Small and medium businesses (SMB) have been buying technology-as-a-service since the Application Service Provider boom of the late ‘90’s. While the ASP market implosion that followed bore a close resemblance to the Dutch Tulip Mania boom of the 1600’s, the idea of selling IT to SMB customers “by the drink” lived on, even if the early IT-as-a-service providers faded away.
Today, organizations of all sizes are comfortable utilizing cloud services. A recent study by North Bridge Venture Partners in partnership with Gigamon found that SaaS adoption has reached 74% and IaaS has reached 56%. In July, Gartner published their latest Hype Cycle for Cloud Computing noting that SaaS and IaaS are climbing the “slope of enlightenment” on the way to the “plateau of productivity”. Whether or not you believe the numbers and prognostications, it is clear that SaaS and IaaS use among SMBs is rapidly becoming commonplace. In the words of Geoffrey Moore, even the conservatives on Main Street are adopting cloud services.
IT vendors are scrambling to capitalize on SMB customer demand for SaaS and IaaS by scaling their cloud channels. Unfortunately, while the number of “certified” cloud service resellers is increasing, channel adoption appears to be lagging customer adoption. A recent ZS Associates study found that for most resellers cloud services still account for a low percentage of revenue. For years, resellers whose businesses were built on implementing on-premise technology and providing add-on maintenance services resisted change, claiming that SMBs would not embrace the cloud. However, the question as to whether SMB customers will utilize cloud services seems to largely have been answered in the last few years. If most channel partners understand that customer demand for SaaS and IaaS is strong and growing stronger, why is it that they cannot capitalize on the opportunity?
Lots of blogs, articles, whitepapers, etc. have been written recently lamenting the challenges vendors face in driving cloud adoption in the channel. These articles generally focus on one of two perspectives – either that of the partners struggling to shift their business model given their capital structure or that of the vendors who are frantically searching for partners who are either “born on the cloud” or capable of adapting to the new world. Little focus has been placed, however, on a third perspective – that of the SMB customer who is the ultimate decision maker in any cloud service purchase. Sure, there are plenty of studies that highlight what cloud offerings SMB customers are purchasing in this red hot market. But less has been written about how SMB customers are purchasing SaaS and IaaS. How do SMB customers choose the channel partner from whom they purchase cloud services? What factors influence their decision? What do they expect from these companies? Are they happy with the channels vendors are providing?
ZS Associates recently conducted research to answer these questions. In recent months, we surveyed 250 SMB technology buyers in the U.S. to address three primary questions:
- How do SMB customers choose cloud service resellers?
- What types of support are SMB customers receiving from cloud service resellers before and after a purchase?
- How satisfied SMB customers are with their current resellers and why?
As expected, our research uncovered a number of fundamental disconnects between vendors, partners and customers. SMB customers appear to be rapidly becoming much more sophisticated purchasers of cloud services. For example, ZS has found that more than half of SMB IT buyers choose to independently define their business and technical requirements without assistance from resellers when purchasing cloud services. Cloud resellers are struggling to provide value and are at best playing a marginal role in shaping SMB customer decisions. Vendors trying to scale their SMB cloud channels are often investing in the wrong partners and the wrong types of partner enablement. The result is a channel that is not providing the market reach or influence necessary to efficiently capitalize on the SMB cloud service boom. The implication – many vendors need to rethink their SMB channel strategy and partner program. Those that do and better address their SMB customers’ needs and preferences will capture share. Those that don’t, well…..we all know what happens to vendors who can’t adapt to market trends and fail to build effective routes-to-market for their offerings. They join the ranks of the ASP providers of the 1990’s, firms who understood the IT-as-a-service opportunity but couldn’t claim the prize.
The results of the recent ZS Associates SMB Cloud Service Channel Preferences research were shared in a Channel Focus webinar on 5 November.