Techaisle Blog

It is becoming quite well-known that traditional channel relationships, which developed over a thirty period based on PC, LAN, PC Server and Client Server architecture are changing rapidly based on the characteristics of Cloud Computing  products and services.  And now we have data to prove it based on Techaisle surveys of SMBs.

It is in some ways analogous to how the industries where value could be digitized were essentially transformed by the Internet because the value could move instantly around the globe. On a worldwide network, even a relatively slow one, bits gained an advantage over molecules in advertising, banking, music and entertainment, travel,  insurance, and many others.

With Cloud Computing, Remote Managed Services, Virtualization and other emerging cloud-based technology applications such as marketing automation, business intelligence and vertical applications exploding in the SMB marketplace, distribution channels face new challenges; these solutions can be efficiently delivered directly to the SMB customer, can be downloaded from the Internet, can be configured by savvy SMB customers or remotely, can be maintained, updated and upgraded online - in many cases the value can be delivered online. To further stack the deck, vendors who do not need help delivering complex solutions don't really have an incentive to work with a partner; to the contrary, they are able to sell much more efficiently by using the web channel and an inbound sales force. If you doubt it, sign up for a free SaaS trial and if they don't call within two hours, you are the exception.

SMB Channel Preference by Cloud Technology

The survey data shows a cross-tab of SMB decision makers,  and shows that for the majority of new cloud-based applications and services Vendor Direct and VAR are the preferred sources of purchase.



At this point it makes sense to discuss the channels and why some are more suited to certain types of employee size businesses than others. We categorize Cloud Services into Infrastructure, Communications, Business Applications and Vertical Market categories.  Provisioning of infrastructure services, like adding remote storage and back up services, has been simplified through web based interfaces and is well within the reach of IT staff. Similarly, horizontal SaaS applications can be up and running in minutes and customized by business users in a matter of hours or less - think GoDaddy, Constant Contact, Central Desktop, GotoMeeting, Sherweb - why pay a channel partner to implement these services?

Adding Value to Self Service Applications

Value Added Services become necessary in relation to the level of solution complexity; in business applications like robust CRM and ERP solutions from companies like Salesforce.com and Netsuite. Even if configuration can be accomplished with Internal IT staff, it may be better to let a VAR  or specialist do it to save time and money, as with configuring Enterprise Applications like Siebel and SAP. Cloud Data, Network and Application Integration Services are also in high demand and capable Service Providers have no shortage of potential partners.

As discussed in an earlier post, these relatively easy-to-deploy solutions have also given rise to an  important new source of advice, recommendations and services - the independent IT consultant - which will be the subject of one of our next posts.

Davis Blair
Techaisle

Optimization Nation...

“The production of too many useful things results in too many useless people.”
― Karl Marx

Rarely will I quote Karl Marx, but in this case it works too well to ignore. Reviewing the latest research and surveys of technology adoption in the SMB space in an attempt to see a bigger picture, it struck us that the “decades-long Black Swan event” represented by accumulated IT investment impacting all at once, as mentioned by Nicholas Taleb in his great book: ”The Black Swan: The Impact of the Highly Improbable”, has come to pass. This, in combination with moving manufacturing industries offshore en masse and concentration of distribution away from small business retail into super warehouse outlets - whose singular objective is lower price - contributed to the economic upheaval. After ten more years of disproportionate IT investment in the Financial sector that enabled profits out of thin air by moving markets with super-high-speed trading and creation of financial instruments with no underlying value, we were almost there. Then optimization of every penny that could be squeezed from government programs – stated-income negative amortization ARMs, home equity extraction, wheelchairs, diabetes sensors, catheters, Social Security benefits, etc. - “at no cost to you whatsoever, we will even take care of all the paperwork”. These are all examples of how the economy has been changed forever using Information Technology as the key enabler.  But this post is not about the economy, it is about the influence of network technology and the resulting Virtual Solution Stack for Small and Medium Businesses (SMBs) that allows them to leverage the new IT adoption model that has emerged with Cloud Computing.

