Techaisle Blog

SMB Current and Planned adoption
Techaisle’s SMB Managed Services adoption study (US, UK, Germany, Brazil, Mexico, Australia, China) shows that a substantial and rapidly-growing segment of SMBs across different geographies are using some combination of managed services to support IT and business requirements. Drilling into the US data, 40% of SMBs are currently using one or more types of managed services, increase of 21% from a year ago. Take-up of managed services within micro businesses is relatively low but doubles within the 10-19 employee size businesses. Techaisle survey data also shows that confusion around what managed services is and how they work has a negative impact on take-up in this segment, reinforcing the importance of education to building acceptance within this market.

Managed services usage rates are far higher within larger SMBs. Firms with 20-499 employees, who are trying to scale IT faster than can be achieved through in-house staff, are very avid users of managed services. Larger midmarket firms, where managed services is often a means of augmenting current staff (to deliver on niche specialities and/or to cover standard tasks so that in-house resources can move on to new initiatives), are also heavy users of managed services.

As impressive as these figures are, the ranks of managed services SMB users are poised to swell further within the next 12-24 months. Survey responses from companies with 1-9 employees indicate that the proportion of very small businesses using one or more managed services will double during this period. Growth within other SMB e-size segments will be less dramatic, but aggressive nonetheless.

The combination of increased reliance on technology as a key element of business success (as shown in the study), burgeoning complexity and cost constraint has created a “perfect storm” for use of managed services. SMBs are not just dealing with more technology, but with more complex technology.

SMB Managed Services acquisition challenges
A question exploring the issue of “what are the toughest challenges faced by SMBs when purchasing managed services” in the Techaisle SMB Managed Services Adoption Trends survey found four broad challenges: 1/ identifying solutions that address operational support requirements, 2/ selection of qualified providers, 3/ presenting a valid business case to senior management, and 4/ available funding.

The primacy of these issues changes with employee size:

• Microbusinesses (1-19 employees) struggle most with finding appropriate suppliers – MSPs who understand and can work with companies that lack internal IT resources.
• Small businesses (20-99 employees) struggle most with providing a valid business case to management. These firms are on the line separating the “managed services as a replacement for in-house staff” approach of microbusinesses and the “managed services as a means of augmenting IT management” approach of larger SMBs. At least in some cases, management considers outsourced services to be an either/or proposition rather than an “and” and needs help in understanding why a mixed approach to IT service delivery makes both technical and economic sense.
• Available funding is the key issue for smaller midmarket (100-499 employees) businesses. These firms are pulled between the need to keep pace with IT opportunities and requirements (as defined by larger competitors) and the need to watch cash flow very carefully (as is the case with small businesses).
• Larger midmarket firms (500-999 employees) are challenged primarily by identifying solutions addressing operational support requirements. These companies have specific needs and require complex solutions. It’s telling that it is also a challenge for these firms to find qualified suppliers and to develop a business case that can be absorbed by senior management.

SMB's use careful evaluation of supplier and platform
Techaisle’s corresponding SMB Channel Partners trend study (survey across several countries) and The State of US SMB Managed Services Channel study shows that the percent of US SMB channel partners offering managed services has increased to 71% from just below 70% in 2013.

There is a tight connection between managed services supply and demand. The interaction between SMB buyers and the firms that supply managed services is important to the vibrancy of the managed services market. The SMB Managed Services Adoption Trends explored some of the key issues in supplier evaluation and managed services sourcing. Once a relationship has been struck, SMBs and managed service providers need to connect effectively through the managed service delivery platform. Survey results indicate that there are five key elements that are integral to a compelling platform and SMBs use an average of 3.2 factors for MSP evaluation criteria.

SMB MSP fragmentation and coming channel transformation
Techaisle believes that the channel is at the beginning of a migration from generalist to specialist firms that will play out over the next few years. The variety and depth of managed services will make it difficult for non-specialists to keep pace with MSP specialists. Techaisle survey trend data clearly reveals that SMB channel partners have hit a point of fragmentation: they can be all things to all people today, but not in 2018. On this topic and more in Techaisle’s channel subscription services consisting of:

Related research areas

• SMB Channel Trends
• The State of SMB Cloud Channel
• The State of SMB Managed Services Channel
• The State of SMB Virtualization Channel
• The State of SMB Mobility Channel

and corresponding SMB coverage:

• SMB Cloud Adoption Trends
• SMB Mobility Adoption Trends
• SMB Managed Services Adoption Trends
• SMB Virtualization and Converged Infrastructure Adoption Trends
• SMB Collaboration Adoption Trends
• SMB IT Decision Makers: TDM vs. LoB
• SMB Big Data Adoption Trends
• SMB Security Adoption Trends

Cisco and the SMB market

Cisco has established an undisputed leadership position in the enterprise market. The company combines a widely-adopted and well-integrated portfolio of networking products with a highly-skilled (and paid) direct sales force to manage/expand its presence within major accounts.

