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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.

HPE is serious about addressing the technology needs of SMBs

In 2019, the phrase doubling down on SMB was mentioned several times, including the keynote address by Antonio Neri at HPE Discover. Fast forward to the present, HPE's SMB momentum is building. George Hope, a 22-year veteran with SMB channel experience, is the new worldwide channel chief. With more than a decade of SMB market understanding, Maciek Szczesniak is the new Vice President and General Manager SMB and Mid-Market. HPE's GreenLake, a flagship, "as-a-service" product, which offers a flexible alternative to traditional IT hardware consumption, is now available in a smaller starting capacity targeted at channel partners and their SMB and midmarket customers.

HPE is undoubtedly doubling down on the SMB segment. Last week HPE made several announcements:

- Smaller starting capacity for HPE GreenLake
- SMB FlexOffers program for SMB and midmarket customer
- Specialist support for HPE GreenLake and Storage portfolios

Smaller starting capacity for HPE GreenLake

HPE GreenLake packages now are available from as low as $70,000 with storage (HPE Nimble Storage) and compute (HPE ProLiant servers). The storage starting capacity is 15TB and compute at 4 servers. HPE will continue to offer a 17 percent reseller rebate to drive profitability with partners selling HPE GreenLake. In the coming months, HPE plans to expand to provide a lower starting capacity across the technology portfolio. The speed with which HPE is lowering the minimum threshold is commendable. In mid-2019, HPE had announced a $200,000 minimum targeted at midmarket customers, only a year ago.

The announcement is very significant in addressing the technology needs of SMBs and midsized businesses. Most SMB executives understand that technology plays a central role in their management processes. Many also realize that payback on any technology asset increases as one approaches full utilization and that economies of scale tend to benefit larger rather than smaller organizations. SMBs know that they cannot realistically target and reach optimal IT resource utilization. A small business has trouble consuming all of the new systems' capacity, meaning that they often pay for resources they are not using. Those that do get to full utilization have a different problem: systems that lack adequate storage, memory and compute capacity frequently crash. SMBs cannot rapidly deploy new servers, storage, and networking equipment. Even if they were, the SMB would know that it is paying some form of premium: an SMB will never get to the purchase volumes needed to warrant large scale discounts. Hence, HPE's GreenLake, with its consumption-based business model, is an excellent fit for SMB customers.

However, the awareness and advantages of a consumption-based technology acquisition model are limited and challenging within the SMB segment regardless of whether SMBs are the front-runners in cloud adoption. Techaisle data shows that as the complexity of technology increases over the next five years, most small and midmarket firms will not realize the return on investments for long periods or as their businesses scale. HPE and its partners are well-positioned in the market to gain from the massive shift to XaaS procurement models.

SMB FlexOffers program for SMB and midmarket customer

Channel partners are the primary conduit to HPE's SMB and midmarket success. Price-conscious SMBs are demanding agility from their channel partners in their digital transformation deployments of core infrastructure solutions. To meet the SMBs and the partners' needs, HPE debuted its FlexOffers program providing distribution and SMB-focused solution provider partners the ability to customize their built-to-order (BTO) products at bundled discount prices. Partners get the flexibility to select preferred options that, through dynamic attach-driven pricing, can help them access and ensure the best price. Besides, solution providers will drive quicker delivery times by leveraging distributor inventory, and distributors will benefit from an automated, simplified claiming process. In the initial phase, SMB FlexOffers include HPE ProLiant Servers and HPE Storage products. HPE FlexOffers is being offered through select distributors during the pilot starting in November 2020. Partners will leverage the iQuote partner portal that HPE has been refining for the last two years.

Specialist support for HPE GreenLake and Storage portfolios

However, selling "as-a-service" requires that channel partners invest in pre-sales activities. There will be a proverbial opening of floodgates of latent demand from channel partners with the new announcements. Recognizing the need, HPE is committed to providing specialist support for HPE GreenLake and dedicated pre-sales for the channel. HPE will also be providing training for partners to accelerate their HPE GreenLake knowledge and positioning. The additional support will be in the form of dedicated enablement initiatives, like workshops with experts, to help partners personalize their as-a-service journey.
HPE is serious about equipping its partners to participate in the "as-a-service" business model. It offers partners training on HPE GreenLake and an opportunity to self-assess partner "maturity" to shape their own consumption/aaS journey with HPE around their (and their customers') needs.

