Real Opportunity in the SMB Cloud Services Market, with Tim Harmon of Forrester

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Delivering one of the Tuesday morning keynote presentations at the Parallels Summit 2013 this year, Tim Harmon, principal analyst at Forrester Research set out to provide the service providers in attendance with a strategy for cracking the SMB market, furthering the emphasis on serving the SMB market developing throughout the show, and at Parallels itself.

He began by touching on a notion that we’ve addressed in the past at the WHIR, which is that the term “small business,” while it has a clear definition, doesn’t do much to describe what a small business is or does. Harmon says there are more than 25 million small businesses in the world, and there are many, many different types of businesses, with different ways of purchasing IT services.

But SMBs are a great market to be in, especially right now, because, while the number of SMBs in the US took a big hit since 2008 with the economic downturn, the long-term trend is toward ongoing growth in the market. And the more recent trend is several consecutive years of more new SMBs entering the market than those leaving it (births exceeding deaths), which means positive growth in the overall numbers, of course.

Drawing on Forrester’s worldwide SMB survey, Harmon points out several of the biggest concerns for SMBs, including the need to improve product and service capabilities, increasing expectations from customers, and increasing pressure from competition.

Their top technology priorities include increasing their use of business intelligence, to significantly upgrade their disaster recovery and business continuity capabilities, and to increase and improve their use of virtualization.

Cloud backup and disaster recovery, he says, is the number one opportunity for service providers selling into the SMB space in the next few years.

Among “as a service” type technologies, SaaS is the dominant choice among SMBs. Because SMBs lack the resources to do custom development on top of IaaS or PaaS type resources. However, SMBs do frequently attach infrastructure as a service to their SaaS purchases, suggesting an opportunity for packaging services together.

Within the array of SaaS tools being used by SMBs, CRM and collaboration tools are the most popular tools out there.

The forces driving SMBs to the cloud include that it improves agility, and that it allows them to focus more resources on their main business priorities. Interestingly, those factors don’t necessarily match up with the way a lot of service providers tend to position their services (hosts often, for instance, emphasize cost savings).

Among the possible providers of these services, SMBs rate hosting providers very high in terms of the value they provide.

One of the effects of the recession, says Harmon, is that many of the people who either lost jobs or couldn’t find jobs as a result launched small businesses. A very interesting result of that is that many of the new SMBs entering the market have founders with large enterprise experience, which has a significant influence on the way they invest in IT services – spending on a broader range of services. They hire more Millenials, and source more through online marketplaces.

Harmon concluded with 12 “laws” for cracking the SMB market, which I’m just going to post here, with  little bit of his explanation included.

1) Design products for simpler assimilation; small businesses value their agility.

2) Deliver mobile form-factor apps; small businesses identify mobile as a top priority.

3) Surround products with prepackaged services; don’t think of yourself as a utility, but a value-added service provider.

4) Build an SMB-specific brand; be SMB specific in the language you use.

5) Appeal to SMBs’ appetite to serve customers; all of their decisions are driven by delivering value to customers.

6) Tie in to SMBs’ word of mouth networks; try to access the communities where they participate.

7) Publish SMB-specific customer case studies.

8) Invest in radio and print; digital marketing may not be the best way to reach SMBs.

9) Educate, educate, educate; SMBs will be attracted to the providers that educate them the most before and after the sale.

10) Develop an all-encompassing channel map; take advantage of business consultants (accountants and lawyers, for instance) to drive business.

11) Craft a freemium pricing model; SMBs love to try before they buy.

12) Build a managed services business; employ the people who manage the IT services you’re delivering.

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