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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.

Technology sprawl driving SMB and Midmarket IT Staff increases

Techaisle’s SMB and Midmarket Managed Services Adoption Trends research shows that contrary to popular belief IT Staffing within SMBs is growing and the percent of businesses with full-time IT staff has increased for 50-999 employee size businesses and even the average no. of IT staff has tripled for midmarket businesses in 2015 from 2010.

Today’s SMBs are heavily invested in an ever-widening portfolio of technology initiatives. For example, on average, US SMBs have current active initiatives in 5.1 technology areas, and midmarket businesses are working in an average of 10.3 different areas – each of which (like cloud or mobility) involve multiple discrete activities.

Techaisle’s SMB survey trend illustrates the IT staffing impact of this expanding IT solution activity. Figure below presents statistics on full-time IT staff from 2010 and 2015. It demonstrates that small and midmarket businesses have sharply different approaches to coping with IT solution sprawl. In businesses with 50 or more employees staffing levels are increasing dramatically. In this segment, not only percent of businesses with full-time internal IT staff has increased in the last five years but the average number IT staff has tripled.

techaisle-smb-midmarket-it-staffing-levels-resized

In microbusinesses with 1-19 employees, the trend is exactly the reverse: these firms are unable to keep pace with IT expansion through internal IT staff, and have moved to other approaches to cope with sprawl and complexity. Data indicates that only 4% of microbusinesses have full-time internal IT staff. In the next tier of small businesses (20-99 employees), 28% of firms have outsourced IT, vs. just 23% relying on full-time internal IT staff; the balance report that they depend on part-time internal IT staff (18%), internal non-IT staff (14%), or that “nobody manages IT” (17%). It is easy to say that this last group is courting disaster in an increasingly IT-centric world, and there is certainly truth to that assertion – but the findings are reflective of the cost and complexity associated with delivering a corporate service that is proving to be very cost- and labor-intensive.

The trend towards increased IT staffing levels also reflects the growing importance of technology within SMB operations. As Figure below illustrates, nearly 75% of businesses with 1-9 employees, and nearly 100% of those with 500-999 employees, consider technology to be “somewhat” or “very important” to their business success, and this importance is rising. 26%-47% of SMB respondents believe that their companies are more dependent on technology today than they were a year ago.

techaisle-smb-midmarket-technology-dependency-resized

IT is trying to move away from implementations to more strategic roles. But for that SMBs require expertise, skill-sets, time to research and identify appropriate technology. When IT vendors mention simplifying IT for SMBs they couch it as a means of helping SMBs because they lack IT staff (which data demonstrates is far from actual reality). The growing number and penetration of SMB IT staff themselves are asking for simplification of technology due to inherent sprawl and complexity of technology.

The phrase “sprawl and complexity” describes two linked problems for SMBs. Sprawl is apparent in the wide range of technologies included within current solution portfolios. The compounding issue, though, is that SMBs are not just dealing with more technology, but with more complex technology. This in turn is driving SMBs to hire more IT staff.

Consider the figure below, which reflects the attitudes of IT-responsible managers (ITDMs) within SMBs. Asked to describe their opinions regarding IT complexity, the most common response is “IT vendors should simplify technology.” Frighteningly (or embarrassingly) for suppliers, the second most common response is “we are ignoring” potentially-useful technologies, followed by observations that technology-related pain points are increasing, and current technology is more difficult to understand than previous-generation solutions.

techaisle-smb-perceptions-it-complexity-resized

There is a clear set of messages for suppliers in this data.

  • There is no status quo of "lack of IT staff"
  • IT staffing within SMBs has undergone a change. “We have simplified technology because SMBs do not have IT staff” is the wrong messaging
  • Simplification is required to ensure that SMBs actually embrace new products and their growing IT staff is freed-up to focus on strategic business issues
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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 Managed Services Forecast tops $44B by 2016

According to our latest forecast, which takes into account the first three quarters of 2012 research, the SMB Managed Services market will grow from $27B to $44B between 2012 and 2016, compounding at over 12%.  Remote management monitoring services will cross US$15B during the same time period. Key points of the update include:

Techaisle SMB Managed Services Forecast

The most attractive segments are shown in the chart and sorted based on opportunity (2016 value>$1B), and growth (arrows are relative), so the largest and fastest growing segments are shown. Rank based on revenue opportunity is listed in the left hand column.

13 of the 19 sub-segments are expected to reach over 1B$ in opportunity by 2016, with over half growing at double-digit rates,

The Remote Services segments are generally growing faster than onsite, with notable exceptions in India where the labor market and domestic bandwidth contribute to a viable onsite market, and China, where second and third tier markets are expected to adopt remote services more slowly than the combined remote/onsite increase.

