Techaisle Blog

Techaisle’s SMB and Midmarket Cloud adoption survey of 3200 midmarket firms and 3000 small businesses globally shows that hybrid cloud has been gaining momentum in small businesses, and is already entrenched in the mid-market firms. Hybrid accounts for 37 percent of cloud using mid-market businesses today, up 28% from 2018, and is expected to capture a lot higher proportion of new spending in the next one year. Midmarket firms are moving from public clouds to hybrid deployments with current hybrid workload at 17%, up from 12% in 2018. The current penetration is the highest in the US but planned usage is highest in Europe and Asia/Pacific.

There is no clear trend on the types of workloads on hybrid environments which shows that most deployments are very specific to a customer’s needs and application delivery partner’s expertise. Typical hybrid workloads include ERP, HR, CRM, finance, operations, IoT, analytics, AI, Machine Learning, SAP 4/HANA deployments, disaster recovery, critical event management, mass storage, cloud security and cloud database. Both Azure and AWS are being used by over 90% of US midmarket firms. Red Hat OpenStack is the preferred private cloud platform for 74% of US firms and Red Hat Cloudforms is the most used cloud management solution by 80% of US midmarket firms followed by VMware vRealize. Hypergrid, Morpheus, platform9 and Scalr are in low single digits. Ansible is being used by most channel partners for orchestration and automation.

Corresponding Techaisle survey with partners delivering cloud solutions to SMBs and midmarket customers reveals that Azure Stack is the most popular platform because of Microsoft’s proactive engagement, powerful and extensive Microsoft ecosystem as well as deep product portfolio. Google Anthos and AWS Outposts are picking up pace. Interesting trend is being seen from AWS partners who are beginning to use Google Anthos instead of AWS Outposts. These partners are not only working with AWS native solutions, but offering cloud solutions which are based around other cloud platforms like GCP, Oracle or Microsoft. Some of these partners prefer to use Anthos because they find it to be more of an open technology and AWS Outposts and can be easily implemented across other environments. It gives them a wider approach in terms of compatibility. They have to pay a fixed amount when using using Anthos which is variable with Outposts. None of the application delivery partners are using tools and technology from only a single vendor. The use of Open Source is dominant.

Another view of the data collected in the survey provides fascinating insight into the extent that midmarket cloud users are willing to align different delivery methods with internal requirements. Detailed analysis and segmentation of data reveals that there are pockets of demand (and overlap in these pockets) that exist for public, private and hybrid models in each segment.

Mid-market businesses
Looking at the mid-market segmentation, we see that larger firms are likely to employ multiple cloud delivery strategies. Overall, 51 percent rely on a single delivery approach for cloud, for example, 31 percent use only private. 29 percent of mid-market businesses use two different delivery approaches, with the most common being a combination of private and public models (but not in a hybrid setting). Firms in these overlap areas are not, on average, larger than those using a single delivery method, but they do face added complexity in that they tend to have more locations.

It is clear from Techaisle SMB and Midmarket buyers journey research that both ITDMs (IT decision makers) and BDMs (Business decision makers) play important roles in the (formal and shadow) acquisition of IT products and services. However, Techaisle research has also found that the distinctions between these roles are not evenly applicable across all types of IT-enabled solutions: in some areas, the business will look to IT for leadership, and in others, it will take direction from BDMs.

The positioning of these solutions is important to technology vendor sales and marketing strategies. Solutions in the “IT led” category need to have strong IT-focused positioning, with detailed information on product attributes; this material should be supported with a second layer of collateral containing information on the business case for the solutions, and aimed at BDMs. Solutions in the “BDM led” category require very different positioning: here, vendors need to make a strong case for the business benefits and relevance of the solution and orient these messages towards BDMs, supporting this campaign with accompanying technical information designed to provide clear deployment and integration guidance to ITDMs. The “IT/BDM collaborative” category is the trickiest to address. It requires deep information on business benefits and the process steps required to capture those benefits targeted at BDMs, and deep information on how to assemble, deploy, integrate and support/optimize these solutions targeted at ITDMs – and an understanding of how to position and convey the messages to each audience.

