Techaisle Blog

Techaisle’s SMB Server Virtualization adoption market trends study shows that US SMB server virtualization penetration has reached 54 percent (un-weighted), up from 41 percent two years ago. Within midmarket businesses the penetration has reached 88 percent and another 7 percent are planning in the next one year.

Figure below uses data from multiple surveys to illustrate trends in virtualization penetration within SMB accounts that have adopted server virtualization. In 2013 the proportions of servers virtualized was very similar across all employee size categories, ranging from 61%-62% in microbusinesses (which sometimes only have one server, making virtualization an all-or-nothing proposition) to just over 50% in midmarket enterprises with 500-999 employees, which can be expected to have many servers. The statistics for 2014 show virtualization penetration rising in all employee-size segments: rapidly in microbusinesses and the 500-999 midmarket enterprises, and gradually in other SMB segments. The perspective on future intentions, drawn from the Techaisle SMB 2015 survey, indicates that these trends will continue and accelerate. Microbusinesses and larger SMBs (including both the 250-499 and the 500-999 segments) are expecting rapid further penetration of virtualized servers, and the other midmarket segments are expecting a further 6%-10% of servers to be virtualized.

What does this trend mean to the market?

Clearly, there is increasing opportunity for hypervisor sales, and Techaisle would expect that VMware will find purchase within companies looking to connect virtualized servers to other infrastructure assets (especially, for example, hybrid cloud or software-defined networking or storage), while alternative suppliers, such as Microsoft, gain share in the core market as multi-hypervisor strategies become more common. Techaisle expects that this trend also indicates increased opportunity for converged infrastructure products as these systems can be used to capitalize on advanced virtualization capabilities.

Location of Virtualized servers

A comparison of 2013 and 2015 research results shows that within each employee size segment, SMB end-user organizations are becoming more likely to virtualize servers that are located outside of their business premises. Across the entire SMB community, there has been a 45% increase in off-premise virtualized servers in the past two years: an enormous shift that highlights the broader shift towards remote management of infrastructure resource.

If virtualizing servers is so popular – why isn’t it universal?

The Techaisle interview of 848 US SMB ITDMs uncovered a number of reasons why SMBs struggle with virtualization adoption. The top five challenges cited in the research illustrate the complexity that can accompany infrastructure changes.

The most prominent challenge, cited by 34% of SMB respondents, was the high cost of virtualization licenses, which may explain why the expansion of virtualization within current user accounts often includes investigation of (and in many cases, migration to) a multi-hypervisor strategy that adds “free” options such as Hyper-V and Xen.

The third most common challenge is that management of virtual servers proved to be more difficult than anticipated, which may reflect initial learning curve struggles and/or incremental complexities associated with environments relying on multiple hypervisors.

The second leading challenge, “projected cost/space/power savings not achieved,” highlights both the cost and complexity issues: it can be difficult to obtain projected densities/utilization rates during the adoption/migration period, and expenses can escalate in several ways: due to costs associated with virtualization solution licenses, and also because of the “high cost of ISV licenses for applications running in a virtualized environment” and generally higher-than-anticipated project costs. It is worth noting as well that in small businesses (1-99 employees), “lack of experience” is also seen as a major server virtualization challenge, cited by 22% of survey respondents.

On the positive side, the relatively high level of server virtualization experience found within the SMB channel partners (Techaisle SMB Channel Trends study) may help mitigate this issue – but it should act as a caution when evaluating market outlooks for VDI and DaaS, where experience levels within both the SMB buyer and SMB channel communities are much lower.

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.

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?

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.