Techaisle Analyst Insights

One of the areas we watch most is the evolving needs of the SMB customer, who is being consistently pressured to speed up all core business processes while simultaneously reducing costs, generally  through the introduction of new technologies and specifically by adopting Cloud Computing approaches.

Looking Forward to SDN and SDDC  

Among Mid-Market companies (between 500 and 999 employees) recently interviewed, over 75% described their business being completely “Network Dependent” with a large share planning to move beyond Virtualization to Software-Defined-Networking (SDN) and Software-Defined-Data-Centers (SDDC).  Almost all had implemented Remote Managed Services (RMS), Cloud Computing, and Server Virtualization or VDI.

“Yes, I have heard about it (SDN) and we even tested it on one of our servers. We can get the software easily but we need to get proper hardware implementation as well and that too keeping our costs in control. So, both the things need to be evaluated. Yes, probably we would be investing in it, in the coming future. There are many things that are a concern for us right now, like cost, space and efficiency. So we need things that could help us in these areas.” - 900 Employee SMB IT Decision Maker

Mid-Market Reliance on Outsouced  IT Support

As we have written in the past, the larger SMB customers are more likely to rely on channel partners or vendor direct relationships to free up lean SMB IT departments and allow them to do more with less by supporting the research and selection process, and then testing and implementing the solutions, especially for those solutions involving a high level of configuration and remote management capabilities. The speed that specialists bring to the configuration, testing and implementation tend to outweigh the costs and speed up the decision cycle.

“Yes, the channel partners had a huge role. I sat down with their Cisco engineers and we looked over the changes we were going to make, then we did put together a business case, as to why we needed to upgrade or make changes to the system and what benefit it would result in. They were helpful and they made things look easier for us.” - 750 Employee SMB IT Decision Maker

New Functionality is driving Adoption

As we move into the Late Majority of SMB Cloud Adopters, there is less perceived risk and enough pressure to move companies toward implementing the architecture, if only to remain competitive.

"Now there are products available with better features and are cost effective. Earlier the cost of moving to the cloud was higher. Now because of the tough competition, the costs have marginally decreased. So, these things are enticing to look at different solutions. When we moved on to the cloud there were various benefits like cost effectiveness, in terms of IT management perspective. Previously it required 10 people, but now it can be done with 2 people. Previously the concept of datacenters was not that…important…, but now people are getting rid of the existing hardware and are moving towards datacenters to host most of their things that are in their offices. The datacenter costs are also competitive. If we look at any datacenter today and what they used to offer 5 years back, there has been a significant drop in prices due to the competition in the market.” - 500 Employee SMB IT Decision Maker

Budgets Continue to be Tight

We also see a significant effort on the part of customers to extend the life of the existing equipment and upgrade only the parts that are needed to achieve specific objectives such as 10GB capacity, which may require more robust firewalls, routers and switches, especially in those moving to VOIP. Typically we saw a reluctance to spend until it was necessary.

“Management here is very price conscious; they did not see the value of doing these things in the first place. The major factors were to increase speed and the reach of the network. So by these upgrades, we were able to demonstrate increased speed and increased network segmentation.” - 750 Employee SMB IT Decision Maker

Brand Importance Increases with Size of Company

While in certain areas such as SaaS, SMB end customers tend to be less likely to consider Brand as the key decision criterion, in the area of Networking among Mid-Market firms, virtually all said Brand was very important in their decision, mostly because of the expected service level associated with larger vendors but also to provide cover in a crowded market:

"There are a thousand solutions available in the market, but we had to ensure that what we chose was the best solution available and were cost effective. The new technology and the need to expand our business base were the main factors that drove the change.” - 900 Employee SMB IT Decision Maker

“Brand perception is very important because the management is not very technology minded, so to have a big name like Cisco was important to them. We depend on our channel partners for networking support or for help with windows server and Citrix products. They are our trusted partners.” - ~1,000 Employee SMB IT Decision Maker

Re-enforcing this tendency to Brand, the majors in the market were cited repeatedly as go-to Vendors. Cisco got the most mentions by far, followed by Citrix, Microsoft, HP, Juniper and Dell. As seen in the quote on outsourced support above, the vendors can also help in creating a business case.