Virtualization is IT-led
In micro businesses, BDMs are reported to provide virtualization solution adoption leadership – but in all other employee-size segments, ITDMs are seen as driving adoption. Within mid-sized business, ITDMs are 2.5 times more likely than BDMs to be leading virtualization adoption, and ITDMs are viewed as having complete responsibility for virtualization solutions in nearly one-third of companies with 100-999 employees.

Managed services is IT-led
Survey responses tell a remarkably consistent story about managed services: accounts in each of the employee-size segments ascribe a rating of 36-42 (out of 100) to ITDMs as of managed services initiatives. This is a natural connection; in general, SMBs adopt managed services to reduce IT labor costs, to free up scarce IT resources to take on other tasks, and/or to provide management of complex technologies, such as services. However, BDMs may also have an interest in managed services, as they often provide access to cloud-based capabilities matched with human IT resources.

IaaS is ITDM/BDM collaborative-led
IaaS is deployed in two very different ways: as a cost-effective means of supporting IT infrastructure, generally sourced by IT, and as a means of supporting the specific (and sometimes, short-term) requirements of a business-led project, often paid for by the business team. The data suggests that the IT use case is more prevalent, and indeed, anecdotal evidence (such as the fact that market leader AWS has a very strong presence within the IT developer community) would tend to support this view. However, there is clearly supplier opportunity in the ‘BDM IaaS’ category as well.

SaaS is ITDM/BDM collaborative-led
SaaS is another category that can affect ITDMs and BDMs, as part of a collaborative initiative or individually. SaaS applications themselves can be seen as belonging to many different categories, including SaaS applications that support IT management functions (such as software development, migration/version management, and IT asset management applications) and applications CRM, ERP, HR/talent management, customer service applications, social marketing, etc.) that are designed to be used by specific non-IT users and departments. Use of multiple SaaS applications adds additional complexity, with the need to integrate and secure multiple data streams; this is likely one reason why IT’s influence over SaaS is greater within mid-market firms (which have a greater variety of users and applications) than within small businesses. Data illustrates, these issues eventually define a category in which BDMs are generally seen as having the primary influence over adoption, but where relatively few accounts (no more than 24% in any employee-size segment, and generally 9%-16%) report that BDMs have sole authority over SaaS initiatives.

The new year (and decade) provides an opportunity for assessing the business of the channel: what has shaped the channel in the years leading up to 2020, and what we expect to see in the coming 12 (or in some cases, 24 or 36) months. Here are 10 key areas where change is afoot based on our extensive global channel partner studies leveraging our network of 250K channel partners.

1. Channel partners will become navigators in plotting customer digital transformation strategies.

To help customers expand their focus to ‘the art of the possible’, innovation-focused partners will proactively explore new technologies and educate their customers on potential benefits and related business process changes. Partners will, in short, become navigators plotting customer digital transformation strategies. Techaisle’s urgency and importance ratings showed that this was not ‘top of mind’ for channel partners in 2019 – but it will be important on the strategy radar, as partners will build plans (integration, migration, architecture & orchestration for digital transformation) for viability into the next decade. By the end of 2020, percent channel partners delivering DX will grow by 80%.

2. The NEXT Channel (Networked, Engaged, Extended, Transformed) will emerge.

Channel partners will begin to abandon ingrained behaviors and move to new approaches that will enable NEXT (Networked, Engaged, Extended, Transformed) channel businesses. The core changes in the demands on different areas of the channel business are critical and challenging, but they can be seen as more effect than cause. In all aspects of channel business, long-held business tenets will be replaced by an emerging reality that has been ushered in by the move to cloud and amplified by other trends – changes in buyer behavior, management and process changes, evolutions in service/technology delivery, how technology is being acquired and used.

3. Pure-play MSPs will drive (or attract) M&A activity.

Traditionally, MSPs have offered customers advanced and highly-efficient solutions to current problems, but MSPs do not tend to customize offerings for individual customers – doing so undercuts the efficiencies at the core of their business models. This model doesn’t perfectly address DX requirements, which begin with a vision of business rather than technology outcomes. During 2020, 40% of MSPs will foresee mergers and/or acquisitions in their 3-year plans. With the market valuing MRR-based businesses at a high multiple vs. firms based on product transactions, MSPs will appear to be in the best position to attract outside investors.

