Techaisle Blog

In what we saw as an awesome display of moving the bar higher, Evan Goldberg, NetSuite’s CTO, demonstrated in his Keynote Thursday that NetSuite continues to deliver industrial-strength innovations and solutions using tools that are increasingly easy to use, intuitive and particularly well suited to fast-growing Mid-Market companies with global aspirations.

Picking up from a summary paragraph from a 2009 blog post I wrote on NetSuite in a previous life:

“After looking at this demo it will be a little clearer why IMHO this is what the future looks like – all applications will have built in BI and reporting capabilities much stronger than has previously (been available) – without third party BI and lots of integration services – a big differentiator for SaaS vendors that provide this type of visibility as a standard component of their value proposition.”
- Collaborative Innovation Blog post, April 4, 2009

Among others, there are two things that seem like very good strategic moves for NetSuite: Fishing where the Fish Are, and being in a unique position to leverage the new Enterprise Applications Platform for companies that are ready to expand into global markets.

Fishing where the Fish Are
NetSuite positioned itself from the beginning as an Enterprise Software company, starting with ERP and then building other complex, traditionally on-premises software applications into the platform as successive SaaS waves hit the market and customer acceptance increased; Customer Relationship Management, Supply Chain Integration, Customer Service, Professional Services Automation – all tightly coupled with Billing and Fulfillment for a truly integrated workflow that almost covers the gamut of the Traditional Multi-user Systems requirements (Integrated Front and Back Office). Now adding deeper focus to e-Commerce, Global Financial Reconciliation and Industry Vertical implementations, NetSuite can enable Mid-Market firms to be truly competitive in a global market; leveraging speed and agility to outperform larger slower companies.

We have seen a very steady increase in the willingness (and need) for SMBs to embrace Cloud Computing and SaaS Models that move them out of the annual cycles and cost-center mentality that used to define IS Departments. A good indicator of this is how eager the SMB Channel is to offer a wide range of products and services and here we have seen amazing growth; even from last year to now surveys show the laggards are rapidly jumping on board, as seen in this table:

Of the 615 US-based SMB Channel partners interviewed, 86% were now offering or planning to offer Cloud-Based Services, those Not Planning to Offer Cloud dropping from 38% to 14% of the channels. This data represents aggregate results for VARs, SIs, MSPs, SPs and ISVs. In addition to Cloud Services fast growing areas for the SMB Channel include Mobility Solutions, Managed Services and a wide variety of applications in all three of these categories.

SMBs are Hungry for Enterprise-Level Capabilities
Based on early success in SaaS and basic Cloud Services such as Email, Storage, Back Up and Recovery, and CRM/SFA, Small and Medium Businesses have seen the light at the end of the tunnel. Security, availability and usability objections have been overcome and the cost to implement with lower complexity and higher focus on the core business have resulted a very compelling value proposition in widespread adoption worldwide.

To survive in an increasingly globalized and optimized business environment, SMBs need to be growing faster than the market and their competitors, reflected by their Priorities:  #1 Increasing Revenue (56%), #3 – Increasing Productivity (34%), #4 – Penetrating New Markets and Customers (32%), and #6 – Speed to Market / Keeping Pace with Competition (28%). On the other hand, rapid growth without an increase in efficiency is unsustainable, so the rest of the priorities revolve around scaling the business efficiently; including #2 – Reducing OPEX (45%), #7 – Collaborating Efficiently (29%), and Reducing Cost of IT (27%).

 

Because Cloud Computing has been able to deliver these benefits much more effectively than the previous generation of Client/Server architecture did, SMB customers report between 75-80% satisfaction levels of “Satisfied” or “Very Satisfied” with their Cloud-based implementations.

