Techaisle Blog

What are the obstacles to channel members achieving scale for their cloud businesses? Techaisle’s SMB Channel Partner Trends research and accompanying research The State of the US SMB Cloud Channel shows that increasingly, Walt Kelly’s famous line (from the Pogo comic strip) “we have met the enemy, and he is us” describes the most pernicious challenges associated with development of a cloud business.

Techaisle’s research explored data on 10 cloud sales challenges faced by SMB channel partners in selling cloud to SMBs. Four of the top five – “lack of in-house expertise”, “do not have financial resources,” “lack of knowledge about cloud computing” and “do not know how to implement [cloud solutions]” refer to internal issues, and two others, “do not understand the [cloud] business model” and “offering cloud-based services will necessitate elimination of jobs at our company,” also reference internal issues or concerns.

Interestingly, external barriers to developing SMB cloud business practices seem to be diminishing in importance.

Channel Momentum

As some IT companies continue to consolidate and others split up, Dell is promising its channel partners consistency, stability and increased profitability. And it is showing:

• Dell Channel revenue now represents more than 40 percent of overall Dell commercial revenue and its channel business is growing faster than the overall market


• Channel revenue growth is up double digits in 10 of Dell’s top 11 countries year-over-year


• Dell solutions are now available through three of top Distributors - Ingram, TechData and Synnex - and where Dell is experiencing growth in excess of 50 percent

To keep the channel momentum intact, Dell is pledging US$125 million in enhanced incentives to help channel partners bid and close new customer acquisitions and also deploy towards retention deals with existing customers.

As always, not willing to take any hype on face value Techaisle took to the streets to really talk with Dell SMB channel partners and especially those who have partnered with both Dell and HP. Over the course of last three weeks, Techaisle conducted over 25 depth interviews with SMB channel partners. The discussions clearly revealed that the partners have started to look at Dell rather seriously. As one of them said, “Dell has changed its approach and outlook towards channel partners after it went private. They monitor and coordinate with their partners just like any other OEM. They have changed their ways in how they strategize and have created their training plans to cater to our needs and are succeeding by actively collaborating.”

Another partner, based in Texas and focused on SMBs was more direct, “Dell hasn’t been looking at channel partners as a key to gain market share unlike OEMs like HP. A few months back only about a 30 percent of sales were driven by the channel partners and the rest was a result of Dell’s direct sales efforts. The reason is that Dell itself had a large sales team managing sales accounts. However, after Dell went private they have mended their ways in how they look at us. They have kept the key sales accounts with themselves and the rest have been distributed amongst the channel partners for further management and revenue generation which is a good step as it inculcates trust and sense of real partnership.”

Impressive Numerics

At one of my sit-down meetings, Cheryl Cook, VP, Global Channels and Alliances shared some impressive statistics:

• Dell has 167,000 channel partners out of which 4,255 are Preferred and Premium partners.


• Nearly 700 channel partners chose to become premier or preferred partners of Dell in 2014, a testament to channel commitment


• Training uptake, (a top requirement of channel partners as per Techaisle SMB Channel study), was up by 54 percent in 1H’14. But more importantly, training on software solutions increased by 102 percent.


• Over 82,000 deal registrations were processed, up 8 percent YoY and software (security, device management, data protection, systems management) deal registration was up by 32 percent


• Rebates processed was also up by 23 percent during the same time frame


• 4400 new customers were acquired through channels, transacted 10,000 new orders out of which 1200 were for storage and 1600 for software

Although she deftly skipped my question on how many named accounts have been formally handed over to channel partners she reiterated that Dell is continuing to maintain its compensation accelerator program which is yielding good results. Recently, a little over 200,000 greenfield accounts have been posted on the Partner Portal.

