Techaisle Analyst Insights

SMB cloud is ubiquitous today and becoming even more so, central to the technology and management needs of both smaller and larger SMBs. Cloud is no longer a trend that is discrete from mainstream IT. Techaisle data shows that cloud is viewed as an IT priority by 96% of US SMBs and 90% of current cloud using SMBs are increasing their cloud usage within the next one year. Cloud is not a future issue, it is an essential component of SMB IT.

While cloud growth has been extraordinary, it is reasonable to expect continued high-trajectory growth resulting from three key factors:

1. Cloud is established as essential IT infrastructure
2. Cloud addresses real business needs
3. Suppliers will work with buyers to overcome current SMB cloud adoption challenges

Where are these SMB firms who are planning an expanded cloud presence in the evaluation process? Techaisle asked SMB respondents to identify whether they would refer to themselves as “gathering information,” “identifying potential solutions” or “evaluating suppliers”.

As cloud adoption continues to expand within SMB organizations, Techaisle SMB & midmarket cloud adoption survey data demonstrates that 38% of SMBs are gathering information on cloud technology, solution options and appropriate cloud adoption steps. 32% have moved beyond to the stage of evaluating solutions and the balance are in the process of evaluating suppliers. However, Techaisle believes that these percentages are a moving target as SMBs continue to increase spending on cloud.

Among the midmarket businesses, fully 80% of those planning new cloud initiatives are at this stage, with only 7% focused on evaluating suppliers. Highest percent is within the 100-249 employee size businesses establishing a clear fact that as businesses transition from a small to a larger organization they increasingly gravitate towards cloud to solve their growing pains, establishing processes and supporting a dispersed workforce.

Combining the above information with the data that 94% of midmarket firms are already using some form of cloud solution, we get a picture of a midmarket enterprise market that is in the process of assessing where and how the use of cloud should expand through the enterprise. Small businesses, on the other hand, have a roughly normal distribution across these categories: 24% report that they are gathering information, 46% have moved on to identifying potential solutions, and 30% are evaluating suppliers.

Techaisle believes that the differences between the small and market organization findings reflect different stages of cloud adoption. The small business findings are consistent with a community that moves from point to point, working first on one discrete solution, and then on the next. The midmarket findings are consistent with a community that has already deployed point solutions, and is now trying to build a longer-term strategy for an integrated, flexible approach to incremental cloud expansion. This dichotomous approach is a real challenge for suppliers: they need to differentiate discrete solutions for the small business market, and demonstrate that their offerings are essential components of broader strategies for mid-market firms, while attracting attention to their companies and products and building brand preference in both segments.

This perspective is reinforced by data showing the current uses of cloud within SMBs. Generally, SMB IT departments have used cloud to supplement IT infrastructure resources – for example, by procuring cloud-based storage to offload data from on-premise drives, or by using cloud for backup. Cloud has also made its way into SMBs as a means of supporting non-core applications and related processes; for example, cloud might be used to automate previously manual tasks in HR or customer support that aren’t linked to financial and production systems. But data from the Techaisle SMB survey finds that use of cloud is expanding even into these business-critical applications.

When SMBs are asked to indicate the areas of their operations where cloud has been or will be applied, nearly half report that they are using/planning to use cloud for IT infrastructure, and 37% state that cloud will be deployed to support non-core processes and applications. However, nearly 30% state that they are using or are implementing cloud to run at least some of their core applications. Given that these core applications are not changed or re-platformed very often, 29% is a surprisingly high figure. Cloud is expanding beyond IT-specific uses and niche applications, and is increasingly seen as a viable platform for even business-critical process support.

The shift in cloud’s positioning and dichotomous approach brings with it a shift in the kinds of insights needed to help connect suppliers and buyers to address common interests in deployment, integration and expansion strategies. SMB buyers need help in moving past initial cloud pilots and applications to integrated cloud systems that provide support for mission-critical processes. Cloud sellers need to adjust their messaging to address the needs of early mass market rather than early adopter customers.

Techaisle’s SMB cloud computing adoption survey shows that 90% of US SMBs and 77% of SMBs at worldwide level are either using or planning to engage with external professionals for cloud assessment and/or cloud implementation.

Both small and midmarket firms are using outsourcing, but they are doing so in different ways. In many small businesses (and most micro-businesses with fewer than 20 employees), outsourced IT services take the place of internal staff. In midmarket organizations, outsourcing provides specialized skills to augment in-house capabilities, and/or delivers additional bandwidth to address staff shortages.