All of this bodes well for NetSuite as the market matures and moves further into the cloud looking for Enterprise-Level capabilities. And timing is also very good as we can see from the additional results of the 2013 SMB Channel Partner Survey:

For Channel Partners Offering or Planning to Offer Cloud Services (85%), the left column shows the top 12 applications cited by Partners based on currently offered Cloud Applications, the middle column represents Cloud Applications that Partners plan to offer this year, while as the title suggests, the “No Plans” column shows the share who say they have no plans to offer the Application. It is pretty clear that the areas of focus and strength for NetSuite are lining up with the opportunity, or put in another way, the Mid-Market needs are maturing to a level that can benefit from NetSuite’s focus. And while there are many companies in the market who can provide these as point solutions, there are very few who can provide them in a unified suite of applications, with an integrated group of cross-department KPIs that can be used to get at a single version of the truth.

In terms of product coverage and timing, we feel the rapid adoption in the Mid-Market towards Cloud Infrastructure, successes in overcoming basic Security, Functionality and Availability concerns and the need for Mid-Market customers to grow rapidly and efficiently, all support NetSuite’s strategy and roadmap as presented at the conference, providing a lot of runway for the next few years.

Leveraging A New Enterprise Applications Platform
The second major point is that by building their platform from the very early days of the Internet as a transaction platform NetSuite has been able to been able to take advantage of both technology and market advances. In 1997, the critical weakness of the Internet was that while it was very good for moving brochureware around the world quickly, more mature applications that required a lot of integrity and accuracy – such as OLTP in Financial Reconciliation and Supply Chain Integration – were not reliable enough; the Databases, Middleware and Network Management needed to improve and there was a serious shortage in programmers who could do this kind of heavy lifting.

Fast forward five years and the dotcom bust had made commercial broadband access ubiquitous and the tools and skills had (almost) caught up to the hype. CRM, the Killer App was being brought online to the SMB community through SalesForce.com and the benefits of a SaaS model were becoming very clear, albeit with some remaining hiccups and most enterprises waiting on the sidelines for critical applications.

NetSuite started with one of the most difficult challenges back in 1998; ERP Applications with all the Enterprise-level OLTP and Database Management challenges that came with them. By doing this, the ability to grow an integrated set of applications using a single foundation, has paid off in terms of functional leadership. Others in the market, most notably SAP for Back Office and Oracle for Front Office, have taken an “Acquire and Integrate” approach, which is complicated and time consuming in comparison. The fact that NetSuite has survived and thrived in this environment is testament to vision, determination and execution.

Without getting too abstract, we see long term patterns in the software market that seem to ring true over time – the first is to win a narrow space, shore up the position, look left and right and take the adjacent space that is most lucrative and easy to assimilate (by hook or crook). Repeat. The second is that network effects rise in proportion to the number of users: Market Share is King. The third is to focus on the Scalable model and ensure to develop an ecosystem of partners who can add value profitably. Finally, at a very abstract level, the history of IT has been a steady, long march to Data Integration for Process Automation and Optimization. Whether you call Big Data, Distributed Database Management, Supply Chain Integration, Enterprise Performance Management or Google Search, it boils down to integrating disparate data and making it useful for decision making, with a relentless concentration on efficiency. As seen in the Business Intelligence segment, those who started with an Internet-based implementation approach rather than one of everything to every mapping, have ended up with an easier road to implementation; consider Siebel vs. SFDC, SAP vs. NetSuite, BoA Merchant Banking vs. PayPal, or Cognos vs. Domo. New, better tools and focus on specific data integration points rather than mapping every possible permutation of interaction between systems has resulted in faster time to value, less complexity for the channel and much less risk for customers. Breakthroughs such as scalability with Multi-Tenant Architecture have also resulted from solving the problem from a clean slate.

In our 2012 SMB 2020 Technology Report, we described our perspective of the IT Environment of the future, Client, Server and Network. This graphic shows a functional view of the Multi-user System, traditionally called the “Server” within a Client/Server Architecture. This view has CRM as the Hub component, surrounded by an increasingly integrated suite of Applications areas that eventually cover the complete information requirements of the Front and Back Office to run the business using a highly customized group of integrated KPIs. This type of integrated Nirvana has been an objective for a long time; however, it seems to be closer, clearer and much less complicated than it used to be when looking at the NetSuite Roadmap, i.e., we are not counting the dozens of modules that need to be installed, configured and integrated (and who is responsible to manage it). NetSuite’s rapid increase in large customers and decision by the traditional big Systems Integrators to jump on board seem to indicate that timing is good and the functionality is there.

