Techaisle Analyst Insights

The US SMB IT channel partner has reached an inflection point. Faced with an expanded SMB buyer community and requirements for specialized skills to support different solutions, the SMB channel partner is beginning to segment by focus area. Although different specialties are starting from a common point today, Techaisle expects to see each develop unique characteristics over the next several years.

Highlights from Techaisle’s The State of US SMB Cloud Channel report include:

The business of the SMB channel: migrating to specializations including (and/or based on) cloud

• There is a reasonable balance between product and services revenue and engagements
• Execution, not time allocation, is key to sales success
• While different channel delivery models (MSP, VAR, SP, IT consultant, SI) have different characteristics, they share an emphasis on small businesses as a key buyer segment
• Sales cycles vary with several factors, including solution expertise
• Cloud builder, cloud reseller and cloud provider approaches to building cloud practices within channel businesses all address common customer needs, but have unique challenges
• Channel conflict in the cloud is currently at a dangerously high level
• Lead generation relies on multiple sources, including referrals from customers, vendors, distributors and other channel members

Vendor positioning: breadth of channel requirements will strain available program resources

• Channels are likely to position themselves as best-of-breed suppliers, but both best-of-breed and single-vendor approaches carry risk
• Channels look primarily for vendor business stability and end-to-end solutions, but there are no suppliers perfectly equipped to meet these needs
• At a high level, channel members are looking for product training, pre- and post-sales technical support and effective incentive programs
• Cloud channel requirements are much more diffused. Various forms of technical support are essential, as are selected forms of enablement, economic and offering/portfolio support
• Vendor websites are the primary means of conveying marketing messages to the channel, but again, portfolio requirements are extensive and complex

Working with the SMB Cloud customer: the SMB channel struggles to keep pace with evolving SMB market demand

• Over 60% of channel members offer cloud solutions to SMBs today, and that proportion is likely to rise to nearly 80%; 62% of those who are offering cloud solutions expect increased revenue from these offerings in 2015
• Across the major cloud delivery models, channel support is strongest for SaaS, but it is also substantial for IaaS, PaaS and communications as a service (CaaS)
• The channel is actively supporting cloud storage and other capabilities (such as security and content delivery) that take advantage of inherent advantages of cloud. In many cases, support for common business application workloads also tops 50%
• The channel is progressing in its efforts to establish “truly consultative” relationships with SMB customers, and these relationships are positively correlated with cloud success
• The SMB channel is opting primarily for self-branded cloud solutions (supported either internally or by vendor partners), but there are benefits and risks to channel-branded and vendor-branded offerings, and channel or vendor-supplied support
• The key challenges to building cloud practices within channel businesses are primarily internal; market-based objections are falling away as SMBs embrace cloud as an IT service delivery platform

The SMB buy-side/business perspective: a tale of opportunity and limitations

• Cloud addresses important and clearly-defined SMB business and IT issues. As a result, demand for cloud will continue to be strong for years to come
• Cloud has more of a mixed impact within channel businesses: it creates major challenges in some cases, and addresses channel business issues in others. Channel businesses need to capitalize on opportunities while mitigating areas of exposure or uncertainty
• Hybrid on/off-premise infrastructure is a reality in the SMB market. Channel firms that can effectively integrate traditional and cloud environments are well positioned for success
• Technical expertise is an important attribute, but strong customer relationships rely primarily on working with customers over the long term, and understanding their industry requirements and business needs

Each of the topics is covered in depth in the report. What emerges is a portrait of a market that offers tremendous opportunity for SMB channel partners that are able to build and invest in a cloud strategy, but one that is marked by tremendous challenges for channel organizations that lack the will or capacity to adjust to a changing SMB business environment.

Similar state of SMB channel reports are being analyzed for mobility, managed services and virtualization.

Most SMB channel partners are positioned as “your one-stop solution provider.” The approach – which one might refer to as “we sell IT stuff, and you need IT stuff, and we understand it better than you do, so buy it from us” – is likely to come under pressure in 2015. More successful SMB VARs would focus on understanding how technology is used within business processes. Processes in turn can be horizontal (e.g., content management) or vertical, specific to the needs of a particular type of business (e.g., construction project management). Understanding the connection between vertical processes and IT – the stuff a VAR might sell, the (cloud) stuff a VAR might broker, and the stuff the SMB client is already using – represents a kind of expertise that will support a long-term billable relationship between “trusted advisor” VAR and client, and that this kind of relationship will become more important than the capacity to deliver IT as a horizontal solution source.

Trends in the channel are felt throughout the IT ecosystem: they affect the pace at which new products gain market acceptance, play a role in determining which vendors rise and fall in market share, and have an enormous effect on the ability of small and even midmarket businesses to absorb new technologies and apply them successfully to business challenges. The epicenter of the trend impact is, of course, channel businesses themselves as they act as a key connection point in the IT product lifecycle.

What will we see in the channel in 2015?

Having the right information in the right context in the right format at the right time is critical to making business decisions these days, and increasingly that means access through mobile devices – whether it is the roughly 30% of consumers who own tablets or those tens of millions who get information from a Smartphone. A recent Techaisle survey of over 600 channel partners uncovered several important similarities and differences between how SMB channels are approaching three of the most important trends in the market: Cloud-Computing, Mobility Solutions and Remote Managed Services. In this post we will offer a snapshot of some characteristics of Mobility in the SMB Channel.

From a demand perspective, 60% of partners reported having SMB customers request Mobility Services, with almost 80% of ISV customers topping the list. Not surprisingly, email – the killer app, is the most used and offered service with about 50%, followed by Payment Processing with over a quarter. As we have found in other surveys, the front-office, revenue-related applications of CRM, especially among ISVs, and SFA, especially among SPs and Social Media Marketing, especially among SPs, were all being adopted by almost a quarter of respondents. We expect a rapid uptake in 2013 in the area of Mobile Analytics, which is being embedded into many front office SaaS applications in the form of dashboards and self-configured KPI management with proactive communications, or from the several cloud-based pure-play BI vendors in the market. As mentioned following the recent Citrix announcements, we also believe the market is ripe for adoption of Cloud-based Productivity Suites, which will also drive adoption of mobility among SMBs.

In many areas of Cloud Computing and especially Remote Managed Services, the big inflection point in both adoption and average spending does not happen until the 100-249 employee segment, but not so with Mobility; approximately 60% of the demand comes from the 1-9 and 10-49 employee segments, with the increase in email (across the board) and Social Media Marketing and Mobile Advertising (ISVs, SPs) driving the trend.

There are differences in the approaches, needs and challenges between SMB channel types when offering Mobility Solutions to customers, typically falling into Cost and Complexity, Management and Employee, Network and Device and Security categories. In this example, we see some key differences between the VAR/SI and SP partners related to the provision of Mobility solutions. Poor Network Service is the biggest challenge for VAR/SI partners, followed by Insufficient Network Speeds, Lack of Integration/Compatibility, and Immature Platform Choices. Both were challenged equally by Slow Performance of Mobile Apps and Device Management issues. SPs biggest challenges relative to VAR/Sis included Lack of Applications Availability, followed by Poor Mobile Web browsers, and Network and Device Issues.

As the market matures, these challenges should dissipate with increased mobile responsiveness built into websites and applications, more affordable device and data plan pricing and wider adoption of smart mobile devices. For now, the perennial SMB issue of cost and complexity of new technology balanced against perceived and demonstrated return on investment remains the most important barrier for channels to overcome.