“Well, I guess some of the ones (increase share) would be Cisco, HP, Dell and Microsoft. The major ones I know are trying to get there, if they are not close. It’s very hard to say who is going to lose much (share), but probably Microsoft or Apple are going to lose some. ~800 Employee SMB IT Decision Maker

We believe these attitudes represent some evolution that is becoming more pronounced as the market matures and intelligent networking becomes increasingly important to SMBs in general and Mid-Market companies in particular.

Michael Dell is one of the very few CEOs I know that walks the hallways with almost no posse of overprotective PR and communications personnel. It was therefore no surprise that in my meeting with him he walked into the room unassumingly and on time to discuss his vision and focus on the Emerging Markets.

Much has been written about how happy and relaxed he looks after privatization. For me, however, the tell-tale signs of tranquility and a zip in his walk first appeared two years ago when he announced Dell’s intent to be an end-to-end solutions provider for businesses of all sizes. He had a roadmap to reach the flag at the end of a long, unpredictable race-track. And he knew that he was at the starting gate with the right set of acquisitions. He just had to make everyone believe in Dell.

Fast forward to present, privatization has emboldened Michael Dell and his entire leadership to take their message on the road that the new Dell is “100% customer focused, providing best value, ease of use & flexibility” aligned to the four tenets of Dell solutions – Transform, Connect, Inform, Protect.

Michael Dell is “Investing to Accelerate” around five key areas, one of which is the emerging markets, the topic of our meeting.

1. Invest to expand solution offerings (R&D plus M&A plus Venture Fund)

1. Enhance & Simplify customer experience

1. Increase pressure in emerging markets around the globe

1. Grow PCs, tablets and virtual computing services

1. Expand sales force and channel relationships to better serve and support customers

Dell as a company made several major announcements at its recently concluded Dell World 2013:

• Public cloud ecosystem partnerships with Google Cloud, CenturyLink, Microsoft Azure

• Dell Red Hat OpenStack partnership for co-engineered enterprise-grade OpenStack private cloud solutions

• Partnering with Dropbox to enable businesses and their employees work in a mobile work-environment while providing the security and manageability with Dell’s data protection solutions

• Dell FluidCache for  SAN storage delivering over 5 million IOPS in a converged infrastructure of storage, server and networking

• Revamped PartnerDirect program giving partners bigger profit opportunity than ever before – access to tens of thousands of Dell accounts

• US$300 million Strategic Innovation Venture Fund to help identify, fund and fuel visionary technologies that anticipate and address future IT needs

Not all of the above announcements are applicable to and can be used by businesses in the emerging markets immediately. Therefore, I began our conversation by asking him if there is a difference in his strategies for established and emerging markets and what top characteristics defined his emerging market strategy.  Michael Dell recognizes that in many emerging market countries, there are essentially two markets (upgrade in automated environments, greenfield in businesses that are not yet automated) and therefore he has to gear up to address their needs accordingly and investing in localization of products and services for the emerging market buyers.

Looking back at my discussion with Michael Dell, I see one strategy but three approaches that are critical to Dell’s growth in emerging markets.

PC Led Go-to-market Approach

Regain its hegemony in end-point devices (excluding smartphones): by building innovative end-user computing products at extremely competitive prices. In countries like China, India and Brazil. Dell is aggressively opening its own Dell stores for customers to experience the products first-hand. Michael Dell does not view todays IT landscape as a post-PC era. He reminds me that when the term was first coined in 1999, approximately 100 million PCs were sold, but in 2012 over 300 million were sold, defying the very notion of the PC fading from view. “It certainly is not a post-PC era”, he insists.

Techaisle Take: It is certainly the right entry-point into most businesses. With global PC market slowdown, PC market penetration will continue to be driven by emerging market countries with new business formation and increase in PC to employee density. Our research shows that there are 1.26 billion addressable households in emerging markets but only one in four have a PC. Similarly, there are 44.7 million SMBs in emerging markets, but only two in five have a PC. Both of these figures indicate a huge opportunity for new PC sales as there are still 26.4 million SMBs and 994 million households that have yet to buy a PC – a huge gap indeed. Dell will need to exert more pressure than other PC OEMs in terms of customer pull: creating demand through marketing, and relying on its own stores and channel partners to close prospects after they are engaged.

