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Techaisle Blog

Insightful research, flexible data, and deep analysis by a global SMB IT Market Research and Industry Analyst organization dedicated to tracking the Future of SMBs and Channels.

SMB and midmarket server virtualization adoption drivers changing

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.

techaisle-smb-midmarket-reasons-for-using-server-virtualization-resized 

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.

techaisle-smb-channel-different-virtualization-adoption-perspectives-resized

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. 

 

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90 percent of US SMBs expanding cloud usage

SMB cloud is ubiquitous today and becoming even more so, central to the technology and management needs of both smaller and larger SMBs. Cloud is no longer a trend that is discrete from mainstream IT. Techaisle data shows that cloud is viewed as an IT priority by 96% of US SMBs and 90% of current cloud using SMBs are increasing their cloud usage within the next one year. Cloud is not a future issue, it is an essential component of SMB IT.

While cloud growth has been extraordinary, it is reasonable to expect continued high-trajectory growth resulting from three key factors:

  1. Cloud is established as essential IT infrastructure
  2. Cloud addresses real business needs
  3. Suppliers will work with buyers to overcome current SMB cloud adoption challenges

Where are these SMB firms who are planning an expanded cloud presence in the evaluation process? Techaisle asked SMB respondents to identify whether they would refer to themselves as “gathering information,” “identifying potential solutions” or “evaluating suppliers”.

As cloud adoption continues to expand within SMB organizations, Techaisle SMB & midmarket cloud adoption survey data demonstrates that 38% of SMBs are gathering information on cloud technology, solution options and appropriate cloud adoption steps. 32% have moved beyond to the stage of evaluating solutions and the balance are in the process of evaluating suppliers. However, Techaisle believes that these percentages are a moving target as SMBs continue to increase spending on cloud.

Among the midmarket businesses, fully 80% of those planning new cloud initiatives are at this stage, with only 7% focused on evaluating suppliers. Highest percent is within the 100-249 employee size businesses establishing a clear fact that as businesses transition from a small to a larger organization they increasingly gravitate towards cloud to solve their growing pains, establishing processes and supporting a dispersed workforce.

Combining the above information with the data that 94% of midmarket firms are already using some form of cloud solution, we get a picture of a midmarket enterprise market that is in the process of assessing where and how the use of cloud should expand through the enterprise. Small businesses, on the other hand, have a roughly normal distribution across these categories: 24% report that they are gathering information, 46% have moved on to identifying potential solutions, and 30% are evaluating suppliers.

techaisle smb midmarket dichotomous cloud adoption resized

Techaisle believes that the differences between the small and market organization findings reflect different stages of cloud adoption. The small business findings are consistent with a community that moves from point to point, working first on one discrete solution, and then on the next. The midmarket findings are consistent with a community that has already deployed point solutions, and is now trying to build a longer-term strategy for an integrated, flexible approach to incremental cloud expansion. This dichotomous approach is a real challenge for suppliers: they need to differentiate discrete solutions for the small business market, and demonstrate that their offerings are essential components of broader strategies for mid-market firms, while attracting attention to their companies and products and building brand preference in both segments.

This perspective is reinforced by data showing the current uses of cloud within SMBs. Generally, SMB IT departments have used cloud to supplement IT infrastructure resources – for example, by procuring cloud-based storage to offload data from on-premise drives, or by using cloud for backup. Cloud has also made its way into SMBs as a means of supporting non-core applications and related processes; for example, cloud might be used to automate previously manual tasks in HR or customer support that aren’t linked to financial and production systems. But data from the Techaisle SMB survey finds that use of cloud is expanding even into these business-critical applications.

When SMBs are asked to indicate the areas of their operations where cloud has been or will be applied, nearly half report that they are using/planning to use cloud for IT infrastructure, and 37% state that cloud will be deployed to support non-core processes and applications. However, nearly 30% state that they are using or are implementing cloud to run at least some of their core applications. Given that these core applications are not changed or re-platformed very often, 29% is a surprisingly high figure. Cloud is expanding beyond IT-specific uses and niche applications, and is increasingly seen as a viable platform for even business-critical process support.

techaisle-smb-midmarket-core-cloud-adoption-resized 

The shift in cloud’s positioning and dichotomous approach brings with it a shift in the kinds of insights needed to help connect suppliers and buyers to address common interests in deployment, integration and expansion strategies. SMB buyers need help in moving past initial cloud pilots and applications to integrated cloud systems that provide support for mission-critical processes. Cloud sellers need to adjust their messaging to address the needs of early mass market rather than early adopter customers.