The SMB market is a separate challenge. Here, buyers are less likely to require integration across multiple network components and more likely to emphasize price. They are also more likely to receive advice/management from channel partners, further reducing Cisco’s control over the acquisition process.

Against this backdrop, Techaisle’s SMB Channel Trends research illustrates the strengths and challenges Cisco must manage, as it looks to expand its share in the SMB segment.

Cisco Commands High Trust and Reputation within its Channel Partners

Within the channel community, Cisco enjoys a sound reputation and a high degree of trust. Techaisle’s SMB channel partner survey shows that 78 percent of Cisco’s SMB channel partners trust Cisco, a higher percentage than is registered by competitors such as HP and IBM. Nearly 70 percent of the partners believe that Cisco has quality products – again, the highest ranking recorded within the ‘hardware leader’ group including Cisco, HP, IBM and others. However, only 52 percent mention that Cisco has cutting edge technology, a percentage lower than that for both IBM and Microsoft. Moreover, 60 percent of Cisco’s SMB channel partners say that they Like Cisco, lower than corresponding rates for HP and Microsoft, only slightly higher than is found for IBM.

In its 2013 Annual report Cisco has written, “A substantial portion of our products and services is sold through our channel partners, and the remainder is sold through direct sales.” With specific reference to SMBs, Cisco wrote, “Generally, we define commercial businesses as companies with fewer than 1,000 employees. The larger, or midmarket, customers within the commercial market are served by a combination of our direct salesforce and our channel partners. Small businesses or companies with fewer than 100 employees, within the commercial market are primarily served by our channel partners.” Techaisle’s data shows that Cisco has attracted positive attention within this channel partner community, but that its technology and relationships may not leave it especially differentiated from competitors.

Data shows Cisco's SMB Channel Partner Challenges

Cisco is seeking to capitalize on market transitions and is steadily driving its channel partners to offer products and services that deploy cloud, mobility, virtualization, managed services, data center solutions and now Internet of Things. This is by no means an easy task as most SMB channel partners are being actively courted by competitive vendors that also want to grow their emerging technologies’ business. SMB channel partners selling emerging technologies have an average of 3.46 vendor partnerships; this average jumps to 4.21 for Cisco SMB partners, a difference of 21 percent. With this increased contention for mind/market/wallet share, it can be difficult for Cisco to manage brand identity and its related messaging.

This difficulty is illustrated by study findings showing that of the Cisco SMB channel partners, 44 percent consider Cisco to be their top partner. The other 56 percent mention Microsoft, Oracle, HP, IBM and several other firms. Within the VAR/SI community, Cisco’s share of preference is 48 percent; this drops to 39 percent amongst the MSPs/SPs that are viewed as critical to the success of future cloud initiatives.

It is not enough to only measure customer satisfaction or brand awareness to identify overall channel and market presence. Techaisle believes that it is important for IT vendors like Cisco to measure their Brand Equity within SMB channel partners as well as SMBs. Techaisle’s Brand Equity Score, BES-360, helps to identify areas where IT vendors can improve to increase share of wallet.

Cisco’s SMB Channel Partner Brand Equity

Our research finds that Cisco has done extremely well in building trust and reputation within its own SMB channel partner base. Cisco’s Brand Equity Score within its SMB channel partners is higher than most – but lower than scores for both IBM and Microsoft. The implication of these findings is that even through Cisco has high brand equity amongst its channel partners; it is not necessarily true that its entire SMB-focused channel base is firmly wedded to Cisco’s game plan.

Breaking down the data for Cisco, Techaisle’s study finds that almost 25 percent of Cisco’s channel partners have a Brand Equity rating of 80+ (on a scale of 1 to 100). This group forms Cisco’s core partners. The data also shows that almost 35 percent of Cisco’s SMB channel partners have equity of less than 40. These are the partners that Cisco needs to work on.

Interestingly, small business focused channel partners give a higher Brand Equity Score to Cisco than mid-market focused channel partners. This is a segment that Cisco should address as the mid-market is a battleground for most IT vendors and there is yet no clear dominant player.

Among all SMB channel partners of Cisco, VARs are actually driving up the Brand Equity Score. In fact 41 percent of VARs constitute the HBE (High Brand Equity) group. On the other hand, MSPs constitute only 20 percent. In order for Cisco to continue to grow its CMSP program and build on its initial successes, Cisco has to turn its attention to the MSPs that serve the SMBs to understand the key reasons for lower brand equity.