Many of the emerging market countries are embracing mobility faster than established markets which create unique challenges for Dell to push its Tablets in the face of high adoption of Android and iOS devices. Market share of Android and iOS tablets vs. Win8 would seem stacked against Dell but one should not discount Dell’s expanded tablet portfolio including Android OS and Dell Chromebook plus well-received Win 8.1 tablets. Dell also has had emerging market success with Dell Wyse cloud clients and new opportunities with ultra-mobile cloud devices (Project Ophelia/Dell Wyse Cloud Connect) – all of which create customer entry points for Dell. Additionally, Dell’s mobility strategy extends beyond Dell-branded devices and includes software and services to ensure that any device is secure, manageable and reliable, part of the end-to-end solutions strategy.

Channel Partner Led Go-to-market Approach

Grow with channel partners:  Channel partners are the essential cogs of the IT landscape, especially for the SMBs that are so important to PC growth – and this is truer in the emerging market countries than established markets. Dell plans to continue to recruit channel partners that align with Dell’s value proposition and can add business value to a customer’s needs by giving the customers choice of best-of-breed solution components. The recent announcements of the revamped PartnerDirect program and the corresponding re-organization of its channel organization were made to address the changing needs of the channel partners across all geographies. Apart from growing the channel base, Dell is also planning to increase spending on sales/marketing within the emerging markets thereby creating enough pull in the marketplace to enable channel partners not only sell more but also sell more effectively within and across its channel friendly solutions - PowerEdge VRTX, Storage, Networking, Software, Thin Client, Workstations, and SecureWorks. However, not all solutions, especially, software solutions, can be sold without proper localization; Dell recognizes this, and is investing in R&D to make sure that products and solutions are enabled for the emerging market countries.

Techaisle Take: As per Techaisle research there are over 340,000 channel partners in emerging market countries. To support growth Dell has to have a rich landscape and integrated fabric of channel partners that are moving in unison with Dell as its trusted supplier. As Dell moves to create better alignment with the channel, it needs to be mindful of two interesting changes that are occurring within the emerging market channel partner community – members now refer to  themselves as solution providers, (not as VARs, SIs, or resellers), and they have started calling their customers “clients” much like a consulting organization would do. To be successful in emerging markets channels, Dell has to capitalize on these changes. It also has to quickly develop a timeline for the roll-out and implementation of its new PartnerDirect Programs and Incentives for countries outside of North America. Dell may not be able to make bold statements of how many accounts have been opened up (similar to the US) for collaborative sales efforts with channels but at a minimum it has still to identify named accounts that are being transitioned to channel-led, and a compensation accelerator to incent direct sales force to work with channel partners.

Solution & Services Led Go-to-market Approach

Provide end-to-end solutions for businesses of all sizes: No end-to-end solution portfolio is complete without software and applications. After a long slog, Dell software is finally coming together with its systems management offerings covering BI for IT, mobility management, data center management, cloud management as well as “connected security” that reduces the seams in a customer’s infrastructure. The software solutions are being complemented by Dell Services (which was given more visibility at Dell World than ever before, with keynote sessions led by services). Dell has achieved some great successes in countries like India within the healthcare segment, but it has still a lot to work on. In emerging markets as in North America, the mid-market segment is the primary target for Dell’s end-to-end solutions.  As Michael Dell said, “it is not easy to put feet on the ground effectively and uniformly across all countries”. He also said, “Many new change vectors are going on and Dell has the ability to understand where the puck is going”. Taken together, we at Techaisle view these statements as outlining an approach where Dell will commit resources selectively to high-growth segments within the emerging economies.