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SMB cloud and MSP channel business by the numbers

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.

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Addressing SMB and Midmarket buyers cloud & mobility journey

In the course of Techaisle’s SMB & Midmarket IT Decision Making Authority: IT vs LoB, BDMs (business decision maker) and ITDMs (technology decision maker) were asked to identify the “greatest benefits” and “key attributes” of both cloud and mobility solutions.

There is an interesting pattern apparent in the survey research findings. When adopting mobility solutions small business BDMs are focused on addressing near-term pain points: attracting new customers, improving accuracy, addressing work/life balance. The ITDMs appear to be taking a longer view, focused on applying automation to bring structure to business processes – improving the quality of interaction through application of mobility solutions, improving the quantity of those interactions, increasing process efficiency.

Midmarket BDMs are looking to mobility to help increase business process efficiency and customer interaction quality. Midmarket ITDMs, on the other hand are focused on increasing the quantity of customer interactions, which would logically impact other core areas (such as business user productivity and process efficiency) as well.

When discussing the mobility solution attributes that BDMs and ITDMs consider important to delivering on mobility benefits BDM and ITDM buyers have similar and common perceptions across all business sizes. “The ability for the mobile solution to be integrated seamlessly with existing corporate systems” – ensuring consistency across devices – is ranked as the most important mobility solution attribute by small business BDMs, and the second-most important attribute by midmarket BDMs. The ability to create and sustain secure connections for remote workers and the ability to deliver seamlessly across the “three screens” of PCs, tablets and smartphones are also priorities for BDMs in both small and midmarket businesses. ITDMs also have some key common areas of focus: the ability to integrate multiple media types into outbound communications and the ability to read or write data from/to corporate systems are the two top-ranked attributes in both employee size categories.

It is clear that each IT and business professional’s perspective on the mobility journey is shaped by their context – by their business objectives, and by the requirements imposed by the size of their organization. In the figure below we have taken the results from the Techaisle survey and plotted them in three dimensions.

techaisle-itdm-bdm-smb-mobility-attributes-resized

A look at the findings from parallel questions on cloud also reveals differences between ITDMs and BDMs, but similarities between small and midmarket firms. Looking at cloud benefits, BDMs, especially in small businesses, view cloud as a means of introducing capabilities that would have been cost or time prohibitive, and of reducing business process costs. ITDMs, on the other hand, view cloud primarily as a means of reducing IT costs. ITDMs in both small and midmarket businesses recognize that cloud can enable their organizations to be more agile, which connects well with a theme expressed by BDMs.

When analyzing the key attributes leading to realization of the above cloud benefits, data shows some differences in emphasis between small and midmarket firms. The most important difference between BDMs and ITDMs is the BDMs’ emphasis on collaboration: BDMs in both small and midmarket businesses are more likely than their ITDM counterparts to view support for collaboration as a key cloud solution attribute. BDMs are also more likely than ITDMs to look to the cloud for detailed reporting and for support of features – disaster recovery, on-demand data access, and mobility support – that may be lacking in their current environments. ITDMs, on the other hand, are focused on technical attributes (scalability, integration, IT management capabilities) that are difficult and/or expensive to develop without third party support.

Understanding the requirements, preferences, success metrics and areas of focus of BDMs and ITDMs within both small and mid-sized businesses is critical to structuring an effective SMB sales and marketing strategy. The findings open the door to an important issue: the requirements in structuring and communicating messages to ITDMs and BDMs within small and midmarket businesses. To effectively engage with and manage the increasingly-diverse decision making unit, IT suppliers will need to structure messages that address the "care-abouts" of BDMs and ITDMs, and deploy those messages through the channels that are most effective at reaching each community.

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