Things were getting a little expensive…

The Cloud Computing model has firmly emerged out of the ashes of the dotcom implosion and financial crisis of 2008 with the unrelenting objective of increasing production and reducing costs - more for less. Information Technology had become a critically important part of being competitive in a global marketplace, even for SMBs, but unfortunately it had also become increasingly expensive and complicated to implement. By the time we started to realize the benefits of distributed network computing in the mid 2000s, we had created an insatiable appetite for this new technology that could eliminate space and time to truly optimize business. Ironically, by doing so we also created a huge business pain point: How to feed the Beast?

A New Financial Structure Please…

The reality is that no company, large or small, could drink from the fire hose of new technologies flooding the market and bringing the ever-increasing IT investment beyond reach. It begged the question of how to access these benefits through leverage rather than outright purchase.  What has emerged - directly or indirectly - is a Cloud Services model where infrastructure such as computing power, disk space, system software and databases can be centralized and distributed much like electrical power was at the beginning of the 20^th century, allowing companies to stop buying their own generators; a new model where physical location of data is less important than the security protecting it, and where robust business functionality can be delivered remotely over the network using only a browser and an internet connection, with highly qualified experts at the other end whose costs can be distributed among many clients rather than a single company, and last but not least -  the ability to access all of this capability at very low risk, with low cost start-up and pay on a subscription basis rather than from capital budgets. Beginning with web hosting and co-location on the infrastructure side and CRM in the applications arena, SMBs began committing to the model and  we have arrived  at a stage where the majority of SMBs have adopted the new architecture using IaaS, SaaS, PaaS, and other services based on their needs; many in surveys already use multiple services, averaging over 3.5 per for small business and doubling every year. And there is an extremely high level of satisfaction - much higher than when customers owned and operated all of the solution components.

Being the Trusted Advisor for the Virtual Solution Stack

We have found that in the rush to implement Cloud Services, users especially among Small Businesses, are beginning to rely much more on independent IT Consultants as their new source of advice, threatening to dis-intermediate the traditional channel. SaaS and horizontal application service providers, such as Salesforce.com, Citrix and Central Desktop are putting pressure on at the other end with vendor-direct, centralized inbound marketing that also threatens opportunity for third-party value add in many cases. Although, it must be said that Salesforce.com has built a massive following of channel partners from independent consultants to corporate VARs. And it contributes to the success of Salesforce.com. We have also found that once decisions are made for Cloud Services, the incumbent channel has a big advantage for future business as both advisor and implementer. The critical issue, now more than ever, is to be the trusted advisor early in the SMB’s lifecycle. The following are some suggestions on how to accomplish this as a Cloud Services Vendor or partner.

1)  The old Asset-Intensive model of IT Adoption is over; to be successful vendors and their partners will need to deliver and explain cost-effective Infrastructure and Applications, either together or as separate components, depending on offer and customer needs.

2)  IT as Cost Center is rapidly evolving into IT as Profit Center; applying Cloud Services to drive competitive advantages based on new marketing and business intelligence technology will usually be far more productive than having IT staff updating PC software, swapping out PCs, adding disks to storage, configuring a new server, etc. Offloading these tasks from SMB IT Teams and becoming the trusted advisor while the company is young will pay long term dividends for both vendors and channels.

3)  Staffing is usually the most expensive variable among business expenses. Demonstrate ROI and TCO models that emphasize the ability to reduce staffing, travel and distance from the equation and allow IT to be more productive with fewer staff.

4)  As they expand, SMBs typically have to grow their operational and IT footprint by hiring specialists in different domestic and international locations; helping customers reduce the growing pains by centralizing many IT operations and managing infrastructure, communications and applications from a headquarters location is a good approach to helping them expand more cost effectively.

5)  Purchasing, managing, configuring, updating, and patching software licenses is a major expense and headache for small companies and can be a full time position in many medium-sized organizations, not to mention internal user satisfaction, and ongoing maintenance fees. Cloud Services, particularly SaaS solutions, do an excellent job eliminating the majority of these issues, one reason why they continually rank extremely high on the satisfaction scale in our surveys. These are easily built into the ROI/TCO model.