Techaisle Take: Dell is almost at the finish line with its converged solutions that include storage, security, servers and networking, the services needed to deliver end-user solutions that help businesses compute in environments with pervasive data access. Growth in sales of this type of sophisticated solutions in emerging markets cannot be cracked without the support of channel partners. Dell has to articulate a message that serves the needs of customers of hybrid solutions that combine server, storage and networking hardware with systems management and security software to seamlessly support application delivery, data protection and backup. By offering a wide range of product types, and focusing on making the selling motion as clean as possible, Dell can enable its partners to focus on customer requirements rather than product silos.

One early indication of the force of this direction is the fact that Dell has finally been able to put a stake into the ground with its cloud strategy. To put forth the point more forcefully Michael Dell said, “When you go with Cloud, go with Dell”. Dell’s mobility strategy has also started to take shape with aggressive roll-out of devices and its EMM (Enterprise Mobility Management) solution that includes both end-point and container management. Dell is still working on its Big Data/Analytics strategy. But more importantly, Dell clearly hits 7 out of Top 10 2014 SMB IT priorities and addresses 7 out of Top 10 2014 SMB IT Challenges. It is also in a strong position to speak to the Top 10 2014 SMB Business Issues.

Final Techaisle Take

Emerging markets are more complex than we usually imagine, having a mix of mature and very immature segments based on local infrastructure. For example, Tier 1 cities are akin to US as a country – they are advanced in their infrastructure development and employment and have a high GDP while Tier 4 cities are fast developing, less populated, in some cases even rural. When we analyze our SMB (a segment that Techaisle tracks globally) survey data across cities we see that SMBs in Tier 1 cities are the early adopters of cloud whereas Tier 3 and 4 cities although aware of cloud are constrained in their adoption by channel competency and vendor penetration. Reliable and high quality bandwidth is a critical factor in bringing the benefits of cloud to local business, one that underscores the importance of central government investment in telecommunications infrastructure and Internet access. Dell recognizes these challenges and short-comings, and the new Dell is primed to aggressively address the challenges.

There is yet no clear leader in the emerging markets in cloud, mobility and Big Data solutions. Specifically with respect to the SMB segment and the channel partners that serve it, the new IT solutions of cloud, mobility, social media, virtualization and analytics are rapidly moving SMBs from enablement to empowerment. Using technology, SMBs are reaching their full potential in the shortest period of time possible. The process of an SMB’s growth and steps to absorb IT are no longer steady and predictable as compared to five years ago. Understanding the drivers of SMB transformation and the relevance of cloud-based IT, and marketing to both customers and channels accordingly, will be critical steps in enabling Dell and its channel partners to achieve market success.

Over the last 2-3 years, Dell has heavily expanded and calibrated its enterprise solutions capabilities and more recently doubled down on further investment in its PCs and Tablet business. As the company has adjusted the levers of these key drivers for its business, it appears that these two critical areas for Dell are coming further into balance. Post-privatization Dell has begun the process of finding its feet on the ground and it knows where it wants to land. It will be a year before we will know if Dell has managed to land firmly or has caught the slippery slope.

Dusting off my notebooks (the notepad variety) I came upon some carefully documented notes of my conversations with Dell’s Channel team, in particular with Greg Davis, Vice President and General Manager of Global Commercial Channels.  Just reviewing the notes of the previous two years it hit me squarely in my face that Dell’s channels team has been on a restless pursuit of:

• Simplicity,

• Training & enablement,

• Winning datacenter together with the channel, and

• Partner profitability

Fall of 2011

Although Dell’s Partner Direct program was formally launched in 2007 with aggressive channel recruitment and courting happening in 2008, we will pick up on our conversations with Dell’s Greg Davis and Paul Shaffer, Executive Director Global Channel Marketing & Demand Generation from the fall of 2011. Partner enablement, training, certification and integration of acquisitions had percolated to the top of the team's agenda. For an IT company which is notorious in selling direct, drastic measures were needed to become “one” with the channel. Dell delivered 75,000 training modules to its partners, 30 percent of Dell’s commercial business had started to come from channels and 58,000 registration deals were closed. With the acquisition of Force10 Networks Dell announced enhanced network certification programs and 130 premier partners got their certifications. Emphasizing that the training modules were working, Greg Davis had mentioned that top 10 partners who invested most in training had seen 110 percent growth in revenue. Fall 2011 was also the time when partners started seeing the first glimpse of gentle motivations from Dell to push deeper into healthcare segment and drive revenue from datacenter solutions. Inroads were being made into smaller partners for SMBs as much as national and larger partners.