Investment in Training, Support, Lead generation, Consultative partnerships

Most channel partners that Techaisle spoke with agreed that Dell has been concentrating on technical training sessions and regularly assessing partners’ performance with a clear objective of empowering them with required product knowledge to be able to pitch to the right set of SMB customers in the best possible way. Unlike the immediate past, account managers from Dell have suddenly become approachable. Some partners went to the extent of telling Techaisle “we specifically like the pre-sales and sales trainings that Dell has designed for Channel Partners. At times I feel that their efforts in the field of training annoy us as there are multiple and repetitive requests for attending or undergoing the same set of trainings that we have already gone through. They do not yet have a system to remove these redundancies”.

Channels are also having good experiences working with Dell’s consultative approach. “Lately, we were dealing with a few SMB customers and they wanted the account managers and few other technical experts to be available on call. We worked together with Dell and closed 3 deals where the consultative partnership worked in our favor”, said an SMB channel partner based in California.

Dell is also investing in supporting the channels when they bid for complex engagements. Their pre-sales support has improved as compared to before as channels now have access to their technical resources who work along with partners’ technical teams in understanding customer requirements, existing customer infrastructure to suggest suitable solutions.

In addition to training and support Dell is making a series of investments to help channel partners by:

• Making available 5X demo gear to facilitate proof-of-concept


• Increasing number of Solution centers for partners to showcase Dell end-to-end solutions to their customers (granted not many SMB channel partners will take advantage)


• Improving areas of financing such as extending credit and payment terms thereby assisting channel partners in better managing their cash flows. The terms announced are 75 days interest-free financing on all Dell purchases for an introductory period of 180 days

Are conflicts a thing of the past? Channels are cautiously optimistic

Dell seems to be diligently working towards building trust within its channel partners. Dell and its partners have had a love-hate relationship due to conflicts with Dell’s strong direct sales force across all divisions. In fact, with the progress made, channels are wishing that Dell limits its investment in its internal sales teams as it would in all probability bring back the channels to “square one”.

The channel partner community reminded us of unpleasant past experiences of “Dell snatching customers from their partners and dealing with them directly”. But they quickly added, “We haven’t come across such a scenario (lately) and would never want to face a situation like that”.

Another partner said, “Dell has always been known for their direct business and has ramped up their efforts in the indirect sales through channels around a year ago. Earlier, we never knew if a deal which is routed through us will be closed keeping us in loop (with our margins intact) or Dell may go ahead and deal with the customer directly. Now, this has completely changed and Dell itself directs the customers to go through us”.

An HP and Dell partner was eager to get his point across regarding lead generation saying that Dell is managing a nice balance while sharing potential customer details with only one partner. HP is not following this approach triggering conflicts.

End-to-End Solutions message is resonating

Dell is steadfastly focused on its end-to-end solutions strategy and channels are paying attention. “Dell offers support in implementing end-to-end solutions. They work with us in consultation to determine the best product and solutions based on SMB customer requirements. Account Manager from Dell works with us closely when we deal with such deployments. We get all the technical help required, if skills are not available with us. Dell offers us access to experts (both on calls and physically, when required) from functional areas when we deal with SMBs for deployment of end-to-end solutions”.

Channels are finding that not only end-to-end solution deals give them extra margins but also makes it easier to deal with Dell, namely, channels get a better attention from Dell. Techaisle feels that if selective attention becomes the norm then many Dell SMB channel partners may flounder.

A mid-west Dell SMB channel partner was very vocal when we spoke with him. “Dell is important while we engage in end-to-end deals with our customers. Dell’s role starts from pre-sales to the deployment of such engagements. They offer the required marketing set-up for the products and solutions. If we have to take care of these things on our own, I think our margins will squeeze and it will be difficult to sustain our business”.

Having a full portfolio of offerings also allows “non-end-to-end solution channel partners” to sell adjacent technologies. For example, “we have clubbed and sold Dell hardware with Cisco, NetApp and IBM storage management and security solutions”.