4. P2P collaboration and ecosystem alliances will move from opportunistic to strategic.

Solution packaging is a customer choice issue – and customers are choosing to move from turnkey systems to hybrid environments that can be aligned with their evolving needs. This will require an accelerated frequency of partner-to-partner collaboration, not opportunistically but strategically. Pursuit of this ecosystem business approach will require changes in go-to-market strategies and in the ability to integrate around data rather than physical system components. This escalating requirement will expose vulnerabilities of channel partners in meeting customer expectations. Ecosystem alliances and P2P collaboration will become non-optional. By end of 2020, 70% of partners will collaborate frequently for sales (not as much for deployment, support) with an average of 3.5 partners.

5. Influence of IT consultants, CSBs will increase for professional services.

IT buyers are relying much more on consultants as they look to shape strategies that are aligned with current and emerging opportunities for greater IT leverage. This trend will have a ‘trickle-up’ effect: IT consultants and CSBs will become more specialized to deliver insight on vendor and technology options, technology compatibility, architecture, deployment and management. By the end of 2020, 25% of channel partners will consider their business models as “Consultants”. However, these partners will need to incorporate unique intellectual property (IP) into their processes and offerings as they will be unable to fund their operations with margins from acting as middlemen. They will structure their businesses to deliver professional services - billable in one form or another – to address customer needs for strategy, planning, onboarding/training, integration and support.

6. Market will reward channel partners who flexibly deliver multi-vendor solutions.

Toolkits and not hammers. The “law of the hammer: if the only tool you have is a hammer…everything [you see] is a nail.” Channel partners have tended to concentrate on a limited number of core platforms – typically, those that they have invested in, via certifications – and looked for opportunities to build around these platforms wherever they engage. Successful channel partners will tailor multi-vendor solutions that address customer business requirements, layer in support and integration, and land on a position that offers a platform for repeat business and healthy margins. Single-vendor solution providers will most likely be focused on promoting features which will lead to reduced profitability because single-vendor solutions are easy to comparison shop (leading to discounting). By the end of 2020, 50% of partners will be experts in assembling multi-vendor-best-of-breed cloud options.

7. Value creation will start with the customer and not from vendor out.

Traditionally, the notion of ‘value add’ in the channel is referred to a reseller’s ability to demonstrate that they augment the base product with some combination of technical and/or logistical support. Technology is generally sold on the basis that it will help businesses to cut costs, accelerate cycle time or expand reach and revenue, once a transaction is complete, the onus for realizing these objectives rests with the customer. Cloud and its pay-as-you-go model will impact this balance, and the inexorable twinning of IT solutions and business processes / outcomes will further disrupt mainstream business expectations. Channel partners will innovate in value creation for customers and will gain more durable advantages than those who continue to focus tightly on new technologies. As a result, in 2020, channel partners will go ‘deep’ rather than ‘wide’ specializing and clustering around four segments.

8. Cloud application deployment and delivery to mainstream customers will come into sharp focus.

With the notable exception of Microsoft, most of the primary cloud suppliers (hyperscalers – notably AWS and Google – but also SaaS suppliers) have lacked deep experience with the channel, and haven’t developed effective programs or coverage strategies. There will be an increased investment in staff training, certification to increase professional services revenue with a focus on containers (Kubernetes), microservices, open source, agile development to deliver cloud apps for customers’ customer facing apps as well as apps to support customers’ internal processes and operations. However, channel partners will be challenged due to legacy integration issues, missing APIs, lack of development/QA skills and inability to conduct extensive security testing. Regardless, by the end of 2020, slightly more 50% of cloud partners will have one or more cloud app development capabilities and MS Azure will be the hyperscaler of choice. AWS VMWare solution at the edge, a recent addition, will be of interest to channel partners. Red Hat Ansible for automation will find a footing within partners.