Drilling down further into the data, Techaisle finds that Cisco is not doing better within the overall managed services community than it is within MSPs focused on cloud. A higher percentage of Cisco’s HBE partners are offering managed services to SMBs whereas a higher percentage of ABE (Average Brand Equity) partners are offering Cloud to SMBs. Cisco’s SMB cloud ambitions would benefit from moving some of these ABE cloud partners to HBE segment. The HBE segment offering cloud services need extensive training on cloud solutions to become more successful in offering cloud to their SMB customers. More than 40 percent of these channel partners are working with SMB customers that have private cloud. This may be good for Cisco in the short-term but it does not represent best practice in this segment, and it is misaligned with the ongoing acceptance of public cloud as a preferred IT delivery platform.

Product resale revenue is 43 percent for HBE partners as compared to 38 percent for ABE. Similarly, recurring revenue is 57 percent for HBE as compared to 61 percent for ABE. Naturally, this bodes well for Cisco’s current revenue as the High Brand Equity partners are driving higher revenues from products. However, if Cisco plans to increasingly promote services then a lot more work is required to identify partners with higher services revenues and move them into the High Brand Equity segment.

Final Perspective

Brand Equity Score findings help indicate areas of expansion or exposure as vendors, like Cisco, assess their potential for expanding the footprint of their brands within the SMB channel partner community. The composition of Cisco’s BES across its channel indicates the core strength of its brand. Techaisle’s analysis indicates that Cisco has both strengths to build on and areas requiring focus as it moves to position its next-generation solutions (especially, cloud solutions) through its channel to the SMB market.

Techaisle’s brand management work is anchored in the belief that if a vendor’s brand equity is good, then it can compete successfully with vendors with lower brand equity for sales of comparable products or services. Vendors with sound products/services but low brand equity will struggle to maintain parity with competitors that have higher brand equity, even if that vendor’s products/services are (somewhat) inferior.

Cisco and the SMB market

Cisco has established an undisputed leadership position in the enterprise market. The company combines a widely-adopted and well-integrated portfolio of networking products with a highly-skilled (and paid) direct sales force to manage/expand its presence within major accounts.

The SMB market is a separate challenge. Here, buyers are less likely to require integration across multiple network components and more likely to emphasize price. They are also more likely to receive advice/management from channel partners, further reducing Cisco’s control over the acquisition process.

Against this backdrop, Techaisle’s SMB Channel Trends research illustrates the strengths and challenges Cisco must manage, as it looks to expand its share in the SMB segment.

Cisco Commands High Trust and Reputation

Within the channel community, Cisco enjoys a sound reputation and a high degree of trust. Techaisle’s latest SMB channel partner survey shows that 78 percent of Cisco’s SMB channel partners trust Cisco, a higher percentage than is registered by competitors such as HP and IBM. Nearly 70 percent of the partners believe that Cisco has quality products – again, the highest ranking recorded within the ‘hardware leader’ group including Cisco, HP, IBM and others. However, only 52 percent mention that Cisco has cutting edge technology, a percentage lower than that for both IBM and Microsoft. Moreover, 60 percent of Cisco’s SMB channel partners say that they Like Cisco, lower than corresponding rates for HP and Microsoft, only slightly higher than is found for IBM.

In its 2013 Annual report Cisco has written, “A substantial portion of our products and services is sold through our channel partners, and the remainder is sold through direct sales.” With specific reference to SMBs, Cisco wrote, “Generally, we define commercial businesses as companies with fewer than 1,000 employees. The larger, or midmarket, customers within the commercial market are served by a combination of our direct salesforce and our channel partners. These customers typically require the latest advanced technologies that our enterprise customers demand, but with less complexity. Small businesses, or companies with fewer than 100 employees, require information technologies and communication products that are easy to configure, install, and maintain. These smaller companies within the commercial market are primarily served by our channel partners.” Techaisle’s data shows that Cisco has attracted positive attention within this channel partner community, but that its technology and relationships do not leave it especially differentiated from competitors.

Technology Shift has Created SMB Messaging Challenges

In recent years SMB technology demands have shifted to cloud, mobility, analytics, social media, collaboration, managed services and virtualization. Cisco is seeking to capitalize on this market transition through the development of cloud-based product and service offerings that enable its customers develop and deploy their own cloud-based IT solutions.