While at 12%, the market is not growing quite as fast as in Cloud Computing, the robust increases will be a very good opportunity for SPs and MSPs in the market. The difference in fulfillment and delivery between cloud computing and managed services is thinning rapidly. Channel partners and managed services providers are quickly cross-migrating their skill sets to serve both technology areas. The path being chosen by Channels to move from one offering to the next is strongly dependent upon their current offering.  Those that are in the mobility space are moving to cloud, while those in the cloud are moving to managed services. The point being that understanding the channel dynamics and current offerings can provide  clues in the direction they will move. Similarly, within managed services, the channels are moving from one offering to another; vendors wanting to partner with Channels must identify the ideal cluster of services to take advantage of Channels outreach and capabilities.

Techaisle offers forecasts for all the above sub-segments by Region, Country, SMB company size and Channel flow share, customized to your needs. Please contact us if you would like more information on how this information can be combined with your internal market model to offer a clearer view of  opportunity and resource allocation to best increase market share share during 2013 and beyond.

Target Market Attack Strategy

 



Larger SMBs = Easier Sell: Larger SMBs with more complex needs are more likely to be receptive to using managed services. While the adoption varies by service, a “safe” rather than a sweet spot to target are businesses with 20 – 249 employees. Younger IT managers and business decision makers that are growing up in the "work from anywhere, anytime, any device" era are more likely to consider managed services as a first response rather than an after-thought. Improving mobility solutions (devices, bandwidth and applications) is also creating a favorable environment for managed services. IT Vendors should be careful to note that they are running a service business and as such, buyers tend to set a higher bar. Loyalty to a particular vendor is driven by quality of service, reliability and uptime, responsiveness and customer service (no different from any other service business today). However, the provider market today is very fragmented. After so many years, there is still some confusion among SMBs in understanding what managed services really means and how it is different from cloud.

Many SMBs still have their channel partners “manage” their network and other IT infrastructure on site by sending support staff over. Small businesses in particular are seemingly gravitating towards service providers, many of them are single–person individuals. In some other cases, large service providers are also motivating small businesses to use their services as “hosters” as opposed to monitoring and management. Backup and Recovery services are increasingly gaining ground with small businesses with many new offerings being introduced by service providers including large IT vendors. Traditional server backup methods are being shunned by small businesses, as once-a-day backups leave them vulnerable to data losses and trouble recovering data quickly in the event of a data corruption, virus or other disaster. Lack of adequate IT staff also results in inconsistent backup procedures and failed data recovery. This is one area where remote backup managed services show a higher usage than combination (onsite/remote).

Techaisle research shows that many of the factors that drive SMBs towards Managed Services are very similar to the benefits they seek from cloud computing:

    • Strategic (Focus on core business, Reduce risks, Improve competitiveness and reaction time)

    • Tactical (Cost control, Lack of IT staff, Better IT response time and proactive management)


The combined benefits are increased agility and lower business risk, which translate into a more competitive posture and less stress for the SMB owner. It is therefore not surprising that Cisco has led the way by combining its managed services and cloud computing channel programs.

 
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China Rising - Mid-Market Onsite and Remote Managed Services nears $3B

A recent Techaisle survey of 1,862 SMBs in China found the market for Onsite/Remote Managed Services has been growing rapidly and is near the $3B mark in the mid-market space; expected to reach $2.847 billion in 2012.

 

Other important points include that the 250-499 employee segment represented the largest share among company sizes, with 47.5% of the total. This is followed by the 100-249 group with ~30% and finally the 500-999 category with ~23%.


On the Services side, PC Services are the largest segment with $800 or 28% of the total, followed by Other Managed Services $509M or 18%, and Server at $485 or 17%, Seven of the top 10 service segments top $100M, providing a good  set of opportunity segments.

Having lived in Korea and  Hong Kong from the early 1980s through the mid-1990s and watching the Seven Tiger markets rise from bit players to important gears in the global IT supply chain, this doesn't really come as a surprise - however the rapidity and thorough break away toward private property and commercial economy  that China has managed, exceeds even the early predictions and forecasts.

The overwhelming reason for using Managed Services in China across all segments was Cost Control. This was followed by the need to Focus on the Core Business which is very difficult for SMBs with limited skilled resources, even in a country like China where hiring a new FTE to support basic IT infrastructure is relatively inexpensive as compared to many other countries.

 

The third most important reason was to free up the IT staff so they can add other types of value to the organization; helping to move IT from a Cost to a Profit Center.

 



 

Techaisle's SMB managed services adoption and trends data and analysis is available as individual country reports for US, UK, China, India, Brazil, Germany, Australia.

 



Davis Blair
Techaisle
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