Channel Implications
As the functionality and capabilities of the platform have changed with Cloud Computing, so have the dynamics of the Channel, especially in the Small and Medium Business space. Access to capabilities that were previously far out of the reach of SMBs has fueled the adoption of increasingly complex applications. Ironically, the benefits of the SaaS architecture have compressed and digitized the sales process, allowing companies to sell directly through an online channel, with demand generation, research, pre-sales, sales demonstrations, etc., conducted through inbound sales organizations rather than relying on channel partners to push products and services to the market. The proliferation of horizontal SaaS applications, such as email, webinars, Storage and Back Up has spawned a generation of self-configured apps that have made the customers question the need for third party involvement. It has also shorted the decision cycle substantially; many times cutting the channel out completely and giving rise to a “trusted advisor” role, especially in the lower Mid-Market.

Our research has shown that generally the more complex a solution, the more likely it is to have a partner involved in the implementation. Because NetSuite offers relatively complex solutions, it will have to play on both sides of the fence here – avoiding conflict with large partners for direct sales and providing profitable opportunities to the SMB channel partners, this was one area we felt might be a yellow flag in the distance.

Mobility is coming on Strong
With the installed base of Tablets and Smartphones exceeding that of PCs this year and annual sales of the former expected to number in the hundreds of millions higher by 2018, we see a fundamental shift in the way customers access and manipulate data. “Fundamental” meaning the difference between double-entry ledger accounting in physical books to a software application or the move from IBM Selectric Typewriter to PC-based Word Processing applications; nothing will ever be the same, and it is inevitable. There has already been a steady stream of casualties in the wake of Smartphone sales – single function GPS devices, midrange Digital Cameras and landline phone sets have all peaked in global consumption in the wake of accelerating handset sales. Just as the Internet itself essentially changed all business where value could be digitized (Financial Services, Travel, Shopping, and Advertising), so will ALL industries change as the primary mode of information consumption to the Internet is by mobile device.

This is the area that saw the greatest change in our 2013 SMB Channel Survey, from 56% of partners who said they were not planning to offer Mobility solutions in 2012, the number dropped to 8% this year, representing a doubling of Mobility Solution partners in the market as they implement the plans.

We did not hear that much about mobility from NetSuite during the conference, but given their strength in operational visibility through dashboards across departments, we think focus on this area could help both channels and end users.

Techaisle’s SMB Mobility adoption research and corresponding segmentation shows that there are three distinct SMB segments of mobility solution users.

Aggressive Adopters: Mobility is Strategic to their business; these form 13 percent of SMBs

Steady Movers: Mobility is enabled in their business; by far the largest segment at 49 percent of SMBs

Fence Sitters: Mobility is a convenience for their business; these form 19 percent of SMBs

It is imperative for IT Vendors and channels to understand the segments' different attitudes towards mobility, current and planned usage of mobility and firmographics to create an actionable marketing strategey. For example, Techaisle’s SMB Mobility Segmentation shows that for 13 percent of SMBs that fall into the Aggressive Adopters segment mobility is strategic to their business growth and survival. A deep understanding of the three segments will help IT vendors and channel partners identify their target markets and how to sell into them.

Sales Strategies for SMB Mobility Segments



Even in terms of spending, aggressive adopters are spending a higher percentage of their IT budget on mobility solutions. Interestingly, Fence Sitters are spending comparatively higher percentage on mobility consulting assessments looking for advice on the most appropriate solutions before adopting mobility enterprise-wide.

BYOD Policy and Use of Tablets & Smartphones

Not only Aggressive Adopters were the first to use tablets and smartphones but they also have the highest density (mobile devices per employees) and highest average number of tablets and smartphones being used at all employee size levels among all three segments.