6)  As new Cloud Services are rolled out across Infrastructure, Communications, Productivity and Vertical Market categories in ever changing variations of public and private clouds, it is not possible for most companies to maintain the internal expertise to make the most appropriate choices. Helping customers emerge without being overwhelmed and providing relevant knowledge of how to effectively apply the new technology will strengthen the relationship.

7)  SMB customers have made the leap to cloud-based infrastructure and will rapidly move to multiple services that leverage their investments. Much like the early days of client/server systems where HP had the hot box and Oracle provided the fastest affordable database engine, offers will consist of integration of infrastructure and software layers of the solution. Also as with client/server, users want the ease of dealing with a single supplier where possible, for simplicity and “one throat to choke”. The new solution stack is virtual and relatively standalone at this point; the next stage will require vendors of more complex applications (Integrated CRM, ERP, SCM) to make it as easy as possible for customers to buy their services, even if it means giving up some control and profit in exchange for more volume.

8)  The independent IT consultant as trusted advisor is a phenomenon that has arisen as a slew of relatively easy-to-deploy SaaS applications have matured to where individuals can configure them quickly. The current economy has also spurred a lot of activity among individuals to support their SMB friends with web presence, hosting, social media, part time IT support, etc. Although the influence wanes as companies grow in size, and with the complexity of their deployments, the independent IT consultant has emerged as a force to be reckoned with at the low end of the market and vendors should develop these evangelists while channels bring them into marketing to combine strengths for the benefit of the customer.

Davis Blair
Techaisle

BROADENS RANGE OF OFFERINGS AND INCREASES NUMBER OF SMB CHANNEL PARTNERS

On March 13th, 2012, Dell announced the acquisition of SonicWALL, a leader in Unified Threat Management (UTM), further broadening its portfolio of security offerings, especially for SMBs and branch offices. By acquiring SonicWALL, Dell gains on multiple fronts.

• Broaden its Portfolio of Products and Services for SMBs. While SonicWALL has added enterprise-level offerings in recent years, for a long time it was known primarily as SMB-focused company and one of the leaders in UTM for SMBs. Known primarily for its security appliances, it offers SMBs gateway security to protect their networks as well as web and email security, secure remote access and continuous data protection (secured at remote locations). Most of these offerings would supplement Dell’s existing products and enable SMBs to purchase more of their products from a single source.

• Expand its Channel Partner Base. SonicWALL sold almost all of its products through a loyal base of channel partners, who benefitted not only by selling SonicWALL appliances but also earning ongoing service revenues from managing those appliances as well as off-site continuous data protection (CDP). In that respect, SonicWALL was a step ahead of the industry in offering remote services and would fit in well with Dell’s cloud ambitions. While there may be some overlap between the channel partners of the two companies, and Dell may not grandfather all of SonicWALL’s partners to resell Dell products, Dell would still significantly increase the number of its channel partners (including many MSPs) and broaden its footprint in the SMB market.

• Enter a Fast Growing and More Profitable Area. SonicWALL accounts for less than one-half of one percent of Dell’s revenues but it is growing much faster. While Dell’s revenues, including revenues from various acquisitions, have essentially remained stagnant over the last five years, SonicWALL has grown by almost 30% during the same period. Its net profitability is 2-3 times higher than Dell. By selling SonicWALL’s products to its current customer base, both directly, through Dell Services and through Dell’s PartnerDirect members, this profitability will increase further as selling through Dell will help reduce SonicWALL’s sales and marketing expenses (which account for 35-40% of its total revenues)

Dell has acquired several companies in recent years that had developed products primarily for SMB customers. After acquiring them, Dell has not only increased their sales to SMBs but, in many cases, also sold those products to branches of its large customers. If Dell follows the same strategy for SonicWALL’s offerings, its latest acquisition will be a win-win situation for Dell, SonicWALL, their customers and Dell’s investors.
Anil Miglani