Drilling down into the US market, data shows that in both small and midmarket businesses these outsourced resources are deployed across a wide range of areas and that cloud is prominent in this mix. There are several reasons why SMBs engage with external professionals and consultants. At least within midmarket businesses, 42% use external providers for cloud implementation whereas 31% of small businesses use consulting organizations for cloud readiness assessment and strategy development. Data further goes on to show that 35% of SMBs usually decide to use the supplier that helps them in formulating cloud strategy. Overall, data finds that 39% of SMBs are planning to outsource cloud migration services within the next one year. Looking at the same data from a regional geography lens, it is found that the trend of outsourcing cloud services is higher than the US in Asia/Pacific, similar in Europe and somewhat lower in Latin America.

There is an important learning in the survey data for channel partners and IT services organizations. Simply reselling cloud solutions (SaaS, IaaS, PaaS) is not a long-term and sustainable strategy. They must be the trusted cloud advisor for the SMB end-customer. Fully 80% of midmarket firms planning new cloud initiatives are evaluating cloud options with only 7% focused on evaluating suppliers. Combining this data with the fact that 94% of SMBs are already using some form of cloud solution, one gets a picture of a midsized enterprise market that is in the process of assessing where and how the use of cloud should expand through the enterprise. Small businesses, on the other hand, have a roughly normal distribution across different stages of cloud expansion with 24% reporting that they are gathering information and 30% evaluating suppliers.

It is interesting to note the difference in scale between the two market segments. The midmarket results reflect a more strategic approach to outsourcing focused on the skills that are most important to meeting high-priority, emerging business requirements. This starts with cloud migration and SaaS services, and testing of these applications; advanced software systems like ERP and CRM come next and the other capabilities follow from there. The top three areas that midmarket businesses are planning to outsource are implementation of cloud packages such as ERP/CRM, cloud migration services, and mobility/mobile app development. Small businesses are giving equal importance to many different outsourcing initiatives, such as, cloud infrastructure rollout and support, cloud migration/SaaS services, mobility/mobile app development as well as custom software development.

In a recent Techaisle's global SMB Cloud computing study, SMB IT and business decision makers were asked “Which one of the following is most important - increasing your customer base, Improving customer satisfaction, deriving better customer insights or delivering to customer needs? Clearly, these are all essential objectives; Techaisle’s intent was to understand which are most important in shaping current IT priorities. The research found that 35% of SMBs are most focused on improving customer satisfaction.” Customer satisfaction is an especially pressing issue within midmarket businesses: 39% of firms with 100-999 employees selected improving customer satisfaction as their top customer-focused priority, an even higher proportion than was logged for “Increasing customer base” (31%) within the midmarket.

Techaisle’s SMB “Wheel of productivity” data shows that customer service is usually the application that SMBs use after CRM and marketing automation. In fact, Techaisle’s most recent SMB cloud shows that of the SMBs using cloud customer service application, 53% are also using cloud CRM and another 24% are planning to add CRM to their customer service solution. Looked at another way, of the SMBs that are using CRM solutions, 38% are also using customer service applications and another 19% are planning to add customer service.

The impact of increasing the customer base and improving customer satisfaction is manifest across many different SMB business objectives – attracting and retaining new customers, increasing business growth, keeping pace with competition, and focusing on new markets are all C-level issues that rely on market reach and effective customer management. For example, executive focus on growth leads directly to demand for improvements in sales and marketing – and in today’s market, these improvements are generally delivered in the form of CRM systems that improve sales process efficiency and visibility, and social marketing systems that capitalize on connectedness within an economy that increasingly relies on person-to-person, cloud-enabled communications rather than broadcast and print media for information.

Social marketing and CRM are two of the key applications that link cloud infrastructure to top-line growth objectives. It is unusual for platform technologies to be viewed as business growth drivers, but cloud isn’t really a platform technology – it’s a means of rapidly delivering capabilities needed to compete in evolving markets. When asked whether cloud is primarily a driver of new opportunity or a way of achieving cost control, 80% of Techaisle’s SMB Cloud Computing Adoption and Trends study respondents reported that cloud helps their business grow. Cloud-based solutions (including, and particularly, CRM) provide the insight needed to manage a sales and marketing funnel and attract and retain new customers.

