Techaisle Blog

This is a two part blog article. The first part, published earlier, reviewed the predictions we made for 2015 and the second part, below, focuses on outlook for 2016 and for the longer term (2017 - 2020).

Top 10 Predictions for Year 2016

1. 2016 will see even more intense emphasis on “CIA-Plus”
IT Suppliers will begin to align their offerings with Cloud, IoT, and/or Analytics; products that do not address end-user needs in these areas will be positioned as infrastructure and integration services needed to capitalize on these technologies. This trend, like hybrid IT, will continue into 2017. In 2016, Cloud and Analytics will remain among the top five IT priorities of SMBs and midmarket businesses. IoT will inch its way up into the priority list, though adoption will remain limited.

2. Rise of IoT will be constrained by a lack of real-world examples
From a buy-side perspective, the rise of IoT will need to be fueled by real-world examples showing the benefits of automating tasks and processes within IT and in other sectors. Within the SMB community, we expect sporadic implementation and a lack of concerted effort towards creation of IoT strategy, even though IT suppliers will continue to push forward their solutions hoping to remain top-of-mind in order to claim leadership in this emerging space. Each IT supplier will create its own solution set causing decision and adoption inertia, despite the wave of innovation that we expect to see emerge from the smaller & more agile IoT providers that are able to more easily align IT expertise with real life solutions. Experienced consultants and system integrators in particular will hold sway in matching SMB adopters with suppliers.

3. IoT supplier success will be determined by ecosystem management
On the sell side, the rise of IoT will be accompanied by an intense wave of interest in ecosystem management. It is difficult to buy or sell a “box of IoT”, though providers will claim to provide complete solutions. Parenthetically, this constraint is not limited to IoT. While it is possible to sell a “box of cloud” under the right circumstances, only AWS really manages to do so. And while one can sell a “box of analytics”, the boxes themselves come in a lot of different shapes and sizes. To meet SMB and enterprise buy-side demand for IoT, sellers will assemble coalitions that provide the many products and services that comprise an IoT solution. This will make alliance management a key success factor in the marketplace. The last time alliances determined market leadership; SAP became the global standard in ERP. Niche value added reseller may find a new source of success in IoT.

4. Business transformation will continue to elude analytics users
Analytics users will find that they are not achieving the expected benefits, prompting divergent responses. Some SMBs will find that analytics has not been transformative, and will blame the technology; others will look to move past descriptive and diagnostic views, piloting predictive or prescriptive initiatives. One of these responses is clearly more sensible than the other, but that does not mean it will be universal, at least in 2016. Focus on visualization will increase (mine is better than yours), on how the technology can solve business issues and challenges for SMBs and midmarket customers. Simplified implementation of customer and social analytics will be key drivers of adoption.

5. “Hybrid” will be used more often in conjunction with “IT” than “cloud”
User organizations will accept the notion that their focus on cloud needs to evolve into a focus on hybrid IT, as firms realize that their platforms and management scope must encompass on and off-premise systems. Truthfully, there is still a lot of work to do in cloud adoption. But the nature of the discussion has changed from “what and how do we move to the cloud?” to “what do we do to build an integrated, manageable infrastructure?” In 2016, there will likely no longer be an infrastructure debate about use of cloud, but there will be an important emerging discussion around managing hybrid IT.

6. Collaboration will drive “silo” to the realm of four-letter words
Anywhere, anytime also means any type of collaboration. SMB & midmarket businesses will look for unified shared workspaces that allow employees to enter into the workspace from any entry point to work together, collaborate and interact. Collaboration solutions cannot be deployed on stand-alone platforms – they need to be viewed as a framework for integrating multiple capabilities, native to multiple applications.

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.

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

SMB IT channel has reached an inflection point. In some sense, this statement appears to be just another observation of a recurring phenomenon: the SMB channel is constantly in a state of flux, responding to changes in the underlying industry by adding (or deleting) products and capabilities to its portfolios. The SMB channel’s situation in 2016, though, is different. Changes in the ways that IT is used within SMB organizations, the relationships needed to build solutions addressing these needs, and the skills required to support these usage patterns and solutions are fragmenting the channel into discrete (if overlapping) communities.

Rewind

To put this into perspective, let us rewind a decade, or two, or three. In each case, we see a channel that is reliant upon relationships with customers and suppliers, and which forms the connection between the two groups. Looking first at the customer relationships, the SMB channel organization works with SMB firms in a defined market – generally, a regional market, but in some cases, a market defined by region and industry, and in fewer cases still, a market defined by adoption of a particular type of technology (e.g., a specific type of software – content management, design, etc.) or a specific vendor’s products. The SMB channel firm deals with a tightly-defined contact or set of contacts within the customer organization: in most cases, the IT manager where this role exists, or a senior executive/partner/owner in firms too small to have in-house IT staff. And it provides management services for installed technology, support for users, and analysis and recommendations for new technology.

