Techaisle Blog

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.

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.

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. 

The ongoing migration to server virtualization – within small businesses that have not yet adopted virtualization and within midmarket enterprises that are consolidating workloads on new, virtualization-ready infrastructure – will drive substantial near-term demand for converged infrastructure. Techaisle survey data shows that adoption of converged infrastructure is expected to double within the one year planning horizon. This is unlikely to represent ‘net new’ server demand; instead, Techaisle expects converged infrastructure growth to occur at the expense of traditional server products.

While the migration from separate server, storage and networking products to converged infrastructure is still in its early stages, the Techaisle SMB & midmarket converged infrastructure adoption trends survey shows that it is beginning to gain traction, especially within more sophisticated accounts. In the US, converged infrastructure is currently used within 32% of midmarket businesses, with another 31% planning to acquire within a year. Techaisle’s segmentation by IT sophistication demonstrates converged infrastructure adoption rises steadily with increased buyer sophistication in both the small and midmarket segments. US SMBs spent US$3.8B on converged infrastructure solutions’ implementation in 2014.

Additional survey data illustrates that suppliers of converged infrastructure should be proactive in making potential customers aware of the benefits of their technologies. While roughly half of both small and midmarket businesses describe themselves as being in the information gathering stage, one-third are currently identifying potential solutions, and 15%-20% are evaluating suppliers. It seems unlikely that buyers will ‘mix and match’ converged infrastructure technology, so it is important for suppliers to win initial orders – and the data shows that many of these purchase decisions are already underway.

While there are technical advantages that make converged infrastructure products more effective virtualization hosts than traditional servers, Techaisle’s research shows that SMB buyers adopt converged infrastructure for one or more of five primary reasons:

1. to benefit from converged infrastructure’s integrated design and efficiency,
2. to tap into its ability to enable centralization/management of resources,
3. to capitalize on performance/time-to-benefit advantages,
4. to improve IT agility and its ability to meet business needs, and
5. in response to core requirements for cost savings and improved security.

In another section of the Techaisle SMB 2015 research, respondents were asked to identify projects that prompt consideration and purchase of converged infrastructure products. Comparison of small and midmarket business drivers finds both some commonality and some variations. Both small businesses and midmarket enterprises are most likely to acquire converged infrastructure to support data center consolidation, and virtualization applications as well as impetus for data migration. Key applications – Big Data and unified communications, SharePoint, and in small businesses, custom applications – are also project types that can drive adoption of converged infrastructure.

To enhance the scope of comparisons Techaisle also posed similar question to channel respondents in Techaisle’s SMB channel partner trends survey. The data provides yet another perspective reflecting the situations in which the channel is drawn into converged infrastructure decisions. Big Data – which requires a relatively wide range of competencies – is the project type that will most commonly require the channel to deploy converged infrastructure systems, and SharePoint projects which also demand a broad skill set, are the third most common project cited as a converged infrastructure adoption driver.

Question is “what sales channels are best positioned to intercept this demand?” Data shows that converged infrastructure routes to market will likely follow the pathways used to acquire software management layer that controls these physical resources. Both small and midmarket businesses are most likely to turn to hypervisor and networking vendors. Systems integrators have a substantial presence in the supply of these solutions whereas as VARs and managed service providers (MSPs) have more limited presence/appeal as virtualization solution sources.

In many ways, the key market issue surrounding converged infrastructure isn’t vendor-vs.-vendor competition, but rather, the ability of converged infrastructure as a system class to gain share quickly vs. traditional server products, while not being obviated by the cloud before attaining mass market penetration. However, suppliers are competing for share in this growth category, and understanding SMB what buyers are looking for – and what they struggle with when they adopt converged infrastructure – is important to positioning a brand as a credible solution.

Techaisle’s SMB Server Virtualization adoption market trends study shows that US SMB server virtualization penetration has reached 54 percent (un-weighted), up from 41 percent two years ago. Within midmarket businesses the penetration has reached 88 percent and another 7 percent are planning in the next one year.

Figure below uses data from multiple surveys to illustrate trends in virtualization penetration within SMB accounts that have adopted server virtualization. In 2013 the proportions of servers virtualized was very similar across all employee size categories, ranging from 61%-62% in microbusinesses (which sometimes only have one server, making virtualization an all-or-nothing proposition) to just over 50% in midmarket enterprises with 500-999 employees, which can be expected to have many servers. The statistics for 2014 show virtualization penetration rising in all employee-size segments: rapidly in microbusinesses and the 500-999 midmarket enterprises, and gradually in other SMB segments. The perspective on future intentions, drawn from the Techaisle SMB 2015 survey, indicates that these trends will continue and accelerate. Microbusinesses and larger SMBs (including both the 250-499 and the 500-999 segments) are expecting rapid further penetration of virtualized servers, and the other midmarket segments are expecting a further 6%-10% of servers to be virtualized.

What does this trend mean to the market?