The improved visibility resulting from cloud-based sales and marketing automation systems has in turn illuminated the need for, and potential associated with, better and better-integrated customer management and support processes. This insight is prompting increased investment in systems automating customer support tasks: Techaisle’s global SMB survey data shows that customer service is among the top cloud applications planned for adoption within the next year.

This trend is particularly apparent within advanced IT users. Looking at the current and planned use of customer service applications through Techaisle’s SMB IT Sophistication Segmentation (SITSS ) framework, we find that the level of current and planned cloud-based customer service application adoption increases with IT sophistication within both small and midmarket businesses.

Desk.com – enabling SMB customer service success
High customer satisfaction starts with great customer service, and Desk.com, part of Salesforce’s portfolio is enabling SMBs use technology to improve customer service. Desk.com has pre-configured and pre-connected tools such as knowledge base, agent productivity tools, native mobile app, activity reports and dashboards so that an SMB could actually be up and running in an average of two days.

Being tightly integrated with Salesforce’s flagship CRM product certainly helps. 

Although Desk.com is well integrated within the Salesforce organization it has its own product road map clearly building on the success achieved by Salesforce. Techaisle believes that this is important for the product suite and its users. Techaisle has written extensively about Salesforce in the past (click here for the most resent post “The Good, the bad, the Ugly). Desk.com comes across as being different from the core Salesforce product in that it is better aligned with SMB requirements. The Desk.com team has clearly learned about how SMBs work and behave differently than enterprises – and it is using that knowledge in the development of the solution.

Natively enabled Mobile Platform
SMBs are more committed to mobility than enterprises. Within an SMB, customer service agents may double as sales staff, the office manager, or even the CEO. Because they work on the road, from their homes and from an office, enabling customer service through a mobile platform is of tremendous importance. What is really great about the Desk.com solution is it comes with a native mobile app on both iOS and Android so the SMB gets end-to-end case management for agents, meaning that they do not have to be tethered to their desk to access customer support systems. The agents can use the same productivity tools, knowledge base and same features that come with the standard Desk.com desktop experience on their mobile device.

Improving Agent Productivity
Mobility is a key requirement for SMBs, but it isn’t really the core requirement: the central business issue for resource-constrained SMBs is improving productivity. A “single pane” view that provides all relevant customer information is essential for customer service agents who fill multiple roles within the organization. Desk.com does a good job of responding to this requirement with its focus on agent productivity. One of the tools included as part of the application is “Macros,” which can by invoked either with a mouse or by keyboard shortcuts. Macros can insert a knowledge article link into the case, apply multiple labels, update different statuses, update and apply custom fields, and/or update one or more cases, accelerating workflow and driving efficiency in the customer support process.

Helping SMB customers help themselves
SMBs are increasingly focusing on their customers’ ability to help themselves. Desk.com comes with self- service support templates designed to look good not just on a desktop but on any mobile device. The templates are customizable to allow SMBs to echo the look and feel of their main websites. If an SMB’s customer is looking for a very simple FAQ-type experience they can go in and search for a particular topic or connect to more details with the ability to call into a customer support line. The knowledgebase also extends support for multiple brands and allows an SMB’s customers to self-select into a particular product or service and be served the most relevant content.

Down the Road
Desk.com is continuing to invest in product development and one of the most important aspects is how the solution interacts with Salesforce and how Desk.com provides end-to-end service, sales and other business process solutions that are integrated appropriately for an SMB. A key area of investment is in the synchronization of metadata to provide a 360 degree view of the SMB’s customer to the support agent. A key second area of investment is in case management, embedding native support center within native mobile apps. As noted above, this is a critical capability in the SMB segment: for many SMBs, the mobile app is the primary (and sometimes the only) touchpoint with customers. Techaisle’s SMB Collaboration studies have shown that SMB focus is expanding from creating information repositories (largely complete) to adding rich media and media escalation and Desk.com is working on additional support for rich media and images and emails out of a service channel, adding collaboration layer to case management process.

Techaisle Take
Desk.com is a differently abled organization than Salesforce, whose focus seems to be primarily on enterprise customers. Desk.com is on a path to help SMBs grow by providing an out-of-the-box solution that helps SMBs help their customers faster, thereby improving customer satisfaction and customer retention. With an inbox that brings together all of the different channels that SMB might be using to provide customer service - email, phone, social panels - into the same interface, Desk.com helps SMB customer service agents to work on solving customer problems rather than navigating between mismatched system components.

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.