Then there are other channel partners who try and build solutions with a product from Dell as the center-point. “Based on customer requirements we will see if there is a Dell product suited to meet the needs. If yes, we pitch for it and if there isn’t a product suited, we may bundle it up with other solutions and design an end-to-end solution for our customer. If the customer wants to go with a specific product and Dell doesn’t have promising product in the area; in these cases we will bundle it up with other product and present it as an end-to-end solution to our customers”.

Lingering Channel Challenges

To my question on what should channel partners be expecting next from Dell, Cheryl Cook quickly points out her focus on strategic pillars of mobility, security and Big Data with big push on converged infrastructure and innovative storage solutions.  She counters me with a question on VMware EVO:RAIL and its “fantastic” suitability for the SMB market segment.

Channels are listening and echoing that the fastest selling Dell solutions are Rack and Blade servers. But they feel that Dell has not yet been able to position its Force10 and SonicWall offerings effectively and channels are losing to Cisco or HP.

As conflict is disappearing, trust is settling in, channels have a new gripe. When a customer floats an RFP to a number of partners, Dell seizes the responsibility to directly speak with the customer, decides which partner is in the best position to offer most favorable terms and informs other partners to step aside and not waste their time on a deal which may not land with them at all. This annoys the channel partners as they would like a fair opportunity to win the deal and gain a customer by cutting down on own their margins.

No Regrets – but could have been bolder

Looking at the last one year since taking the helm, Cheryl Cook has no visible regrets. After much coaxing and cogitating she says, “Perhaps we could have been bolder in our move” referring to speed of Dell’s organizational moves and intuitive proactive thinking. The future is bright and she and her team are committed to helping all partners – “narrow or broadline”.

In our recent SMB survey in North America, Europe and Asia/Pacific we explored 14 potential sources of information on technology solutions. Some of these, such as TV or newspaper/magazine advertising, are clearly ‘top of the funnel’ options, intended to build awareness. Some options, including brochures and fact sheets, help to build consideration for specific solutions amongst prospective customers who are considering a specific type of solution. A third set of information sources, including product reviews on websites, case studies and whitepapers are primarily intended to build preference. And a fourth set, including seminars and face-to-face sales calls are used to convert prospects into closed business. Complicating these categorizations is the presence of options, such as the manufacturer’s website, that address multiple points in this process spectrum.

Which of these sources is most important to reaching a potential SMB buyer? Unsurprisingly (given the increasing complexity of the DMU [Decision Making Unit]), the answer is “it depends”.  Our research, as shown in the figure below, demonstrates that manufacturer website is an important source of information for small and medium businesses, and for ITDMs and BDMs [ITDM and BDM data not shown in the figure]. We also see that recommendations, IT news and analysis sites and personal sales calls help drive behavior.

What is really interesting, though, is the extent to which the data indicates use of multiple sources. Except in the mid-market, each of the top five information sources is used by more than one-third of the target audience; except in small business, each of the top 10 sources is used by at least 19% of the target. As the statistics regarding pre-contact information gathering above suggests, buyers are doing extensive research before connecting with potential suppliers – and potential suppliers need to be present in the media that the buyers are using, to make it past awareness to the consideration and preference stages that often occur beyond the purview of the IT vendor.

If we look again at the information sources listed in the figure above, we can appreciate the ways in which the channel can support the overall sales process. For example, small businesses like to get personal calls from suppliers – but calls like these to small businesses are far more likely to originate from a local channel representative than from a manufacturer. Similarly, BDMs are looking for personalized service and recommendations – but many IT suppliers, OEMs and channel partners alike, lack the understanding needed to communicate meaningfully with this audience. Who needs to be involved to help direct these discussions?

Vendors need to engage with SMB customers while the solution is being defined – not when the only decisions remaining are “whose components, and at what cost”? SMB buyers are using high-value content to define their IT buying approaches. Vendors need to build messages around/within high-value content to ensure that they can influence solution design and preferences.

Asia/Pacific version of above Infographic is here.

 

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.