9. IP-led solutions and solution development funds will be key elements of success.

A successful cloud channel partner’s desire to keep its own IP front-and-center in the solution will be rooted in several wise channel objectives. By end of 2020, 60% of channel partners will rely on sell-to and sell-with sales models. And for 45% of partners, solution development funds will be among the top 2 preferred vendor incentives. Historically, the hardware vendors had several levels of compensation and though software suppliers and the hardware vendors started in different places relative to partner compensations, they are now getting to a similar model. By the end of 2020, 25% of established channel partners’ cloud revenue may be attributable to products that they have built internally, their own IP, on top of vendor products.

10. Channel empowerment will align “customer-in” rather than “product-out”.

Channel empowerment (as opposed to channel enablement) will feature into vendor program requirements. Channel partners have looked to vendors for information on technology directions and the dependence will grow more acute because of structural industry change. Vendors-channel partnership approaches, however well intentioned, often ends with the channel partner being positioned as a type of vendor sales agent. The channel’s greatest opportunity is in meeting buyer needs – and that requires that the channel partner plot a path that is attuned to buyers rather than vendors. In 2020, successful vendors will build programs that empower channel partners to maintain vendor presence in complex solution environments – not sales agents. These programs are unlikely to arrive fully-formed; they will evolve as needs and success paths become more clearly understood. In 2020, look for leading vendors to provide empowerment approaches that focus on business outcomes and shared risk partnerships.

1. Connected business will be everyone’s problem.

The key focus of business investment will be more about the “work”: the ways that an increasingly-connected business can support pursuit of previously-unattainable objectives. The most important SMB & Midmarket technology-related adoption in 2020 will be this focus on connectedness – cloud, platforms, edge, devices, applications, security, collaboration, workspaces and insights. With the connective fabric rapidly becoming ubiquitous, businesses of all types and sizes will move beyond just the network access, and concentrate instead on using technologies to drive progress across the four pillars of digital transformation: operational effi-ciency, customer intimacy, employee empowerment and product innovation.

2. Momentum building for consumption-based IT acquisition.

Increasingly within SMBs and midmarket firms discrete sales of individual products or integrated systems will be replaced by agreements to provide IT capacity and business functionality “as-a-Service”. In 2020, the trend will be more midmarket driven than small businesses. 20% of midmarket firms will move towards OPEX-based agreements where these firms will look for flexibility and will prefer to acquire technology based on usage – namely IT consumption model – driven primarily because of current IT asset under-utilization.

3. Customer intimacy will take a whole new meaning.

Every SMBs’ survival is dependent upon customers and 2020 will see a ground-breaking year when customer intimacy (acquisition, retention, experience & satisfaction) will drive IT adoption and business process evolution. By the end of 2020, for 45% of SMBs, need for customer intimacy will drive IT adoption and 76% of new SaaS adoption will be customer focused. As a result, 15% of small businesses and 24% of midmarket firms will have “Top Notch” customer facing digital presence.

4. Need for Embedded Collaboration will be clear and present.

Anywhere, anytime also means any type of collaboration. Collaboration solutions cannot be deployed on stand-alone platforms – they need to be viewed as a framework for integrating multiple capabilities, native to multiple applications. By the end of 2020, 80% of SMBs will benefit from embedded collaboration and for high-growth, innovative businesses, effective, e¬fficient collaboration will be in their organizational DNA to deliver decision agility, business agility and innovation agility.

5. Regardless of the question, analytics will provide an answer.

In 2020, SMBs will see a new attitude and culture that will value and use data as a meaningful way to gauge overall performance and specific areas of interest at a glance will become prevalent. SMBs will demand Key Performance Indicators (KPIs) as a standard part of application architectures as well as a meta-directory of KPIs that all applications can access. It may finally become possible for SMBs and Midmarket firms measure and optimize for elusive objectives like Return on Marketing Investment, Optimal Pricing, Cost of Acquisition and Lifetime Customer Value. By the end of 2020, 15% of SMBs will be highly data driven and 30% will be using cloud-based prescriptive analytics and 50% of midmarket firms will demand AI-driven analytical platforms to proactively prescribe actions that will mitigate risk / increase opportunity within the predicted future.