Techaisle Blog

In the report “The SMB Channel and the Cloud”, Techaisle uses findings from in-depth surveys with US-based channel firms deriving at least 50% of revenue from sales to SMBs to illuminate conditions within the US SMB cloud channel, and to develop perspectives that suppliers (and the channel itself) can use to construct successful cloud channel strategies.

From 2013 to 2015, the percentage of SMB-focused channel partners that have become very successful in selling to SMBs has increased from 40% in 2013 to 63% in 2015. On the flip side, the percent of partners who are unsuccessful has increased by 60%. MSPs are the most successful partner type in cloud, while consultants are struggling to gain traction in the cloud market.

Highlights from the research include:

What is the current state of managed services in the channel?

Techaisle’s SMB global channel partner research shows that in the US 71% are currently offering one or more managed services solutions and another 18% are planning to offer managed services within one year. 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. With that in mind, it is fair to ask, how widespread is managed services delivery today?

Figure below, taken from Techaisle’s US SMB Managed Services Channel Study illustrates the proportion of channel partners that currently offer managed services to SMBs. Unsurprisingly, 100% of MSPs report that they do so. What might be more surprising is the extent to which channel members with other core business models provide managed services to their SMB clients. Roughly two-thirds of VARs and SPs, and 80% of SIs, offer managed services to SMB customers. IT consultants are less likely to do so, but here, too, one-third of firms are already using managed services delivery to support SMB clients.

Above data demonstrates that there has been and continues to be substantial take-up in managed services as a business delivery model outside of MSPs. This will help to build SMB customer awareness of the benefits of the approach and comfort with managed services as a delivery model. It will also have a positive impact on the channel generally, as experience with managed services helps build channel familiarity with recurring revenue models which will be important in other important channel business areas, such as cloud.

Comfort level with – and profitability of – managed services

Clearly, SMB channel members of many types are investing in developing managed services capabilities. This trend begs the question, to what extent are these firms benefitting from these investments?

A strictly “by the numbers” review of the state of the SMB channel in the US paints a portrait of a well-balanced but fragmenting industry. Techaisle’s survey of SMB channel partners finds that revenues from products and services are approximately equal, and that services revenue are being derived from transactions that do not include products as well as from product-inclusive deals. SMB channel respondents report that 58% of revenue is attributable to services-led contracts and that a similar proportion of revenue is derived from recurring sources, vastly different from 2012, 2013 and 2014.

It is worth noting that while measures of this type provide a very useful benchmark for channel partners, some interpretation of the benchmark data is necessary. For example, the proportion of business attributable to services is only part of the issue that SMB channel management is wrestling with: what kind of services (for example, managed PCs or device maintenance?) is an important consideration in evaluating the impact of a channel services revenue stream.

Similarly, growth in services revenue is not necessarily a proxy for progress, as it can result from simple reductions in product revenue rather than effective transition to a business model properly aligned with the market as a whole. Techaisle believes that SMB channel partners that are looking to be part of the “managed services” channel should be targeting just over 20% of services revenue derived from managed services in 2016, and more than 40% by 2018.

The revenue growth expectations are also interesting. Although 63% of SMB channel partners are expecting revenue increases in the next one year, the scenario is quite dismal for VARs as compared to MSPs. 54% more VARs than MSPs are expecting their revenues to remain flat and a percentage of VARs are expecting their revenues to decline by an average of 30%. Even some MSPs are expecting their revenues to decline by an average of 20%.

However, the overall optimism for growth provides some insight into how and where the channel is growing.

India is witnessing unprecedented growth driven by favorable demographics, a young working population, rising income levels, urbanization and growing brand orientation. India’s retail industry has emerged as one of the fastest growing industry and is projected to grow almost to US$1 trillion by 2020 from the present market size of US$600 billion in 2015 driven by income growth, urbanization and attitudinal shifts.

However, it must be said that Indian retail is still dominated by unorganized sector. Organized retail penetration is just 8%. The biggest challenge facing the Indian retail sector is the lack of efficient supply chain. Within retail, India's IT hardware market includes many product segments such as desktops, laptops, phablets, tablets, printers, and other peripherals.

Techaisle team has been tracking the channel market and specifically sales out of various IT products in India for a decade. At last count, Techaisle India channel census data shows that there are over 30,000 channel partners in India. Supporting this vast channel network are eight national distributors and 159 regional distributors. Techaisle research shows us that there are typically four types of retailers.

With a country so large with varying maturity of IT adoption and number of distributors and retailers/resellers it is but natural to see a very complex PC distribution flow. Techaisle team tracks the percent units that flow through various intermediate channels from the OEM to the end-customer.

It is common knowledge that India’s e-commerce market India is still in nascent phase, yet it is growing rapidly but IT hardware sales through e-commerce websites or through the company's own website are still in the single digit-range as percentage of total sales because most of laptops, desktops, and tablets sales are still sold through bricks and mortar shops. In order to expand in India, large technology companies have been increasing their focus on smaller towns and non-tier 1 cities. For example, by end of 2015, Dell plans to more than double the number of its stores (named Dell Exclusive) in India to 825. In 2014, Dell had already doubled its number of stores to 400 from 2013.

Organized retail started more than a decade ago and significant growth has been achieved. However, most of the retailers have struggled to achieve a desired level of profitability. Leading retailers are now putting profitability at the top of their agenda. Croma was the first multi-brand store to sell consumer electronics among other retail products. Today, major retail players include Reliance Retail (Reliance Digital – 151 stores), Pantaloon Retail Ltd (eZone – 92 stores and Electronic Bazaars), Videocon (Next Retail Ltd – 144 stores), Tata Sons (Croma – 101 stores), Sumaria Appliances and Vijay Sales (54 stores).

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Table of Contents

• Indian IT retail landscape
• Major IT retail hubs in India
• Distributor and Retailer count
• Increasing focus on OEM branded stores
• Leveraging distribution and sales networks through strategic partnerships
• Types of Retailers
• Complex PC Distribution Flow
• Pain points of smaller retailers
• Explosion in E-commerce and M-commerce retail channel
• Overcoming inefficient supply chain management
• Overcoming logistics and warehousing challenges of Indian e-commerce
• Organized retail sector competing with online retail
• Brick-and-mortar retailers warming to E-commerce