Techaisle Blog

In the early days, the key question wasn’t “when?” but “what?” Looking back at 2011.

Four years ago, Techaisle’s 2011 SMB Cloud Adoption report began with a discussion of cloud awareness within the SMB community. Results showed that while SMBs were reasonably familiar with the terms “private cloud” and “public cloud” (recognized by 84% and 74%, respectively, of SMB respondents), “XaaS” had not yet entered the SMBs’ lexicon: less than 25%  were familiar with the term “hybrid cloud”, and IaaS and PaaS were also not commonly understood.

Discussions of reasons for adoption and barriers to cloud adoption also illustrate how much the cloud market has evolved over the past four years. In 2011, SMBs cited “simplified access through a browser from any location” as the second-most important reason to adopt cloud; in today’s multi-screen, mobile world, requirements have progressed much further, with an application interface layer capable of responding to different displays, a practical necessity for many business systems. Similarly, features like “eliminating the need to upgrade individual users” and “getting new features automatically” have become expected attributes of cloud, as attention progresses to issues like building agility and obtaining new capabilities. The data did highlight one issue that has remained constant from 2011 to 2014 though: as was the case with Techaisle’s most recent 2014 SMB cloud survey, the 2011 results emphasized a desire to increase IT staff’s efficiency as a key reason to embrace cloud.

In 2011, when asked, “What vendor actions would compel you to use cloud services?” 46% of small businesses and 38% of medium businesses replied that they would “never consider using hosted applications.” Today, of course, refusal to consider SaaS is still an option; but increasingly, it is an expensive, non-mainstream option – helping to remind us that “never” is not a good planning horizon for new technology.

Overcoming Cloud Adoption barriers of 2011

In many ways, a review of the list of barriers to cloud adoption cited by our 2011 respondents is even more helpful in illuminating increased SMB focus on cloud. In the 2011 research, respondents not using cloud were asked to specify the conditions that would prompt them to consider use of cloud services. The list of top responses is intriguing. The most frequent answer cited by 2011 respondents was “if the cost of owning the applications is significantly higher than renting them”. It can be argued that this condition has been met – that for many applications, ranging from office suites (where pricing for Office 365 is more compelling than for boxed versions of the software), to niche-specific applications where on-demand fees provide far superior economics than a combination of new hardware and licensed software, to the “fail fast” mantra used to apply cloud to emerging business opportunities (one which relies on the freedom to spin up and spin down applications quickly, without reference to the depreciation cycle associated with the underlying hardware), the economics of cloud are compelling for at least some applications.

Similarly, the second most frequently-cited condition that would prompt 2011 non-users of cloud to consider adoption – “if the application we need meets our needs completely” – is also often frequently met today, thanks to the explosion of niche-specific applications available from an ever-expanding universe of cloud application sources. Viewed in hindsight, we can see that cloud provides an ideal delivery platform (and associated business model) for addressing these conditions, which has in turn helped fuel cloud’s advance in the SMB market.

Where are we heading from here? Tracing the trajectory of SMB cloud usage

Through its relatively brief history, cloud projections have been hampered by the “hockey stick” phenomenon. Cloud is growing in multiple ways simultaneously: the number of firms using cloud is increasing, the number of individuals using cloud within these firms is increasing (e.g., as business users in different areas and IT workers find discrete uses for cloud-based systems), and the number of platforms and applications in use within each organization is increasing. These compounding growth curves drive extreme growth expectations that are difficult to digest.

Based on our most recent 2014 SMB cloud study we have constructed a “current and projected” perspective. The data serves to reinforce the belief that hybrid is emerging as the dominant cloud delivery model. Some of the hybrid growth numbers are extraordinary: use of “hybrid-only” is increasing by 87%, while the proportion of SMBs using a combination of private and hybrid is expected to grow by 122%, and use of all three of public/private/hybrid cloud is expected to increase by 130%.