Cloud Channel

During the same time period while Dell was building out its confidence and trust with the channels, enterprises and SMBs were moving to cloud, thus dis-intermediating the channel. Especially the VAR channels (which typically form the largest percent of channel partners of an IT Vendor) had been finding their traditional business models threatened by products and services that could be sold direct by a vendor over the Internet. To continue to adapt to the changing times and never taking its eye off the channel partners’ livelihood Dell launched cloud channel programs in the spring of 2012:

• Cloud Builder,

• Cloud Provider, &

• Cloud Service Enabler

A technical services team was also put into place to help partners sell data center solutions namely, server and storage. Dell now had roughly 250 premium partners and had delivered 135,000 training modules in the year.

Work was far from complete. More acquisitions were taking place; these acquisitions had to be integrated and above all emerging market countries had to be targeted. Both Greg Davis and Amit Midha, President, Asia Pacific and Japan, Chairman, Global Emerging Markets underscored the fact that they were working to ensure a consistent channel engagement across every market covering:

• Deal registration

• Compensation neutrality

• Conflict escalation process, and

• Executive priority

Asia/Pacific

The channel commitment work in Asia/Pacific countries in our opinion is far from complete. There are still some major strides to be made, specifically in the Asia/Pacific region. By its own acknowledgement, Asia/Pacific is the fastest growing regions for Dell which requires a constant confidence and trust building process with the channels. In many of Techaisle’s analyst interactions with channel partners in 2012 in Asia/Pacific, it was found that channels had warmed up to Dell but some questioned Dell’s sincerity whenever bigger contracts were involved.

In both summer and fall of 2012 we asked Greg Davis and Amit Midha where they thought they were with consistency and confidence. Not only were they bullish but also recognized that they have some hills to climb. They were also candid that services remain a big component of any channel’s revenue mix and while typical services such as warranty, break-fix, and insurance were straightforward re-sale of Dell Services, partnering in consulting was a bit more challenging.

Summer 2012

By the summer of 2012, efforts were paying off, 62,000 deal registrations per quarter were coming through partners with 72 percent approval rate, 35,000 training modules were being delivered per quarter, the number of premier and preferred partners had jumped to 2500, Asia/Pacific channel programs were being strengthened, SonicWALL was integrated and specific courses were introduced on how to talk to a CIO, value of integrated datacenter. Above all social media training programs were launched for the benefit of the channels.

In late summer, in a conversation with Greg Davis and Bob Skelley, Executive Director, Global Certified Partner Program & Channel, they reiterated their commitment to make Dell “easy to work with” and restated their deep & maniacal focus on training and competencies. This focus resulted in 34 percent of global commercial business funneling through Dell channels, up from 30 percent in the fall of 2011. Number of deal registrations had jumped to 71,000 and an enhanced deal registration tool on mobile platforms was rolled-out. 47,000 training courses had been delivered in the quarter and Dell now had 113,000 channel partners. Initial focus on healthcare segment had resulted in a surge in end-user customers. A 40 percent growth in certifications was also achieved when compared with previous quarter. With the integration of Wyse, a desktop virtualization certification program was introduced. Dell channels had truly arrived and there was never a question of ever turning back.

One year later, Fall 2012

One year later, by fall of 2012, Dell had 130,000 channel partners, 35 percent of commercial business revenue was funneling through channels, 142,000 training courses had been delivered in the year, number of deal registrations had shot up to 65,000 and there were now 3600 preferred and premier channel partners. In the words of Greg Davis, “Dell has the most confident and competent channel partners in the world”. One year later, I saw an urgency to deliver with a profound focus on datacenters, systems management and cloud services. Virtualization was also beginning to take center stage. Kathy Schneider, Executive Director, Global Channel Marketing & Programs, drove home the point that she and her team were focused on driving best practices across four strategic pillars:

1. Easy to do business with One Price and Sales Tools

1. Win in the Enterprise using a comprehensive sales tool aptly named as Enterprise Master

1. Training & enablement through expansion of training beyond Dell’s standard solutions to include social media

1. Partner profitability through a simple, effective and rewarding incentives program

It has been a long way from direct PC selling to indirect solution selling. Real progress has been made. Dell’s channel executives are an end-to-end solutions empowering team for the channels. Not all channels will thrive but those that are equally committed to learn, adapt and practice will certainly succeed.

