Techaisle Blog

All predictions below are compiled based on SMB and channel surveys conducted in 2012 covering Cloud, Mobility, Virtualization, Business Intelligence, Marketing Automation, Managed Services, Business Issues, IT Priorities, Channel Challenges across several countries.

SMB focused Predictions

• As SMBs continue to adopt cloud computing aggressively they will continue to move away from capital budgets; Revenue will become the focus rather than tight cost control. The buyer will move toward the department that is responsible for delivering business results and thereby revenue. The CMO becomes increasingly important as this unfolds.  Further, countries are coming out of economic slump which was a major factor in the initial move to the Cloud, as firms were scrambling to reduce capital outlays and reduce OPEX. But SMBs are now priming themselves for growth, and the Cloud is firmly established as an important tool to build the business.
• SMBs’ emphasis on front-office, revenue-generating applications will continue with CRM at the hub and with more marketing automation and business intelligence applications. The base of marketing automation vendors will continue to consolidate as start-ups fail and pure-plays are acquired and big players roll out integrated solutions. Cloud CRM spend will continue to grow at a healthy rate of 21 percent.
• Communications, Collaboration, Content and Context will be the primary computing scenarios of SMB IT departments, driven by Mobility, Cloud-based Applications and Process Optimization. Virtualization, Cloud, Mobility, Managed Services will together form the Four Pillars of IT that will support the transformation of SMB, enabling them to reach their full potential in the shortest period of time. The foundation for these four pillars will be the datacenter, both off-site and on-premise depending upon SMB segmentation. Techaisle forecasts that global SMB Cloud spend will grow by 22 percent in 2013, Mobility by 14 percent, Managed Services by 15 percent, Virtualization by 25 percent and datacenter by 8 percent.
• The adoption of cloud-based productivity suites among SMBs will accelerate which will begin to balance usage of collaborative and individual SaaS applications. Office365 will go main stream along with increased usage of ERP and more sophisticated applications, offering new customer and other value-added opportunities in data and application integration. We expect SMB Cloud productivity suites spend will almost double from relatively slow adoption through 2012.
• There will be a significant increase in emphasis on data integration rather than application integration; data will be combined from several sources to power different application blocks and embedded business intelligence functionality, as we first predicted in 2008.
• The SMB server and network will start becoming less visible as they progressively move offsite physically and from a remote management perspective. Cloud-based server spend will likely grow by 40 percent as compared to on-premise new server spend growth of 5 percent, the benefits of remote management overwhelming the on premise for headcount-constrained firms.
• Although social media will gain importance, SMBs will continue to struggle to determine ROMI from their social media initiatives and its usage will be considered a “productivity drainer” by many lean-staffed and short-skilled SMBs, unless they are in a local business that requires high customer intimacy to grow and build business. Aggressive SMB adopters will realize benefits but many others will be disillusioned unless advised, encouraged and shown a path by early adopters. The market will be inundated by advisors causing more confusion, especially as big data analytics start showing strong results for Enterprise-level companies.
• ISVs will focus their attention on developing client applications that integrate email, context and workflow to build other productivity applications. New business models and solutions from ISVs and Service providers will appear for SMB mobile apps that will deliver content based on context, beginning with a few verticals and then spreading horizontally.
• BYOD will be the new normal; with priority for SMBs on data and applications management rather than managing devices.
• The next generation of business intelligence and Mobile BI will be widely adopted within SMBs; Upper mid-market firms will experiment Big Data using combinations of Hadoop and other technology (e.g. Greenplum) whereas lower-mid-market and small businesses will look for insights from federated big data deliverables provisioned by cloud application vendors.