However, even the figures that are less exceptional still relay an impressive underlying story. Take, for example, the “public only” group. Data shows that businesses using only public cloud will shrink by 20% within US-based SMBs. However, public cloud itself will be a growing part of SMB cloud delivery strategies and is actually poised to increase by 75% through the forecast period.

Using the same survey data based projection methodology we have created workload scenarios across sixteen different applications areas. The “full market adoption” scenario assumes that all SMBs reporting plans to adopt cloud do so whereas the “gradual adoption scenario” takes a different approach: it assumes that current cloud users will adopt each technology according to current plans, while new cloud users will adopt each technology only at current usage rates.

Data clearly shows the coming dominance of hybrid as a delivery model – which drives increased demand for both public and private cloud as well – and provides high-growth forecasts for cloud storage, data backup and cloud security at a workload level, and for vertical applications, content publishing, CRM and BI/analytics in SaaS. It can be difficult to parse through the many, extraordinary growth projections for cloud. By connecting user intentions for growth in overall cloud adoption with adoption patterns for delivery, workloads and applications, Techaisle provides its clients with the data needed to calibrate the growth needed to keep pace with or exceed the overall SMB cloud opportunity.

Related research report: SMB & Mid-Market Cloud Computing Adoption Trends

The arguments for cloud are clear, and well-aligned with the specific interests of small and mid-market businesses, and ITDMs and BDMs. However, despite what appears to be a 24x7 stream of cloud information available to everyone with an internet connection, cloud is not ubiquitous – meaning that there are objections that prevent cloud from being introduced in some SMB environments.

To better understand cloud objections, Techaisle’s SMB Cloud Computing Adoption survey asked respondents “What are the key inhibitors to embracing cloud – what factors might prevent you from adopting new cloud solutions, and/or accelerating the use of current cloud solutions?”

Responses show that the traditional cloud bugbears of security and control continue to furnish obstacles to increased cloud penetration/acceleration. As the figure illustrates, SMBs are most worried about security of applications and corporate data, and about control over data, users and applications. 

Mid-market businesses also register a high rate of concern regarding the difficulty of integrating operational systems across hybrid traditional/cloud-based systems – and objection which, in Techaisle’s opinion, has real merit and will require attention (and solutions) from the cloud supplier community. This issue is of particular concern to firms with 100-249 employees – large enough to have diverse systems requiring integration, but not large enough to have deep IT resources capable of addressing the problem. We expect that this concern will spread both to larger firms as they move more workloads from on-premise to cloud or hybrid platforms, and to smaller firms as they adopt more SaaS systems (requiring cloud-to-cloud integration).

A drill down into inhibitors by employee size segment shows that the smallest organizations in both the small and mid-markets – the 1-9 employee micro-businesses, and the 100-249 medium businesses – have some unique issues. Micro-businesses worry about vendor lock-in – a reasonable concern, as these firms have neither the technical expertise nor the purchasing power to extricate themselves from supplier relationships if they experience difficulties. The 100-249 employee size groups, as detailed above, are worried about integration. Consistently, though, SMBs are concerned with questions of security and data/user/application control. Suppliers able to address these issues will benefit from expanded market opportunity.

Looking at this issue through the ITDM/BDM lens, we see that the principal objections – with one important exception – are defined by the roles that each group plays within their organizations. BDMs, as might be expected, are very concerned with control over business data (can we access and manage data in the cloud as well as we can on premise?), with connectivity (can we get to information and applications when we are on the road?), and with vendor lock-in (which can be seen as an extension of the data control issue). ITDMs, on the other hand, are more concerned with technical issues than their BDM peers: they are more likely to cite limitations in service access and integration issues as cloud impediments.

The one area where the pattern does not correspond to expectations is in security, where BDMs express higher levels of concern than ITDMs. Given that ITDMs are responsible for most aspects of cloud security, we would have anticipated more security-related concern from ITDMs, if not necessarily lower rates of security-related worry on the part of the BDM respondents.

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.