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.