Technology Channel Outlook Are SMBs Ready to Embrace Managed Services?
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- Phyllis Leonard
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1 in association with: Technology Channel Outlook Are SMBs Ready to Embrace Managed Services? Value-added resellers (VARs) and technology channel partners may be hampered in their quest to get small- and middle-market (SMB) companies to embrace managed services for their information technology needs. VARS want to demonstrate the benefits of this type of solution, but their message may not be connecting with business owners who simply don t understand what managed services entail. Today, VARs are increasingly focused on selling managed services to help SMBs monitor, manage, and maintain their networks, equipment, and IT environments. They also see it as a crucial part of their near-term growth plans. While the promise of offloading IT services to a qualified outside provider could help SMBs free up resources, reduce costs, and improve their performance, decision makers at SMBs may not yet be sold on the concept. To learn more about the impact managed services is having on the reseller channel, Forbes Insights, in association with CIT Group Inc., a provider of vendor financing services, surveyed more than 100 VARs that serve SMBs. Key findings from the survey are outlined below: Figure 1: When selling managed services, what do you believe are the most compelling benefits for SMBs? Reduced costs Ability to free up resources to focus on core requirements Reduced need for IT staff Improved service/product experience for the organization s customers Reduced need for technology expertise Ability to keep IT resources up to date Increased network reliability Improved technology service levels Ability to focus on more important parts of the business Increased network performance 14% 2 26% 3 4 Bridging the gap between benefits and barriers For VARs to be successful selling managed services to SMBs, they may need to focus first on educating the marketplace before they start trying to demonstrate ROI or increased productivity. 1
2 Survey respondents felt they had a clear idea of what managed services benefits would resonate most with SMBs. Understanding that many smaller companies see technology as a necessary expense (as opposed to a strategic investment), they cited reduced costs as the most compelling benefit. (Fig. 1) That was followed by managed services ability to free up resources that could be allocated to other aspects of the business. Yet this messaging may be falling on deaf ears. More than 60% of respondents agreed that most of their customers don t really understand the benefits of managed services. (Fig. 2) VARs further indicated that their top barrier to selling managed services is that SMBs just don t understand the offering itself. (Fig. 3) They also noted that many smaller companies are concerned about the overall cost of managed services in direct contrast to the cost savings benefits VARs are touting. To bridge this gap, VARs may need to better define the stakeholders at their customers. In the survey, over half of respondents indicated the primary decision maker is the business owner or corporate (as opposed to IT) decision maker. VARs may need to ask themselves whether they are directing their pitch to this audience, or if they are focusing on technology issues more appropriate to an IT director. Figure 2: Most of our customers don t really understand the benefits of managed services. 29% 6% Figure 3: What are the primary barriers you face in selling managed services to SMBs? Lack of understanding about managed services Desire to maintain own infrastructure Overall cost Unwillingness to subscribe to a service 30% Network/technology control 54% Strongly agree Agree Disagree Strongly disagree 49% Lack of demonstrable ROI 19% Security 1 Lack of understanding of financing options available Inability to finance managed services of the business 2
3 Comfort with cloud could smooth the transition The good news for services providers may be that the emergence of cloud computing and various as a service solutions is smoothing the way for them to sell more managed services to SMBs. In fact, nearly two thirds of resellers surveyed agreed that the popularity of cloud makes it easier for them to sell managed services. (Fig. 4) Figure 4: The popularity of cloud computing and other as-a-service options has made it easier to sell managed services to SMBs. 10% 7% 10% 5 Strongly agree Agree Disagree Strongly disagree Gazing into the crystal ball: What technologies will impact SMBs the most? VARs were asked to look into the near future and predict how SMBs would be using technology two years from now. More than half (51%) indicated that, among emerging technologies, cloud computing would have the greatest impact on this market over the next 24 months. That was followed by tablets () and smartphones (15%). Still, the migration to tablets could be the most likely tech shift to occur; 52% saw these kinds of devices taking the place of laptops for most executives. Which emerging technology do you believe will have the greatest impact on SMB operations over the next 24 months? Which of the following do you think is most likely to occur in the next 24 months? Cloud computing 51% Tablets take the place of laptops for most executives 52% Tablets Smartphones 15% All applications and data storage migrate to the cloud Mobile phones replace credit/debit cards 12% Videoconferencing 7% Near field communications 5% Social networks overtake websites for SMB marketing 9% Videoconferencing replaces standard voice calls 3
4 Managed services driving VAR revenue growth How important is it to bridge the gap between benefits and barriers? About a quarter of the VARs surveyed indicated that managed services will likely account for more than half of their 2011 revenues. (Fig. 5) Looking ahead to 2012, 62% of respondents said they expect their revenue from managed services to increase, with a sizable number (16%) saying it will increase by or more. (Fig. 6) At the same time, many VARs are making managed services a crucial piece of their SMB sales pitch, possibly as a way to set their bids apart from the competition. Almost a third of respondents (32%) said more than half of their current bids now include a managed services element, and more than one in ten indicated managed services are included in all their bids. (Fig. 7) That trend will continue: 5 said there will be an increase in the percentage of bids containing managed services over the coming year. (Fig. 8) Again, VARs may need to be sure their RFPs are focused in such a way that the benefits are clear to the ultimate decision maker. Should that be the business owner or other non-it executive, it may need to be written for a less technologically sophisticated audience. Figure 5: What percent of your 2011 annual revenue do you believe will be attributable specifically to managed services? Less than 10% 10-25% 26-50% 51-75% More than 75% Don t know 4% 27% Figure 7: What percent of your current bids contains a managed services component? Less than 10% 10 25% 26 50% 51 75% 76 99% 100% 11% Don t know 2% Figure 6: Looking ahead to 2012, do you expect your revenue from managed services to increase, decrease, or stay the same? 1% Figure 8: Do you expect the percent of bids containing managed services to increase, decrease, or stay the same over the next 12 months? 29% 5% 16% 46% Increase significantly ( or more) Increase Stay the same Decrease Decrease significantly ( or more) 35% 4% 9% 49% Increase significantly ( or more) Increase Stay the same Decrease Decrease significantly ( or more) 4
5 VARs trying to add value to the bundled sale Most VARs view the move to managed services as a way to improve their margins on sales to SMBs, who are often quite cost-conscious customers. Moreover, they see it as a way for them to leverage their expertise (or put the value back in value-add ) and increase margins through a value-added service that goes beyond selling the box. (Fig. 9) Yet as they add value, some VARs may be challenged to offer the broad range of managed services that the market may require. For example, among survey respondents, hardware installation-related services were the most common managed service option sold, followed by application software monitoring/management and network monitoring/management. (Fig. 10) VARs have marketed these types of services for some time. Emerging managed services such as those related to security, usage monitoring, or even network backup are less broadly offered. Figure 9: Reasons for selling managed services Managed services allow us to improve our margins in SMB sales Managed services gets us out of the business of selling boxes Strongly agree Agree Disagree Strongly disagree Figure 10: Which of the following managed services do you sell? Hardware installation, asset inventory and configuration 44% Application software monitoring and management 3 Network monitoring and management 3 Service/help desk management 3 Software asset inventory and configuration 31% Security management 2 Usage monitoring and management 25% Automated backup and restore Methodology The information in this report is based on the results of a July 2011 survey of 104 executives at technology value-added resellers that sell to small- and middle-market businesses. Nearly half (45%) of respondents were either owners of their business or a C-level executive (including CEO, COO, or CFO). All respondents worked for companies that have annual revenues of between $1 million and $100 million. Forbes Insights conducted the survey, in association with CIT Vendor Finance. 60 Fifth Avenue, New York, NY
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