Techaisle Blog

Where is the SMB mobility channel today, as we enter 2016? Results from three Techaisle SMB channel surveys and compiled in report The Channel and Mobility: SMB Supply Options show that there has been substantial retreat from mobility as a core offering in the SMB and midmarket channel. In two years, the proportion of partners stating that they are unsuccessful at selling mobility has increased from 5% to 17%. There are likely two main reasons for this, a “push” and a “pull,” both related to the increased need for specialization in 1-2 of four main market areas (mobility, cloud, managed services, converged infrastructure/virtualization).

On the “push” side, Techaisle believes that many channel partners are struggling to find a profitable entry point to mobility. Supply of the devices themselves is not sufficient: buyers are deploying a wide range of client technology (PCs, smartphones, tablets) which has the effect of diffusing investments in PCs, diverting investment from the channel (since some technologies, especially smartphones, are generally acquired from telcos or other non-traditional-channel sources), and slowing PC refresh cycles (since client technology investment is now spread across 2-3 different devices). Additionally, the rise of BYOD is a double-edged sword: on the one hand, it increases the need for mobility management solutions (since these devices have greater need for security and related capabilities, such as audit/compliance monitoring), but on the other, authority for these devices doesn’t reside entirely within IT. And SMB channel partners are continuing to struggle on how best to offer mobility management solutions, mobility security solutions and bet on which vendor suppliers.

On the “pull” side, channel members who are being forced to abandon the ‘one stop solution shop’ positioning in favor of specialization in 1-2 of the core four areas need to decide if the uncertain journey into mobility has a greater overall benefit than focus on cloud, managed services and/or converged infrastructure/virtualization.

In the report “The SMB Channel and the Cloud”, Techaisle uses findings from in-depth surveys with US-based channel firms deriving at least 50% of revenue from sales to SMBs to illuminate conditions within the US SMB cloud channel, and to develop perspectives that suppliers (and the channel itself) can use to construct successful cloud channel strategies.

From 2013 to 2015, the percentage of SMB-focused channel partners that have become very successful in selling to SMBs has increased from 40% in 2013 to 63% in 2015. On the flip side, the percent of partners who are unsuccessful has increased by 60%. MSPs are the most successful partner type in cloud, while consultants are struggling to gain traction in the cloud market.

Highlights from the research include:

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?

A strictly “by the numbers” review of the state of the SMB channel in the US paints a portrait of a well-balanced but fragmenting industry. Techaisle’s survey of SMB channel partners finds that revenues from products and services are approximately equal, and that services revenue are being derived from transactions that do not include products as well as from product-inclusive deals. SMB channel respondents report that 58% of revenue is attributable to services-led contracts and that a similar proportion of revenue is derived from recurring sources, vastly different from 2012, 2013 and 2014.

It is worth noting that while measures of this type provide a very useful benchmark for channel partners, some interpretation of the benchmark data is necessary. For example, the proportion of business attributable to services is only part of the issue that SMB channel management is wrestling with: what kind of services (for example, managed PCs or device maintenance?) is an important consideration in evaluating the impact of a channel services revenue stream.

Similarly, growth in services revenue is not necessarily a proxy for progress, as it can result from simple reductions in product revenue rather than effective transition to a business model properly aligned with the market as a whole. Techaisle believes that SMB channel partners that are looking to be part of the “managed services” channel should be targeting just over 20% of services revenue derived from managed services in 2016, and more than 40% by 2018.

The revenue growth expectations are also interesting. Although 63% of SMB channel partners are expecting revenue increases in the next one year, the scenario is quite dismal for VARs as compared to MSPs. 54% more VARs than MSPs are expecting their revenues to remain flat and a percentage of VARs are expecting their revenues to decline by an average of 30%. Even some MSPs are expecting their revenues to decline by an average of 20%.

However, the overall optimism for growth provides some insight into how and where the channel is growing.