Channel Partner focused Predictions

• There will be an accelerating trend to vendor direct through development of remote integrated-service interfaces and inbound marketing initiatives. To counter, channel partners will aggressively develop outbound sales capabilities to compete with vendor direct sales and rise of the Independent Consultant to prevent from being cut out of the distribution chain.
• Successful Channels will finally realize and pursue their individual respective competencies and roles as consultants, business process advisors, integrators, aggregators or plain vanilla cloud deliverers.
• Expect that channel partners will be more successful going deep with integrated suites or a few applications that they integrate rather than trying to provide a complete infrastructure, communications, applications and vertical solutions.
• Channel partners will begin to put together a repeatable, profitable SMB solution that will include proprietary integration value-added services or software, accelerated with productivity suites and collaborative combinations, such as Office 365 and SharePoint, or Google Apps, or the new Citrix ApplicationMe@Work or XenDesktop.
• Cloud aggregators will continue to enter the market, however, few will be profitable as aggregators will need to be able manage reseller relationships with structured sales and marketing programs, implementation and post-implementation support for the channel, and tier-2 customer support for end users.
• Mid-market focused channels will look up to their vendor partners to help combine mobility, cloud, virtualization offerings while others will rely on a partner-to-partner network

Tavishi Agrawal
Techaisle

How big is the SMB IT market opportunity? What is the potential market size of mobility, cloud, datacenter, PCs/Tablets? What is the growth in spend in regions? What are average the spends per business? What are the key business issues?

That is the topic of our Infographic. Click the image to download.

Global SMB IT Spend is poised to reach ~600 Billion dollar by 2016. Worldwide, there are still 26 million SMBs yet to buy a PC, 30 million SMBs do not have a server; some of these may directly move to cloud. They are already using internet to a very large extent. Granted that many of them are less than 20 employees but they are not going to be static. Approximately 560,000 new businesses were started each month in 2012. About 10,000 of small businesses become mid-market businesses each year.

North America and EMEA are infrastructure, software and services driven while Asia/Pacific is product driven. North America has the highest average IT spend per business spend while Asia/Pacific and Latin America the lowest. There is a vast difference between emerging market and mature market SMBs in terms of average spend per business. It is also useful to note that while Asia/Pacific has the highest number of SMB cloud users, average spend per user is less than 1/5th of SMB user in North America.

In terms of business issues, SMBs in the US are focused on collaboration and communications. The three business issues feeding into this focus are reducing operational costs, focusing on new markets and improving effectiveness of sales and marketing. On the other hand Western Europe SMBs are concerned about workforce efficiency with focus on costs was a key driver for SMBs in in that region, improving workforce productivity (getting more out of the workforce) and reducing operational costs. On the other hand Asia/Pacific SMBs want to grow faster than the market and are constantly worrying about market penetration. If they do not act now, they think that the opportunity will slip by.

Download the Infographic (click on image) to get a great snapshot of SMB opportunity including spend on PCs/Tablets, Mobility, Cloud, Data Center, Security.

In a very interesting move, Apple announced that they would invest in returning some production to the US. At first blush, this seems like a bold tactic  which will certainly improve Apple’s brand reputation in the wake of long-standing criticism for moving skilled manufacturing jobs to China, where worker pay and conditions are bad enough to drive some to suicide. And as the number one technology company in the world it is also heartening to see some jobs come back home, but there are a few caveats:

The Apple MacBook is the top of the line notebook with a premium price point, out of reach for most small businesses unless there is strong justification, such as for professional designers and developers who need to pay double that of a similarly equipped Wintel device to do their work effectively. That share of the market has always been small relative to Wintel machines, both desktop and notebook. Apple manufactured Macs in the US until the mid-nineties, after most competitors had moved production offshore. The caveats include 1) whether this experiment will grow to the more strategic iPhone and iPad product lines, and obviously, 2) whether Apple can turn a profit that makes the decision stick after the first $100M is spent.

Apple cites the inability to find the level of skills and manufacturing equipment in the US to be able to turn out production rapidly and with high quality. No doubt Foxxconn, Apple’s Chinese production partner, who already operates some plants in the US, will be looking to expand operations here. They had issues ramping up production to meet demand for the new iPhone and there were hiccups, followed by reports of Foxxconn negotiating multi-billion dollar deals in Brazil, to manufacture there. Regardless of how that materializes, today’s announcement will dampen some criticism that would accompany the final press releases from Sao Paolo.