This position as a “trusted advisor” (or at least, regular supplier) to a defined customer base makes the channel a valuable partner for IT vendors. The vendors can work with the channel partner to introduce new technologies to a target market. The channel benefits by having access to products that shape future analysis/recommendations to customers, extending the channel/end-user connection. The channel also benefits from obtaining margin from the vendor and from vendor investments in channel marketing activities, as well as from a degree of co-investment in skills development. The channel aggregates new vendor offerings to extend existing customer infrastructure, completing the connection between buyers and new products.

For decades, this model worked largely because most new products could be added to most existing infrastructures. IT followed an incremental and relatively homogenous path; companies deployed servers and storage and a set of core financial applications in the back office, PCs and productivity software for individual workers, and upgraded to keep current with interoperability and maintenance requirements. Towards the end of the 1990s, web servers became a core component of this corporate compute portfolio, and firms would occasionally add capabilities (such as IP telephony) in advance of competitors, but like the upgrades and extensions, the progression of new technology was more deliberate than disruptive.

Today

In recent years, IT adoption has become more diffused.

Techaisle’s SMB & midmarket virtualization adoption research shows that some adoption drivers that were less important in 2013 have assumed increased prominence today, some have dropped off while top two have remain constant and consistent. The figure below shows that some of the top issues, including a need to reduce operating costs, to establish effective backup and recovery strategies, and to provide better security for corporate data and infrastructure, were important to SMB buyers two years ago and are still important today.

Two of the 2013 issues have disappeared altogether because they no longer had the same degree of urgency: “move towards cloud computing” is not a driver when the market has already embraced this move, and “reduce energy costs” is less important when power-constrained operations can move processing to the cloud.

“Deliver services on demand” was the ninth-ranked driver of virtualization adoption just two years ago, but today, when “on demand” has become the default mode of delivery, it is the fourth-highest rated adoption driver. Regulatory compliance is another issue that is more important today (ranked fifth) than it was in 2013 (when it was ranked 11th of 13 issues). Scalability, which was added to the 2015 survey in response to increased market interest, debuts as the sixth most compelling reason for server virtualization adoption, while anywhere/any device application access, which is also new to the 2015 survey, is cited as an important adoption issue. On the other side of the balance, the comparison of 2013 and 2015 research indicates that SMB firms are now putting less emphasis on server virtualization as a means of reducing IT support costs and improving utilization of existing hardware. It appears that the issues that are increasing in importance speak to the ability of server virtualization to support key business objectives, while those framed entirely as means of enabling specific types of IT cost control are declining in relative importance.

Interestingly, the IT channel – which is the primary source of IT supply and advisory services to mid-market businesses – has a more advanced take on server virtualization adoption drivers than the customer community that it supports. Above figure compares the channel’s perception of why SMBs are embracing server virtualization with the actual user motivations. We see that the channel is more focused on support for advanced business objectives – delivery of on-demand services, scalability, and anywhere/any device application access – than is the user community itself. This suggests that channel members (two-thirds of which reports that they sell/support server virtualization) are attuned to evolving needs, which speaks well of the channel’s ability to continue to promote server virtualization within the SMB market.

Despite the buzz around cloud, most SMB workloads are still hosted and managed on site, and SMBs have a clear need to reduce costs and improve efficiency of back-end infrastructure and to establish better control over mobile resources. Virtualization helps accomplish both of these goals, and converged infrastructure provides a platform that sophisticated SMB users are already finding compelling. Techaisle believes that virtualization and converged infrastructure are poised for strong growth in the SMB market because they address specific high-priority IT and business issues. It’s important to remember, though, that different virtualization technologies are aligned with different requirements. Server virtualization addresses corporate need for controlling cost and uncertainty, while VDI and DaaS provide control options for mobility solutions. Although they stand to benefit from user comfort engendered by server virtualization, VDI and DaaS should not be seen simply as “next steps in virtualization” – they play a different role in business and IT strategy, and as a result, will respond to their own logic.

Use of server virtualization is reasonably widespread in the small business market, and nearly universal within midmarket enterprises. Suppliers targeting high-potential server virtualization accounts in the 1-99 employee segment are urged to use Techaisle’s IT sophistication segmentation to identify “Advanced IT” organizations, which are far more likely to be using server virtualization than their “Pre-IT” or “Basic IT” peers. Suppliers are also urged to cultivate relationships with firms that host servers for SMBs, as the growth of virtualization in hosted environments is far higher than growth in on-premise use of virtualized servers.