Clearly, there is increasing opportunity for hypervisor sales, and Techaisle would expect that VMware will find purchase within companies looking to connect virtualized servers to other infrastructure assets (especially, for example, hybrid cloud or software-defined networking or storage), while alternative suppliers, such as Microsoft, gain share in the core market as multi-hypervisor strategies become more common. Techaisle expects that this trend also indicates increased opportunity for converged infrastructure products as these systems can be used to capitalize on advanced virtualization capabilities.

Location of Virtualized servers

A comparison of 2013 and 2015 research results shows that within each employee size segment, SMB end-user organizations are becoming more likely to virtualize servers that are located outside of their business premises. Across the entire SMB community, there has been a 45% increase in off-premise virtualized servers in the past two years: an enormous shift that highlights the broader shift towards remote management of infrastructure resource.

If virtualizing servers is so popular – why isn’t it universal?

The Techaisle interview of 848 US SMB ITDMs uncovered a number of reasons why SMBs struggle with virtualization adoption. The top five challenges cited in the research illustrate the complexity that can accompany infrastructure changes.

The most prominent challenge, cited by 34% of SMB respondents, was the high cost of virtualization licenses, which may explain why the expansion of virtualization within current user accounts often includes investigation of (and in many cases, migration to) a multi-hypervisor strategy that adds “free” options such as Hyper-V and Xen.

The third most common challenge is that management of virtual servers proved to be more difficult than anticipated, which may reflect initial learning curve struggles and/or incremental complexities associated with environments relying on multiple hypervisors.

The second leading challenge, “projected cost/space/power savings not achieved,” highlights both the cost and complexity issues: it can be difficult to obtain projected densities/utilization rates during the adoption/migration period, and expenses can escalate in several ways: due to costs associated with virtualization solution licenses, and also because of the “high cost of ISV licenses for applications running in a virtualized environment” and generally higher-than-anticipated project costs. It is worth noting as well that in small businesses (1-99 employees), “lack of experience” is also seen as a major server virtualization challenge, cited by 22% of survey respondents.

On the positive side, the relatively high level of server virtualization experience found within the SMB channel partners (Techaisle SMB Channel Trends study) may help mitigate this issue – but it should act as a caution when evaluating market outlooks for VDI and DaaS, where experience levels within both the SMB buyer and SMB channel communities are much lower.

Results from the Techaisle SMB 2015 Virtualization surveys in the US, EMEA, Asia/Pacific and Latin America indicates that client virtualization has not been as widely adopted by SMBs as server virtualization. VDI is quite a lot less common than server virtualization, and DaaS adoption is still in its early stages. Techaisle believes that most midmarket firms that have invested in VDI and especially DaaS are still experimenting with the technology, and that most small businesses are still several years away from even this level of preliminary adoption.

Techaisle is able to draw on its multiple large-scale global SMB surveys to illustrate changes in SMB VDI/DaaS adoption drivers, and is able to add context from its SMB channel research to illustrate similarities and differences in perspective between SMB buyers and their primary IT advisor/supplier community.

Comparing 2015 and 2013 reasons for using VDI/DaaS
The key theme in the 2015 responses is “control”: SMBs are looking for more effective backup and disaster recovery, for more security, for means of assuring regulatory compliance, and for a platform that supports scalability and flexibility. With the exception of “reduce operating cost,” 2015 respondents are not particularly focused on cost issues, or on support for mobile apps.

The 2013 findings reflected a different set of SMB user needs. Two years ago, apps were paramount, with providing “access to applications from anywhere on any device”, “improving the availability of applications” and “deliver services on demand” the first, second and fourth highest-ranked responses. In 2015 these factors rank seventh, ninth and tenth on the list.

It seems clear that while an earlier generation of SMB VDI/DaaS adopters was looking for a means of delivering apps to users, today’s SMBs are looking to VDI/DaaS as a means of increasing control over mobile assets. This may be in part a reaction to generally-greater access to capable mobile apps, but it may – and in Techaisle’s opinion, does – reflect much greater awareness and concern over corporate data security concerns arising from widespread use of mobility.

SMB and Channel Disconnects
If we compare 2015 SMB buy-side and SMB channel responses, we see that the channel has not moved from “app” to “control” as fully as the SMB user community. SMB buyers prize control options – backup and DR, security, and compliance – and also acknowledge the importance of OPEX reductions and scalability. The channel believes that SMB clients primarily value scalability and flexibility, and also understand the need for control over regulatory and backup/DR, but are still focused on app delivery issues – “deliver services on demand” and “anywhere/any device app access” – that have fallen in the buy-side priority queue.

Targeting by IT Sophistication Segmentation
Techaisle’s IT sophistication-based segmentation finds that there are pockets within the global SMB market that are progressing faster than their employee size group peers. Advanced IT small businesses are five times as likely to be using VDI today as Pre-IT organizations. While DaaS is less well established, roughly a third of the small business Advanced IT group is using or planning to begin use of DaaS as well.

Within midmarket businesses VDI penetration does not vary much by sophistication segment, indicating that it has reached a relatively common level of use. DaaS, on the other hand, is still wending its way through midmarket users: 10% of Basic IT firms, 20% of Advanced IT firms and 31% of Enterprise IT firms have at least initial trials underway. DaaS messaging should therefore be targeted primarily at the more sophisticated SMB user communities.