There are twice as many SMBs in the Aggressive Adopters segment as Fence Sitters that use Tablets and Smartphones.

Aggressive Adopters have also moved quickly to implement a BYOD policy whereas a large percentage of Steady Movers do not have a BYOD policy but they also do not stop their employees from using their own devices.

 

Aggressive Adopters also have a very healthy attitude towards employees using consumer applications at work as they feel it is a good way to learn about technology that their employees find useful and can be officially integrated into their business.

 

 

Adoption of mobility solutions has also led to a positive effect on work-life balance of their employees. Aggressive Adopters have also seen improved productivity, higher employee satisfaction and improved quality of work.

 

With improved productivity and quality of work there will be a continued proliferation of mobile devices and corresponding solutions that will drive new forms of collaboration of content and communication. As devices become increasingly small, smart, connected and powerful, the server and network become less visible progressively moving offsite both physically and from a management perspective, simultaneously serving more computing power, storage and bandwidth; mobility will revolve around collaboration delivered through an enhanced browser. Therefore, todays Aggressive Adopters will look for integration of communication channels, content and workflow as the foundation on which to build their strategic mobile solutions.

The responsibility lies with the IT Vendors and their channel partners to effectively mine the Aggressive Adopters’ segment at the same time using realized proof points to move each of the other two segments (Steady Movers and Fence Sitters) to the Aggressive Adopter segment.

In terms of market opportunity, Aggressive Adopters show the highest growth rate for mobility spending requiring sophisticated solutions whereas Steady Movers have the biggest size due to sheer volume of SMBs falling into the category.

Techaisle’s SMB technology adoption study shows that 72 percent of SMBs find Virtualization to be one of the most relevant technologies for their business, 2^nd only to backup and disaster recovery. The actual adoption gets hindered because 56 percent of SMBs find Virtualization to also be one the most complex technologies to understand and adopt. (See infographic)

SMBs cite several reasons for adopting server virtualization; key among them are reducing operating cost, backup and disaster recovery and reducing cost of IT support. Improving existing server and hardware systems utilization is mentioned by 32 percent of SMBs.

In our survey of SMBs either currently using or planning to use Virtualization technologies we found that SMBs currently using Virtualization tended to have a mixed brand Virtualization environment, not relying on a single vendor for the solution, but mixing and matching as they saw appropriate based on their specific requirements.

For example, the above chart shows that within VMware Server Virtualization environments, 66 percent of SMBs also use VMware client Virtualization technology, with both Microsoft and Citrix making up the difference for the client side. Similarly, 78 percent of SMBs that use Microsoft server Virtualization also use Microsoft client Virtualization. Several other findings become apparent from the above chart:

• VMware and Citrix have the most relatively mixed virtualization environment as compared to Microsoft


• Citrix and Microsoft may have a slightly deeper partnership that enables SMBs using Citrix server Virtualization to be combined with Microsoft client Virtualization more easily and cost effectively

However, we cannot look at the above chart in isolation. SMBs have been using Virtualization technologies as the market developed.

In the words of one VP of IT for a mid-market business, “We use Citrix, VMware, Microsoft Hyper-V, and emulation from Ericom. There are ‘n’ numbers of products that are being used in the whole gamut of things”.

The Venn diagram below not only exposes the vulnerabilities faced by Virtualization vendors but also demonstrates that the market is big enough for solutions from all vendors to work in a heterogeneous IT environment.

For example, the above Venn diagram shows that only 12 percent of SMBs use only VMware Virtualization solution which is twice that of Citrix and almost one-fourth of Microsoft. And 9 percent of SMBs use Virtualization solutions from VMware, Citrix and Microsoft. Once we start to include solutions from Parallels, NComputing, Oracle and others the overlaps become very complicated to map.

Our research found that SMBs usually go through a round of server consolidation before moving to Virtualization.

