows that customer service is usually the application that SMBs use after CRM and marketing automation. In fact, Techaisle’s most recent SMB cloud shows that of the SMBs using cloud customer service application, 53% are also using cloud CRM and another 24% are planning to add CRM to their customer service solution. Looked at another way, of the SMBs that are using CRM solutions, 38% are also using customer service applications and another 19% are planning to add customer service.

The impact of increasing the customer base and improving customer satisfaction is manifest across many different SMB business objectives – attracting and retaining new customers, increasing business growth, keeping pace with competition, and focusing on new markets are all C-level issues that rely on market reach and effective customer management. For example, executive focus on growth leads directly to demand for improvements in sales and marketing – and in today’s market, these improvements are generally delivered in the form of CRM systems that improve sales process efficiency and visibility, and social marketing systems that capitalize on connectedness within an economy that increasingly relies on person-to-person, cloud-enabled communications rather than broadcast and print media for information.

Social marketing and CRM are two of the key applications that link cloud infrastructure to top-line growth objectives. It is unusual for platform technologies to be viewed as business growth drivers, but cloud isn’t really a platform technology – it’s a means of rapidly delivering capabilities needed to compete in evolving markets. When asked whether cloud is primarily a driver of new opportunity or a way of achieving cost control, 80% of Techaisle’s SMB Cloud Computing Adoption and Trends study respondents reported that cloud helps their business grow. Cloud-based solutions (including, and particularly, CRM) provide the insight needed to manage a sales and marketing funnel and attract and retain new customers.

The improved visibility resulting from cloud-based sales and marketing automation systems has in turn illuminated the need for, and potential associated with, better and better-integrated customer management and support processes. This insight is prompting increased investment in systems automating customer support tasks: Techaisle’s global SMB survey data shows that customer service is among the top cloud applications planned for adoption within the next year.

smb-cloud-ww-customer-service-application-planned-adoption

This trend is particularly apparent within advanced IT users. Looking at the current and planned use of customer service applications through Techaisle’s SMB IT Sophistication Segmentation (SITSS ) framework, we find that the level of current and planned cloud-based customer service application adoption increases with IT sophistication within both small and midmarket businesses.

current-planned-use-cloud-customer-service-techaisle-it-sophistication-segment

Desk.com – enabling SMB customer service success
High customer satisfaction starts with great customer service, and Desk.com, part of Salesforce’s portfolio is enabling SMBs use technology to improve customer service. Desk.com has pre-configured and pre-connected tools such as knowledge base, agent productivity tools, native mobile app, activity reports and dashboards so that an SMB could actually be up and running in an average of two days.

Being tightly integrated with Salesforce’s flagship CRM product certainly helps. 

Although Desk.com is well integrated within the Salesforce organization it has its own product road map clearly building on the success achieved by Salesforce. Techaisle believes that this is important for the product suite and its users. Techaisle has written extensively about Salesforce in the past (click here for the most resent post “The Good, the bad, the Ugly). Desk.com comes across as being different from the core Salesforce product in that it is better aligned with SMB requirements. The Desk.com team has clearly learned about how SMBs work and behave differently than enterprises – and it is using that knowledge in the development of the solution.

Natively enabled Mobile Platform
SMBs are more committed to mobility than enterprises. Within an SMB, customer service agents may double as sales staff, the office manager, or even the CEO. Because they work on the road, from their homes and from an office, enabling customer service through a mobile platform is of tremendous importance. What is really great about the Desk.com solution is it comes with a native mobile app on both iOS and Android so the SMB gets end-to-end case management for agents, meaning that they do not have to be tethered to their desk to access customer support systems. The agents can use the same productivity tools, knowledge base and same features that come with the standard Desk.com desktop experience on their mobile device.

Improving Agent Productivity
Mobility is a key requirement for SMBs, but it isn’t really the core requirement: the central business issue for resource-constrained SMBs is improving productivity. A “single pane” view that provides all relevant customer information is essential for customer service agents who fill multiple roles within the organization. Desk.com does a good job of responding to this requirement with its focus on agent productivity. One of the tools included as part of the application is “Macros,” which can by invoked either with a mouse or by keyboard shortcuts. Macros can insert a knowledge article link into the case, apply multiple labels, update different statuses, update and apply custom fields, and/or update one or more cases, accelerating workflow and driving efficiency in the customer support process.

Helping SMB customers help themselves
SMBs are increasingly focusing on their customers’ ability to help themselves. Desk.com comes with self- service support templates designed to look good not just on a desktop but on any mobile device. The templates are customizable to allow SMBs to echo the look and feel of their main websites. If an SMB’s customer is looking for a very simple FAQ-type experience they can go in and search for a particular topic or connect to more details with the ability to call into a customer support line. The knowledgebase also extends support for multiple brands and allows an SMB’s customers to self-select into a particular product or service and be served the most relevant content.