In communications channel partners in the U.S. including those specializing in the SMB segment – Cisco has been steadily driving them to offer products and services that deploy cloud, mobility, virtualization, managed services and data center solutions. This is by no means an easy task as most SMB channel partners are being actively courted by competitive vendors that also want to grow their emerging technologies’ business. SMB channel partners selling advanced technologies have an average of 3.46 vendor partnerships which average jumps to 4.21 for Cisco SMB partners, a difference of 21 percent. With this increased contention for mind/market/wallet share, it can be difficult for Cisco to manage brand identity and its related messaging.

This difficulty is illustrated by study findings showing that of all the Cisco SMB channel partners, 44 percent consider Cisco to be their top partner. The other 56 percent mention Microsoft, Oracle, HP, IBM and several others. Within the VAR/SI community, Cisco’s share of preference is 48 percent and drops to 39 percent amongst the MSPs/SPs that are viewed as critical to the success of future cloud initiatives.

Cisco’s SMB Channel Partner Brand Equity

Techaisle believes that it is time for a new metric to represent presence (and opportunities for growth) within the SMB market. Techaisle refers to this second-generation measurement approach as Brand Equity Management. It is measured by a robust proprietary index, the Techaisle Brand Equity Score (BES-360).

Techaisle believes that it is important for IT vendors to measure their Brand Equity within SMB channel partners as well as SMBs. Techaisle’s Brand Equity Score, BES-360, helps to identify areas where IT vendors can improve to increase share of wallet. BES-360 is a KPI (Key Performance Indicator) that measures the strength of brand within a segment.

Cisco’s Brand Equity Score within its SMB channel partners is higher than most competitors – but lower than scores for both IBM and Microsoft. The implication of these findings is that even through Cisco has high brand equity amongst its channel partners; it is not necessarily true that its entire SMB-focused channel base is firmly wedded to Cisco’s game plan.

SMB Channel Partner Brand Equity Measurement– the New Prescription

Breaking down the data for Cisco, Techaisle’s study finds that almost 25 percent of Cisco’s channel partners have a Brand Equity rating of 80+. This group forms Cisco’s core partners. The data also shows that almost 35 percent of Cisco’s SMB channel partners have equity of less than 40. These are the partners that Cisco needs to work on.

Interestingly, small business focused channel partners give a higher Brand Equity Score to Cisco than mid-market focused channel partners. This is a segment that Cisco should address as the mid-market has become a battleground for most IT vendors and there is yet no clear dominant player.

Among all SMB channel partners of Cisco, VARs are actually driving up the Brand Equity Score. In fact 41 percent of VARs constitute the HBE (High Brand Equity) group. On the other hand, MSPs constitute only 20 percent. In order for Cisco to continue to grow its CMSP program and build on its initial successes, Cisco has to turn its attention to the MSPs that serve the SMBs to understand the key reasons for lower brand equity which when fixed can lead to better wallet share among MSPs.

Drilling down further into the data, Techaisle finds that Cisco is not doing better within the overall managed services community than it is within MSPs focused on cloud. A higher percentage of Cisco’s HBE partners are offering managed services to SMBs whereas a higher percentage of ABE (Average Brand Equity) partners are offering Cloud to SMBs. Cisco’s SMB cloud ambitions would benefit from moving some of these ABE cloud partners to HBE segment. The HBE segment offering cloud services need extensive training on cloud solutions to become more successful in offering cloud to their SMB customers. More than 40 percent of these channel partners are working with SMB customers that have private cloud. This may be good for Cisco in the short-term but it does not represent best practice in this segment, and it is misaligned with the ongoing acceptance of public cloud as a preferred IT delivery platform.

Product resale revenue is 43 percent for HBE partners as compared to 38 percent for ABE. Similarly, recurring revenue is 57 percent for HBE as compared to 61 percent for ABE. Naturally, this bodes well for Cisco’s current revenue as the High Brand Equity partners are driving higher revenues from products. However, if Cisco plans to increasingly promote service-centric partners then a lot more work is required to identify partners with higher services revenues and move them into the High Brand Equity segment.

Practicing the Prescription

Techaisle’s brand management work is anchored in the belief that if a vendor’s brand equity is good, then it can compete successfully with vendors with lower brand equity for sales of comparable products or services. Vendors with sound products/services but low brand equity will struggle to maintain parity with competitors that have higher brand equity, even if that vendor’s products/services are (somewhat) inferior. Hence, Brand Equity Score findings help indicate potential areas of expansion or exposure as vendors, like Cisco, assess their potential for expanding the footprint of their brands within the SMB channel partner community. The composition of Cisco’s BES across its channel indicates the core strength of its brand. Techaisle’s analysis indicates that Cisco has both strengths to build on and areas requiring focus as it moves to position its next-generation solutions (especially, cloud solutions) through its channel to the SMB market.

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