The shift to "as-a-service" has been in the making for a long time. In FY21, HPE plans to extend partner support and activation through unique and specific enablement initiatives piloted last year with a few partners, who also participated in HPE's "Consumption Advisory Council" meetings. An example is Advizex, an HPE Platinum partner for 35 years.

Not three years ago, the HPE Channel & Pointnext team started to help partners shift to consumption IT and HPE GreenLake to expand opportunities, accelerate digital transformation, and gain competitive advantage. HPE's team collaborated with Advizex on marketing initiatives, education, and dedicated workshops and enablement. This strategic effort allowed Advizex to assess their readiness to shift to consumption, identify the knowledge and actions needed, become proficient in selling HPE GreenLake and consumption IT ahead of the competition, and develop a strategic plan to drive consumption IT with HPE. Now, as HPE doubles down on HPE GreenLake specialist resources, it can extend this kind of support to all partners who decide to focus on HPE's consumption offering.

Solution providers and distributors will also have the opportunity to elevate their conversations and accelerate sales by working with HPE's "Storage Rangers" - outcome-based solution selling experts with a high degree of technical skills. These specialists will help partners enhance the request for quotation (RFQ) process to execute existing campaigns and initiatives.

Storage Rangers are funded heads (aka Champions, partner-badged) with a specific focus on storage. The geographies that have opted-in to the program have nominated a Program Lead (HPE-badged), and that is the go-to person if a partner wants to have a Ranger. HPE offers a specific training curriculum for Sales & Presales Rangers and local support to help them deliver on the request for quotation (RFQ) process and generate new business opportunities.

Each IT supplier is currently focusing on streamlining deal registration for its channel partners. Techaisle's latest global channel survey research of our 2400 partners shows that fees and activity-based incentives, solution development funds, and deal registration are significant enablement incentives for 40% to 50% of partners. Partners have an unmistakable idea of their criteria for partnerships - vendors that are easy to do business with, technical support, quality of partner programs, and those who offer end-to-end solutions that are easy to deploy, integrate are preferred. HPE is increasing its commitment to providing its partners with price and margin protection and new incentives as part of its deal registration program.

Final one-line Techaisle Take

Competition with Dell is on full display. There is no reason to ignore HPE as an IT supplier and a vendor partner for addressing the technology needs of the SMB and midmarket firms for better business outcomes.

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Channel partners developing best practices for digital transformation

Digital transformation provides enormous opportunities for the channel partner, particularly the reseller community, that has been negatively impacted by the recent economic downshift. Although 71% of partners offer digital transformation solutions to their customers, only 10% help their customers integrate digitalized processes to deliver real digital transformation business outcomes. Channel partners focusing on a single type of product or service cannot act as trusted partners in digital transformation. Instead, they become suppliers to an ecosystem that other solution providers are tapping into as they work with customers to evolve digital transformation capabilities.

Digital transformation is demanding that channel partners develop extensive new capabilities and best practices. It also offers a means of establishing a business-level customer relationship to secure ongoing/escalating account revenue and influence, which will improve the business outlook (and enterprise value) of firms able to capitalize on customer need for digital transformation support.

Techaisle surveyed and studied channel partners globally to understand the best practices and critical competencies that channel partners are building to be more successful than others.

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Post-pandemic lead generation is proving problematic for channel partners

Six months have changed how SMBs and enterprises operate, how employees work, how customers purchase, and how products/services get delivered. A shift in go-to-market imperatives has become problematic for channel partners. Techaisle leveraged its panel of 225K channel partners to understand the impact of the pandemic on channel business. 49% of channel partners have allocated resources and budget for lead generation, but 60% rely on leads from vendors, an increase of 18% from pre-pandemic. 29% more channel partners than previously are finding social media as one of the most effective methods of lead generation. 46% of partners have increased their usage of analytics to drive leads, and 60% have increased influencer marketing.