Down the Road
Desk.com is continuing to invest in product development and one of the most important aspects is how the solution interacts with Salesforce and how Desk.com provides end-to-end service, sales and other business process solutions that are integrated appropriately for an SMB. A key area of investment is in the synchronization of metadata to provide a 360 degree view of the SMB’s customer to the support agent. A key second area of investment is in case management, embedding native support center within native mobile apps. As noted above, this is a critical capability in the SMB segment: for many SMBs, the mobile app is the primary (and sometimes the only) touchpoint with customers. Techaisle’s SMB Collaboration studies have shown that SMB focus is expanding from creating information repositories (largely complete) to adding rich media and media escalation and Desk.com is working on additional support for rich media and images and emails out of a service channel, adding collaboration layer to case management process.

Techaisle Take
Desk.com is a differently abled organization than Salesforce, whose focus seems to be primarily on enterprise customers. Desk.com is on a path to help SMBs grow by providing an out-of-the-box solution that helps SMBs help their customers faster, thereby improving customer satisfaction and customer retention. With an inbox that brings together all of the different channels that SMB might be using to provide customer service - email, phone, social panels - into the same interface, Desk.com helps SMB customer service agents to work on solving customer problems rather than navigating between mismatched system components.

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SMB Server virtualization penetration is increasing but challenges remain

Techaisle’s SMB Server Virtualization adoption market trends study shows that US SMB server virtualization penetration has reached 54 percent (un-weighted), up from 41 percent two years ago. Within midmarket businesses the penetration has reached 88 percent and another 7 percent are planning in the next one year.

Figure below uses data from multiple surveys to illustrate trends in virtualization penetration within SMB accounts that have adopted server virtualization. In 2013 the proportions of servers virtualized was very similar across all employee size categories, ranging from 61%-62% in microbusinesses (which sometimes only have one server, making virtualization an all-or-nothing proposition) to just over 50% in midmarket enterprises with 500-999 employees, which can be expected to have many servers. The statistics for 2014 show virtualization penetration rising in all employee-size segments: rapidly in microbusinesses and the 500-999 midmarket enterprises, and gradually in other SMB segments. The perspective on future intentions, drawn from the Techaisle SMB 2015 survey, indicates that these trends will continue and accelerate. Microbusinesses and larger SMBs (including both the 250-499 and the 500-999 segments) are expecting rapid further penetration of virtualized servers, and the other midmarket segments are expecting a further 6%-10% of servers to be virtualized.

percent-servers-virtualized-within-smbs-2015-techaisle

What does this trend mean to the market?

Clearly, there is increasing opportunity for hypervisor sales, and Techaisle would expect that VMware will find purchase within companies looking to connect virtualized servers to other infrastructure assets (especially, for example, hybrid cloud or software-defined networking or storage), while alternative suppliers, such as Microsoft, gain share in the core market as multi-hypervisor strategies become more common. Techaisle expects that this trend also indicates increased opportunity for converged infrastructure products as these systems can be used to capitalize on advanced virtualization capabilities.

Location of Virtualized servers

A comparison of 2013 and 2015 research results shows that within each employee size segment, SMB end-user organizations are becoming more likely to virtualize servers that are located outside of their business premises. Across the entire SMB community, there has been a 45% increase in off-premise virtualized servers in the past two years: an enormous shift that highlights the broader shift towards remote management of infrastructure resource.

location-of-virtualized-servers-smbs-2015-techaisle

If virtualizing servers is so popular – why isn’t it universal?

The Techaisle interview of 848 US SMB ITDMs uncovered a number of reasons why SMBs struggle with virtualization adoption. The top five challenges cited in the research illustrate the complexity that can accompany infrastructure changes.

The most prominent challenge, cited by 34% of SMB respondents, was the high cost of virtualization licenses, which may explain why the expansion of virtualization within current user accounts often includes investigation of (and in many cases, migration to) a multi-hypervisor strategy that adds “free” options such as Hyper-V and Xen.

top-5-server-virtualization-smb-challenges-2015-techaisle

The third most common challenge is that management of virtual servers proved to be more difficult than anticipated, which may reflect initial learning curve struggles and/or incremental complexities associated with environments relying on multiple hypervisors.

The second leading challenge, “projected cost/space/power savings not achieved,” highlights both the cost and complexity issues: it can be difficult to obtain projected densities/utilization rates during the adoption/migration period, and expenses can escalate in several ways: due to costs associated with virtualization solution licenses, and also because of the “high cost of ISV licenses for applications running in a virtualized environment” and generally higher-than-anticipated project costs. It is worth noting as well that in small businesses (1-99 employees), “lack of experience” is also seen as a major server virtualization challenge, cited by 22% of survey respondents.

On the positive side, the relatively high level of server virtualization experience found within the SMB channel partners (Techaisle SMB Channel Trends study) may help mitigate this issue – but it should act as a caution when evaluating market outlooks for VDI and DaaS, where experience levels within both the SMB buyer and SMB channel communities are much lower.

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