Enter the Dragon

Another reason this makes sense to us is that China’s technology vendors are on the rise – no surprise there. But consider that within 7 years of buying the ThinkPad brand and manufacturing rights, Lenovo has become the #1 PC vendor in the world in unit shipments, (#1 by Gartner, #2 by IDC) squeezing 10% out of the global share in a stagnant market in the last few years alone while jumping to 30% share in China, 3X the nearest competitor.  It was also announced today by Reuters that Apple fell to #6 in the Chinese smartphone market, which is growing in leaps and bounds to 60M units per quarter, with intense domestic competition and Samsung leading the pack. Lenovo is number 2 in the smartphone market as well as having the overwhelming first place position in PCs mentioned earlier, #5 smartphone seller Huawei, is gobbling up global market share in the telecom equipment market at an alarming rate.

We have written several times about the rising competition from China in the hardware manufacturing end of the IT market, and of its’ growing importance as the second largest PC, and largest Smartphone market in the world, with a billion users and 60 million units sold per quarter. As shared with our readers in a September article about Internet adoption and managed economies, China and Korea have many similarities that make for a reasonable scenario of things to come. Take it from someone who lived 15 years in Asia and has been watching Korea for 30 – the voracious appetite for material wealth, pragmatic style of government and East Asian capitalism will leave no stone unturned. Take Samsung for example: between 1990 and now they have become the number one maker of TVs in the world, starting from scratch and displacing the Japanese faster than they displaced American manufacturers, #1 in memory chips and some other semiconductors, #1 in Smartphone handsets (almost double Apple in unit shipments), a global leadership position in screen technology, squeezing Sharp, Toshiba and others for the keys to the future standard, and a global frontrunner in CE and white goods. These guys are US Steel in their heyday. And they are a major supplier to Apple for the most important products. And the legal battles are not over yet, according to this CNET News video. They have Foxxconn on the left and Samsung on the right. With friends like these who needs enemies?



CNET on Samsung Apple Lawsuit.

Strategically Apple’s move is understandable, at least from the outside looking in. Steve Jobs’ genius for aesthetic design, usability and commitment to quality helped create the PC revolution, arguably the single most important technological advance aside from the Internet since the Industrial Revolution. It also got him ousted from Apple as decisions about long term architecture were made. Although Apple always had (and still has) a very loyal following in the computing arena, they did not gain more than 10-12% market share from 1980 to 2000. This meant that Apple had to drive enough margin to support R&D for operating systems, a proprietary microprocessor, end user applications and non-standard chassis and other components.  By contrast, the rest of the PC market leveraged standards and Scale Economies as investments were diffused in the market. The Microsoft standard OS and a maturing suite of interoperable applications were the lynchpin of the ecosystem and resulted in hundreds of companies joining the competitive fray. White box and private label manufacturers sprang up everywhere, eventually producing branded competitors like Dell and Compaq who were selling practically as fast as they could produce. By 1996 Apple was being counted out by many analysts as an also-ran. Eventually in 1997, Jobs was brought back in to save the company, which was considered a very risky personal move at the time.

In his second stint as CEO, Jobs turned Apple around and helped solve a problem that almost put the recording industry into insolvency; how to make money in the music business when new technologies allowed free files to be distributed at will and pirated on a global scale. Apple introduced iTunes in conjunction with EMI, and solved the Digital Rights Management issue. Under Jobs they had to kowtow to Redmond and adopt compatible MS Office Application Suites, which were not interoperable to that point – no swapping files between Apple and Microsoft users, and move to an Intel architecture. Despite several earlier failures, such as the Newton, Apple achieved a breakout hit with the iPod, and iTunes began printing money. Next came the iPhone, which almost immediately become the third largest handset brand in the market, followed by iPad in 2010, and several versions of iPhones. The products have produced a ravenous worldwide customer base and made Apple the most valuable (tech) company in history with a half-trillion dollar war chest.