“The very first step was actually to go for server consolidation. Once the servers were consolidated, then the desktop virtualization was performed. So, typically for VDI architecture or any other technology, the first thing is the server consolidation and after that the procurement of solution and licenses were done from VMware and Citrix for the VDI and after which the user terminals were changed”, this according to one IT Director, Mid-market business.

Not all Virtualization projects finish smoothly. SMBs have also had different experiences with each of the three major brands for server Virtualization projects as shown in the chart below:

The factors affecting each of the projects could be dependent upon:

• SMBs’ readiness


• Channel partners’ capabilities

However, the top 3 most common areas that need addressing are Compatibility Issues, Cost Overruns and Lack of Experience, which are perennial issues as all SMB users adopt new technologies.

“The major challenge was the cost, because the initial hardware investment was huge. Getting rid of the system and moving to the cloud and installing virtual servers required purchasing of physical storage and upgrading the system. Another challenge that we faced was the initial configuration which was addressed timely and efficiently by our partners”, Vice President, IT (500 employee size company).

But SMBs have gained tremendous advantages from using Virtualization. “It certainly has helped us to avail richer network services without increasing our capital investment and has increased our operational efficiency. Moreover computing and networking are much simplified now”.

For additional information on this and other topics from the blog, please feel free to contact us for a discussion and gratis consultation.

To purchase Techaisle’s SMB Virtualization Trends and Adoption study or engage Techaisle in a deep-dive custom research please send an email to This email address is being protected from spambots. You need JavaScript enabled to view it.

 

Techaisle’s SMB Cloud Adoption survey shows that SMBs that are using Cloud applications are experiencing tremendous improvement in customer acquisition, retention and work satisfaction. In fact, 1 in 4 SMBs say that customer retention has improved, and nearly 1 in 3 says that customer acquisition has improved.

In general SMBs have experienced improved customer acquisition and retention after using cloud applications, however, SBs (1-99 employees) and MBs (100-999 employees) differ. Typically, SBs are more hard-pressed to acquire customers, a top business issue for them. With the adoption of cloud, 32 percent SBs say that they have seen improvement. MBs on the other hand, have better direct sales force for customer acquisition, but after equipping the sales force and marketing with cloud applications they have seen marked improvement in customer retention. Additionally, an important point to note is that 29 percent of SBs have reported improved group productivity and 34 percent improved employee satisfaction.

The survey also showed that B2C and B2B SMBs have had different experiences in customer acquisition and retention.  Specifically, B2B SMBs have reported nearly twice as high improved experiences as B2C SMBs. Many B2C SMBs are using social media platforms such as Facebook and twitter and marketing automation solutions to build a set of followers to improve their customer retention and acquisition. On the other hand, comparatively higher percentage of B2B SMBs are using LinkedIn, Twitter and specialized platforms such as Chatter, Yammer and GageIn to track news and conversations with their customersaction.

CRM has become the central application and the core around which other features and functionality are deployed as required by an SMB organization, department within an SMB or an individual user within the SMB. CRM is that core cloud business application. After the SMB CRM base has been built (or simultaneously), the order of implementation depends on the SMB’s focus but is likely to be business intelligence, marketing automation, Financials, HR/Payroll, customer service for service companies, ERP, fulfillment (SCM) and industry vertical applications.

There are four key areas of SMB cloud usage and deployment. Each has got many sub-sets of applications. These four areas are:

1. Infrastructure and Platforms (US$13.0 Billion SMB Opportunity by 2016)


2. Communications and Collaboration (US$7.9 Billion SMB Opportunity by 2016)


3. Business productivity & Applications (US$15.5 Billion SMB Opportunity by 2016)


4. Industry specific applications ((US$2.7 Billion SMB Opportunity by 2016)

While there are many niche vendors addressing each niche area, the complexity grows manifold as businesses move from one application to another, from one device to multiple devices. As Cloud computing adoption among SMBs grows, the real issue of data integration continues to come into play and it will become imperative for each of the four areas to communicate with the other. And once that “integration enlightenment” happens SMBs will witness even higher improvements in productivity, satisfaction, acquisition and retention.

Anurag Agrawal
Techaisle