Techaisle Blog

Data from Techaisle’s study channel partners (research analysis documented in Techaisle’s series of reports either delivered individually or as Channel Partner Research Annual subscription service) tell fascinating stories. Excerpt from the specific study of 650 US channel partners selling managed services, based on Techaisle’s database of over 250,000 partners, shows that the sales cycle length varies not only by line of business, but also by expertise levels:

• Cloud provider channel, on average takes 2 weeks longer in its sales cycle as a cloud provider channel
• Systems Integrators’ average sales cycle is ~1.5X of VARs because of complexity of SI’s engagement with an SMB. VARs, are often selling products into existing accounts, have relatively short sales cycles, while SIs, who are positioning complex solutions, have longer sales cycles than other channel businesses
• Even a consultant who is usually familiar to an SMB organization has to prove that they are the right partner and it involves building a plan and showcasing why their advice and solution would be ideal for SMBs

More fascinating are the four charts below.

Where is the SMB managed services channel today, as we enter 2016? Since 2013, managed services has taken deep root within the channel, and at the same time, some of the firms that were only casually involved with managed services have pulled back in order to focus in other areas. In the report, The SMB Channel & Managed Services: Success Metrics, Techaisle uses findings from 808 in-depth surveys with US-based channel firms to illuminate conditions within the US SMB managed services channel, and to develop perspectives that suppliers (and the channel itself) can use to construct successful managed services channel strategies. The survey identified a set of issues that is highly correlated with very successful managed services channel businesses, another that can be used to identify partners that are likely to be unsuccessful in managed services, and a third which lacks predictive value.

Results from three annual Techaisle channel surveys, shown in figure below, show that the trend towards specialization – in which channel members commit more strongly to managed services, or move away in order to focus on other areas – is well underway. 64 percent of the channel is ‘very successful’ in selling managed services, meaning that the population of very successful managed services channel members has increased by nearly 70 percent since 2013. A much smaller but growing proportion (currently 11 percent, more than double the 5 percent logged in 2013) acknowledges that it is not having success with managed services. MSPs and SPs report the highest level of success in selling managed services, while SIs, consultants and (especially) VARs are see less success.

A view of these findings organized by core business model provides additional insight into the partner communities where managed services are – and are not – gaining traction. As would be expected, managed service providers themselves are most likely to report success in managed services sales. Beyond this group, there are several interesting observations contained within the data:

• Nearly three-quarters of service providers state that they are “very successful” at selling managed services. This is an important issue within this community: SPs increasingly rely on managed services to differentiate their core hosting or connectivity services, which are (in many cases) relatively low-margin, and which offer limited prospects for future growth. Perhaps the most interesting finding for SPs is that 18 percent consider themselves to be unsuccessful in selling managed services. This group will be at risk as they compete with firms that augment core service presence with expanded, high-margin service portfolios that lock in an increased share of ‘customer wallet’.

• SIs are not especially aggressive in this space. At a high level, this data makes intuitive sense: SIs tend to have engagements that have a fixed duration and deliverable and managed services involve longer-term relationships tied to SLAs rather than functional specifications. However, it might be expected that SIs facing a shrinking product delivery market (due to increased use of cloud) might look to solidify customer relationships via managed services. The data shows that some SIs are following this path, they are either not committed to this strategy or are actively pursuing other options.

• Consultants and (especially) VARs are tepid in their pursuit of managed services business. Corresponding 2016 channel reports from Techaisle (see details below) show that VARs are finding great success in cloud, while consultants report that they are experiencing high levels of mobility sales success. Neither group seems particularly enthralled with managed services

It’s clear to all of us that today’s IT industry is comprised of many ‘moving pieces’. This is especially true in the SMB segment: with cloud, mobility and managed services, the buyer’s options have expanded; with the increased involvement of non-IT managers (in both ‘real’ and shadow IT), the buyer community has expanded; and with the channel’s struggle to understand and act on the new cloud-driven demands of a post-transactional IT market, the supply chain itself is undergoing tremendous change.

Techaisle is committed to working with the IT industry to ensure that these changes result in increased opportunity. Techaisle has recently completed two large-scale surveys – one of channel partners (VARs, SIs, MSPs, SPs and IT consultants) and another of SMBs (firms with 1-999 employees). We have also created a thought leadership piece, “Channel Imperatives for 2020: The Changing Channel for a Post-transactional IT market” which examines how 12 tenets of ‘conventional wisdom’ in the channel – mantras like the need to add value, or to increase service revenue, or to focus sales people on retiring quota, or to assemble and deliver best-of-breed solutions – are giving way to new management imperatives. We believe that this research is essential for suppliers looking to plot a channel-centric strategy for SMB market development by capitalizing on the insights contained in our analysis.

The series of three channel focused reports are The SMB Channel and Cloud: Success Metrics, The SMB Channel and Mobility: Success Metrics and The SMB Channel and Managed Services: Success Metrics. Each contains charts and analysis that can be used to identify high-value ‘very successful’ partners and avoid low-value ‘unsuccessful’ channel organizations. They are designed to connect with channel marketing, recruitment and management strategy.

What is the current state of managed services in the channel?

Techaisle’s SMB global channel partner research shows that in the US 71% are currently offering one or more managed services solutions and another 18% are planning to offer managed services within one year. 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. With that in mind, it is fair to ask, how widespread is managed services delivery today?

Figure below, taken from Techaisle’s US SMB Managed Services Channel Study illustrates the proportion of channel partners that currently offer managed services to SMBs. Unsurprisingly, 100% of MSPs report that they do so. What might be more surprising is the extent to which channel members with other core business models provide managed services to their SMB clients. Roughly two-thirds of VARs and SPs, and 80% of SIs, offer managed services to SMB customers. IT consultants are less likely to do so, but here, too, one-third of firms are already using managed services delivery to support SMB clients.

Above data demonstrates that there has been and continues to be substantial take-up in managed services as a business delivery model outside of MSPs. This will help to build SMB customer awareness of the benefits of the approach and comfort with managed services as a delivery model. It will also have a positive impact on the channel generally, as experience with managed services helps build channel familiarity with recurring revenue models which will be important in other important channel business areas, such as cloud.

Comfort level with – and profitability of – managed services

Clearly, SMB channel members of many types are investing in developing managed services capabilities. This trend begs the question, to what extent are these firms benefitting from these investments?

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.