The point is that Apple’s meteoric rise is more a function of the transition to CE and Smartphones than its’ leadership in computing and now they are in a bind; they are stretching their existing supply chain, they rely on advanced manufacturing resources and skilled labor that have been developed offshore, their largest potential market (China) is controlled by arch-rival Samsung, with whom they are in a nasty legal battle and depend on for key components. Prepare to Repel Boarders.

Next Chapter in the Bits vs. Atoms Saga

Apple’s success with iTunes came as a result of a property of the Internet that is now at the root of their problem: value moves at the speed of light when it can be digitized, and even when that value is in the form of an optimized supply chain, there are physical limits imposed by materials and the movement of products that ultimately make manufacturing a challenging business. On one hand you have companies like Apple, who source, manufacture, sell and distribute 125 million smartphones, along with millions of other devices. On the other hand there are companies like Google, whose value can be delivered over a network, relying on increasingly large server farms and unfettered access to electricity, but with much less need for operational infrastructure. Cisco and Oracle are another example although not as stark. Huawei is exerting substantial pressure on US firms as a global competitor and causing Congressional sabre rattling, as we noted here.  Telecom equipment has been a hardware-oriented business but is less at risk because of innovation toward software and network integration – moving toward bits and away from atoms, demonstrated by Cisco's recent alliance with Citrix. Earlier we discussed Lenovo, which has overtaken first Dell and now HP and is the global leader in PC unit shipments.

As noted, we think moving some manufacturing back to the US will bring some benefits, not least of which is the PR value of bringing some jobs back home. It is slightly diluted by the fact that production of the most important product lines will not be possible for some time to come and does not decrease reliance on Foxxconn or really help with the Samsung conundrum. However if the experiment succeeds and a profitable advanced manufacturing sector can be developed and others follow suit it will be a very good thing for all of us in the technology industry.

According to our latest forecast, which takes into account the first three quarters of 2012 research, the SMB Managed Services market will grow from $27B to $44B between 2012 and 2016, compounding at over 12%.  Remote management monitoring services will cross US$15B during the same time period. Key points of the update include:



The most attractive segments are shown in the chart and sorted based on opportunity (2016 value>$1B), and growth (arrows are relative), so the largest and fastest growing segments are shown. Rank based on revenue opportunity is listed in the left hand column.

13 of the 19 sub-segments are expected to reach over 1B$ in opportunity by 2016, with over half growing at double-digit rates,

The Remote Services segments are generally growing faster than onsite, with notable exceptions in India where the labor market and domestic bandwidth contribute to a viable onsite market, and China, where second and third tier markets are expected to adopt remote services more slowly than the combined remote/onsite increase.

While at 12%, the market is not growing quite as fast as in Cloud Computing, the robust increases will be a very good opportunity for SPs and MSPs in the market. The difference in fulfillment and delivery between cloud computing and managed services is thinning rapidly. Channel partners and managed services providers are quickly cross-migrating their skill sets to serve both technology areas. The path being chosen by Channels to move from one offering to the next is strongly dependent upon their current offering.  Those that are in the mobility space are moving to cloud, while those in the cloud are moving to managed services. The point being that understanding the channel dynamics and current offerings can provide  clues in the direction they will move. Similarly, within managed services, the channels are moving from one offering to another; vendors wanting to partner with Channels must identify the ideal cluster of services to take advantage of Channels outreach and capabilities.

Techaisle offers forecasts for all the above sub-segments by Region, Country, SMB company size and Channel flow share, customized to your needs. Please contact us if you would like more information on how this information can be combined with your internal market model to offer a clearer view of  opportunity and resource allocation to best increase market share share during 2013 and beyond.

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