Techaisle survey research data also shows that for 42% of channel partners, driving growth is the top business issue, especially with a clear focus on increasing the effectiveness of sales and marketing. Despite pandemic, 68% of channel partners expect revenue increases in the next year but have tempered their revenue growth expectations from 19% to slightly over 10%. Channel partners deploying digital transformation solutions expect ~2X revenue increase compared to those who are still not focused on digital transformation offerings for their customer base.

The requirement to focus on digital discovery conveys some hard truths. The first is that channel partners need to reach a large and diverse buyer population, extending beyond the IT department into business units and the executive suite, which means that marketers need to create and place various messages to keep the sales process on track. Another important implication is that prospects who engage with a vendor will represent a relatively small subset of the total potential market, as many buyers will disqualify suppliers before drafting a potential vendor list. The third implication follows the first two: to maximize the addressable market; channel partners need to embrace digital marketing as a way to gain entree to accounts that have not yet self-identified as prospects. Channel partners that rely on traditional lead generation campaigns realize that these funnels are reaching a diminishing share of the market.

Marketing has not been a primary focus for most channel businesses, and those that have invested in marketing staff have typically tasked them with optimizing access to vendor investment funds. Marketing’s need to add advanced digital competencies is challenging most channel partners. Vendors will need to provide programs that support content and digital marketing to ensure that their partners can engage with the largest possible number of prospective clients. Techaisle’s research highlights the core issue. Buyers, working in teams that average 5.1 individuals, typically don’t have meaningful contact with a supplier until they are 70% of the way through the purchase process.

All four of the top IT suppliers – Dell Technologies, Cisco, HPE, and IBM – have made partner marketing a priority.

  • Dell Technologies’ Cheryl Cook, SVP, Global Partner Marketing, is made it a mission to equip and educate partners with a series of guided podcasts and webinars
  • Cisco’s Boon Lai, VP, Global Partner Marketing, is enhancing the marketing velocity program
  • HPE’s Laura Seymour, Senior Director, Global Channel Marketing, is focused on Marketing Pro and Partner Marketing Concierge
  • IBM’s Catherine Solazzo, VP, Partner Ecosystem Performance Marketing is driving My Digital Marketing platform

If the customer journey begins with research conducted via the web, the marketing imperative must start with digital discovery. The channel partner marketing teams should take advantage of their IT suppliers’ initiatives, invest in putting thought leadership messages in front of prospective customers, and in the processes required to nurture new contacts to the point where they become sales-ready leads. Leaders at traditional channel partners will recognize this endpoint – but the process needed to arrive at this point is much different in the post-pandemic world.

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COVID-19 Impact - Time to revisit pure-play MSP recurring revenue model

Consider these statistics from Techaisle’s recent worldwide channel sizing and channel trends studies. 62% of MSPs have less than 25 employees, 92% of MSPs have less than US$5 million in annual revenue. A large majority of these MSPs sell to smaller SMBs who are currently experiencing gut-wrenching disruptions to their businesses. MSPs are not immune to the COVID-19 crisis. 15% of MSPs either want to sell their business or wind down and 52% of MSPs need external capital to grow and remain viable or are seeking M&A opportunities. While MSP business model success is predicated on recurring revenue, profitable MSPs drive more than 40% of revenue from non-recurring sources. Pursuit of recurring revenue is not a bad idea as it provides a foundation for future revenue and it is important to business valuations. But data shows that recurring revenue is not the sole indicator of business success.

Recurring revenue can predict earnings thereby reducing risk, however, selling licenses or seats alone does not create a high margin business. MSPs who have moved to predominantly recurring revenue model are more likely to run out of operating capital than they are to reap the benefit of enhanced business valuations or the ability to manage cash flows during an episodic global crisis. Techaisle’s survey data clearly shows that channels with high percent of recurring revenues have been consistently unsuccessful in managing uncertainties in business climate. MSPs that lack margin also lack the ability to invest in improving their capacity to innovate and compete in the long-term and for weathering business interruptions. MSPs that do have meaningful margins, on the other hand, have the ability to invest in capabilities that enable them to expand into new market areas or overcome periods of economic crisis.

A typical pure-play MSP’s 84% to 90% of recurring revenue is spent on human capital, RMM/PSA solutions and other overheads, leaving between 10% to 16% for margins.

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