A smarter SMB spend: Where SMBs are putting their money

As a country that’s almost entirely made up of small to mid-size businesses (SMBs), what technologies and solution areas should you, the IT channel partner focus and hedge your bets on for the coming year?

We spoke with an industry analyst who closely follows the SMB market space, in addition to several vendors and a Canadian channel partner to find out where the biggest money-making and customer-acquisition opportunities lie.

Paul Edwards, director for SMB and channel strategies at Toronto-based IDC Canada, said while the industry often refers to these organizations as SMBs, this market segment can be broken down even further to small business and medium-sized businesses.

“There are some differences for small and medium-size business segments because they have different requirements based on their size and complexities,” Edwards said. “IDC classifies a small business as having less than 100 employees, while a medium business is anywhere between 100 to 499 employees.”

Some of the common issues small businesses often face include sales, finance, marketing and strategy development issues, while medium businesses often have difficulties with operational, performance, sales, marketing and customer relationship issues.

While these challenges may differ slightly, Edwards said because smaller companies have less resources and man-power to tackle these issues than larger organizations do, it means being able to find the right solution becomes absolutely paramount.

SMB spending

During a recent SMB-focused Webinar that was hosted by Dell (Nasdaq: DELL) and Gartner Research, Jim Browning, vice-president and research director of SMB research at Gartner, said the rate of global IT spending by SMBs is growing at a rapid pace.

“Worldwide IT spending by SMBs is expected to increase by 5.3 per cent in 2010, reaching US$836B,” Browning said. “By 2014, we project that global IT spending by SMBs will cross the $1 trillion mark.”

Especially as the economy begins to pick up after the recession, Browning said SMBs are looking for IT solutions that are easy to install, require minimal customization, are easy to configure and easy to manage. Now more than ever, SMB CIOs are even more cautious and want to make sure the IT products they purchase will have a direct cost savings component, reduces the total cost of ownership (TCO) and will also deliver a short-term return on investment (ROI).

Hot technology areas

Cloud computing is perhaps one of the hottest technology areas to play in right now and it’s probably no surprise to anyone either. Edwards said the small business market is the fastest growing area to adopt cloud-based computing solutions right now.

“From a small business perspective, companies are looking at cloud-based offerings because these companies don’t have the IT staff that a medium-sized business would have,” IDC’s Edwards said. “They also may not have the available capital to spend on on-premise solutions so with a cloud computing solution, they can pay monthly.”

Bryan Rusche, cloud services product manager at Microsoft Canada (NASDAQ: MSFT), said no matter what size a business is, they all experience similar problems and needs.

“SMBs look to cloud computing solutions because they want enterprise-class reliability and security, which is something they usually can’t afford on their own,” Rusche said. “With a cloud offering, the purchase cycle is predictable and it’s an easier cost to manage because it’s charged on a monthly basis. Cloud solutions are also a lot less expensive for an SMB.”

Because of their small size, most SMBs, if at all, have a dedicated IT staff member or department, so their main focus is on running their businesses to keep the lights on. Cloud computing solutions help partners facilitate conversations with their customers and also enables them to talk to the benefits of having a more affordable and predictable solution, Rusche added.

At Microsoft, the company has its Business Productivity Online Standard Suite (BPOS) solution, which is a set of messaging and collaboration tools that’s delivered as an online subscription service. BPOS can be deployed through various methods including on-premise, hosted by Microsoft, or hosted by the partner. The suite includes Exchange Online, a solution that allows employees to have access to their e-mails, calendars and contacts on PCs and mobile devices, anywhere, anytime, SharePoint Online, for sharing documents, calendars, tasks and contacts, Office Live Meeting and Office Communications Online.

One of the benefits of offering this solution is that partners can receive a referral fee on the suite, in addition to recurring margins. Partners receive a 12 per cent finding fee for customers who implement BPOS and they also receive six per cent recurring revenue each year that the customer’s on that environment, he added.

Dave Steeves, president and CEO of Steeves and Associates, a Microsoft Gold Certified partner from Burnaby, B.C., said as a partner playing in the cloud services space, it’s a money-making opportunity for his company.

“We’ve been at this for about 18 months now,” Steeves said. “It’s where we have the most push and focus because we think this is the way a lot of customers will want to go. We have a lot of customers who are considering it and this is giving us the opportunity to talk to customers. It also puts us in a trusted advisor role because we’re helping customers see how the cloud can help their businesses.”