Anurag Agrawal
With contribution from Gitika Bajaj in Asia/Pacific

 

ML110 Proliant from HP is a favorite of VARs/SIs in India to sell to SMBs, especially small businesses. It is “robust, configurable and affordable”. In India where there has been considerable drop in sales of commercial servers within enterprises and government segments, VARs/SIs have turned their attention to the ever-elusive SMB market segment.

VARs/SIs from Delhi to Chennai, Mumbai to Kolkata, Lucknow to Jamshedpur, Pune to Hyderabad – you get the picture – hold the key to opening up demand for first server opportunity within the SMBs. They are doing so by delivering two key messages:

1. Servers help in Business Process Consolidation: With an on-premise server SMBs can install software solutions such as locally available ERP (not SAP), accounting and financial management, CRM and many different vertical applications to improve business processes and thereby grow revenue

1. Servers help in Email Consolidation: With an on-premise server SMBs can use email applications that promote scheduling, calendaring and sharing within the same domain name. There are still way too many SMBs in India that have employees using individual emails with no common folders

The messaging seems to be working. Channels are optimistic that the small business server spend in India will reach US$75 million in 2013, a jump of 13 percent from previous year. But they also say that the path to influence small businesses will not be easy.

The question is, why have the VARs/SIs taken the lead in creating server demand.

Let us take the example of VARs/SIs in Kolkata. West Bengal is a “dead state”; State government is not spending on IT, Central government is not giving any budgets to the State to spend on IT; therefore VARs/SIs instead of sitting idle are busy pounding the streets of Kolkata, seeking out SMBs and discussing the above two key simple messages which seem to be resonating well. On the other hand, in Delhi NCR region, a hot bed of technology adoption, VARs/SIs are targeting pockets of areas such as Gurgaon and Noida.

Selling to SMBs is a very time consuming and pain-staking process. As one SI put it mildly, “there are no green pastures anywhere; we have to plant the seeds”. These channel partners have to overcome three important barriers to adoption:

1. Lack of awareness of technologies: Too much information and technical jargon is being thrown at the SMBs forcing them to “tune-off” creating lack of awareness. VARs/SIs therefore are engaging SMBs, one at a time, to make them aware what servers can do for their business

1. Lack of time: SMBs generally do not have time on their hands to search for a channel partner to help them understand technology. Even if they have the time, business priorities in many cases trumps technology and decisions get pushed to the proverbial eleventh hour

1. Affordability: Price is still a major factor for purchase of servers and accompanying solutions.

At the other extremes are cities in southern India (beyond Bengaluru and Chennai) such as Kochi, Madurai, etc. where channels are fighting a different battle, the infamous “power-cuts” for nearly 8-10 hours each day. The SMBs in this region are first focused on their usual business continuity before turning their attention to IT adoption. But the relentless channels are not giving up on their pursuit and messaging.

Server vendors like IBM that do not have affordable server products for the small business segment are paying attention to the messaging from VARs/SIs and have begun working with them selectively to organize road-shows in Tier 2 cities from northern to western India, from Lucknow to Nagpur and Bhopal.

Still there are many SIs across the country in India who are unhappy by the continuous evaporation of margins on hardware. Some even have gone to the extreme and said that “the way some vendors are working on lowering the margins on servers and storage, SIs will be forced to alternate business models in the next few years”.

India is a more complex IT market than we usually imagine. Based on local infrastructure capabilities and capacities, India has three different segments:

1. Totally mature,

1. Immature, and

1. Not Mature at all

Nevertheless, the SMB server market is still a massive, slow-moving glacier which has not yet reached the precipice of a waterfall. Till that happens, VARs/SIs are creating the demand and trying to grab the opportunity.

Gitika Bajaj