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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.

New wave of SMB channel conflict in building a cloud practice

This is a two-part blog article. The first part dealt with “SMB IT channel reaching an inflection point”. Second part, below is on “New wave of SMB channel conflict in building a cloud practice”.

Turning a supertanker

Building an effective cloud practice within a channel business is a complex undertaking. Using an old metaphor, it has been compared to “turning a supertanker.” This is an inapt comparison, and not just because the vast majority of channel businesses are far smaller than a large ocean vessel. The real problem with the comparison is that turning a supertanker refers to an exercise whose success rests on an anticipation of future change. Certainly, this is part of the problem for the channel – what is the best time to invest in ramping up cloud practice resources? – but the issue has a much greater scope.

A successful cloud business practice requires new management metrics, new financial models, new sales processes (and generally, compensation models), new vendor relationships, new marketing activities, new consulting capabilities and new technical support capabilities. To use a nautical analogy, creating a cloud practice within an existing channel business is like building a second boat within your ship, sailing it off in a different direction, and maintaining alignment between the two courses in order to maximize synergies and benefits and reduce expensive discontinuities.

Abundantly Complex

If this sounds difficult and complex, well…it is. However, there is abundant reason to believe that the exercise is necessary for future viability and success. Roughly 80% of channel firms either offer some type of cloud solution today or are planning to offer cloud solutions; of these, more than 60% expect cloud revenue increases in in next one year (Techaisle’s SMB Channel Partner Trends study). This is not a single-year issue, though: the business impact of cloud within the channel is expected to continue to increase over time. Techaisle expects that over the next several years, the position of the generalist channel firm – the “one stop shop for solutions” – will become untenable, squeezed by market forces requiring higher degrees of specialization. Some channel firms will specialize in cloud, while others will link cloud with one or two other specialties, such as mobility, virtualization and converged infrastructure, and/or managed services. But very few channel businesses will remain viable without having a credible cloud business practice.

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Channel challenges in selling cloud to SMBs – diminishing external barriers

What are the obstacles to channel members achieving scale for their cloud businesses? Techaisle’s SMB Channel Partner Trends research and accompanying research The State of the US SMB Cloud Channel shows that increasingly, Walt Kelly’s famous line (from the Pogo comic strip) “we have met the enemy, and he is us” describes the most pernicious challenges associated with development of a cloud business.

Techaisle’s research explored data on 10 cloud sales challenges faced by SMB channel partners in selling cloud to SMBs. Four of the top five – “lack of in-house expertise”, “do not have financial resources,” “lack of knowledge about cloud computing” and “do not know how to implement [cloud solutions]” refer to internal issues, and two others, “do not understand the [cloud] business model” and “offering cloud-based services will necessitate elimination of jobs at our company,” also reference internal issues or concerns.

Interestingly, external barriers to developing SMB cloud business practices seem to be diminishing in importance.

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Best Positioned Cloud Infrastructure Vendors - SMB & Channel View

Best positioned cloud infrastructure supplier
In Techaisle’s recent SMB Cloud Computing adoption survey, respondents were asked “which of the following do you think is best positioned to deliver cloud infrastructure solutions”. IBM was rated as being “best positioned to deliver cloud infrastructure solutions” by 24% of small businesses, and 23% of midmarket firms. Microsoft is similarly entrenched, seen as best-positioned by 21% of companies with 1-99 employees and 33% of midsized enterprises. Given that Cisco is stronger in larger accounts than in the small business market it is the third-ranked cloud infrastructure vendor in the small business segment, cited by 19% of small accounts, but just 11% of midmarket companies. Clearly, Cisco’s brand equity is helping to support its position in a market where it has sparse actual presence. AWS is viewed as best-positioned by 10% of both small and mid-sized firms, putting it slightly ahead of Dell in both markets. Perhaps as a consequence of its high-end cloud product line, HP is not viewed as a leading cloud infrastructure vendor in the small business segment but is still the third-most prominent brand in the midmarket.

Who is ‘top of mind’ for converged infrastructure?

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The State of SMB Cloud Channel – an inflection point is reached

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.

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