Another popular solution area for SMBs these days is customer relationship management software (CRM) and business services such as accounting, Edwards said.

Vivek Thomas, president of Maximizer Software, a CRM vendor that’s based in Vancouver, said it’s becoming harder for businesses to acquire new customers and retain them.

As a result, SMBs need to make sure they’re incorporating customer service, customer loyalty and retention into their business practices, Thomas advised. He said a CRM solution can help these businesses do just that by helping them to measure key indicators in their business.

In the medium-sized market space, these businesses are often interested in solutions which include virtualization, IP, unified communications and CRM-type applications, Edwards said. Video surveillance solutions are another area where these customers are interested for security purposes.

When it comes to purchasing these applications though, these businesses will usually only purchase one at a time because they want to see how it integrates into their business first to see if they’d like to add more components in the future, he added.Edwards said it’s also important to note that while cloud computing and services-oriented solutions are making headway in the market, there will still be a need for hardware products too.

“Small businesses are looking at desktop PCs, mobile computing devices and notebook PCs,” Edwards said. “Medium-sized businesses are interested in things like servers, desktops PCs and networking gear.”With regards to future spending, Edwards said right now, most of a small business’ IT budget goes towards hardware purchases. He sees this changing over time though, so that there will be an increased spending on things like software and services as cloud computing becomes more widely adopted.

Edwards also said that the medium-sized business market will also see their IT budgets increase over time too.

“Our research shows that about 30 per cent of mid-size businesses intend to increase their IT budgets in the next 12 months,” Gartner’s Browning said. “Mid-size businesses will favour IT solutions that provide entry-level functionality that will also be able to grow with them as they need to. They’ll also look for solutions that are flexible to source and deploy.”

More bang for bucks

Gartner’s Browning said due to the recent global economic recession, SMBs are looking for more value for their money.

“SMBs are more willing to replace incumbent vendors than they have been in 10 years and they’re more willing to work with small vendors now than they were pre-recession,” Browning said. “At the end of the day, it’s all about saving money.”

From a channel perspective, it’s important that partners realize that small and medium-sized companies think differently during the decision-making process when looking for a new solution.

“Small businesses look at adopting solutions that would address a business need and often ask themselves how something can impact their business,” he said. “Medium-businesses are looking more to address an infrastructure need.”

Other factors that could influence customers before they open their wallets may also include a solution’s performance, its price and how well it aligns across the business and its infrastructure. Customers are also specific in what they look for in working with a channel partner too, he added.

Picking partners

“Customers are looking for partners that have technology and business knowledge and who show a commitment to the lifecycle and who exhibit trust,” Edwards said. “This reflects a growing need for guidance and shows the continued need for a partner’s involvement with the customer.”

Similarly at Cisco Canada (NASDAQ: CSCO), Todd Madgett, the director of small and medium enterprise, said from a customer perspective, SMB’s don’t necessarily select partners based on who offers the lowest price.

“Customers want a partner that’s true and understands their business and operations,” Madgett said. “They want a partner who can talk with them about where their business is going in the next six to 10 years and can talk about long-term plans and investment strategies.”

IDC’s Edwards also adds that partners can really reap the financial benefits from customer engagements when they offer consulting services-based approaches.

“It’s about taking on a new type of language to address the needs of the executives within these organizations.” Text page 2

“We can scale the solution to fit the budgets and requirements for reliability and redundancy in the mid-market space, which is usually about 100 seats,” Goguen said.

Alex Pyle, technical support manager at Value Added Systems, a value-added reseller and ILAP partner from Mississauga, Ont., said being able to offer ILAP’s Network QUB lets him “sleep at night.”

“The majority of our customers are very Web-oriented because they’re providing services to their customers and staff,” said Pyle. “Network QUB allows them to have maintenance time periods without having to change or restructure their Internet presence and also gives their businesses and me the ability to sleep soundly.”

Network QUB is also a solution that’s as easy to set up as a regular Internet connection, he added.

“There’s no learning curve needed for the customer,” Pyle said. “Partners understand they have two connections and if one goes down, the other goes up automatically without them losing their Internet connection. This solution also guarantees them uptime and reliability.”

For channel partners, Goguen said ILAP has a partner program that includes the usual forms of training and support for them, in addition to revenue sharing opportunities to help boost their margins further.

Follow Maxine Cheung on Twitter: @MaxineCheungCDN.

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Jim Love, Chief Content Officer, IT World Canada

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Maxine Cheung
Maxine Cheung
Staff Writer, Computer Dealer News

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