SAP’s Big Bet on SMBs—With a Fast Growth, Millenial Twist

sapEarlier this week, I had the opportunity to meet with Kevin Gilroy, SAP’s Senior VP and GM for Global Small and Midsize Enterprise Segment & Indirect Channels to hear about SAP’s plans to go big in the small and medium business market, which SAP refers to as small and medium enterprises (SMEs). In a nutshell, the vendor is dramatically ramping up market, channel and solution initiatives to boost its profile and market share in SME.

These initiatives come with an interesting twist. Much of what SAP intends to do in the SME space will focus on recruiting partners—from both developer and VAR ranks—who can provide start-up millennial businesses with next generation solutions to help them grow at lightening speed.

The company claims that it is coming at this from a position of strength, with 80% of its 253,000 customers coming from the  SME ranks. But, SAP’s defines SMEs, as companies with revenues under $1 billion, which skews larger than how most vendors and analysts define it. So what shape will SAP’s new SME initiatives take?

Sharpening the SME Lens

telescopeTo put things in context, SAP’s courtship of SME isn’t new. As I discussed in Top SMB Takeaways: SAP Sapphire 2013, SAP has been sharpening its SME lens for a while. Last year, the vendor announced several new programs to bring the benefits of HANA’s data-crunching power to SMEs,  provide customers with the choice of running its solutions in public, private or hybrid cloud environments, and to make its solutions easier to buy and use.

As I noted in that post, SAP was focusing these initiatives not at the SME masses, but on high-growth SMEs, which SMB Group call Progressive SMBs. Progressive SMBs are growth driven, and more likely to invest in and use technology to gain market and competitive advantage than other SMBs. Our data shows that Progressive SMBs are also much more likely to anticipate revenue gains than peers whose tech investments are flat or declining.

Now, SAP is further sharpening the lens to zero in on millennials that are starting, running and making decisions in SME companies. According to Gilroy, millenials have a different view on technology than older counterparts. They are more comfortable with technology, and more likely to view it as a growth engine, instead of as a cost-cutter.

With a broad portfolio of cloud, mobile, analytics, ecommerce, talent management and ERP solutions, SAP offers many entry points for  these SMEs. The vendor has made some key acquisitions, including Ariba for ecommerce, and Success Factors for talent management, that broaden its footprint in the born on the cloud solution space. SAP has also introduced cloud-based options for many of its traditional on-premises solutions, such as SAP Business One. SMEs often prefer cloud solutions because they can usually be deployed faster, with less technical expertise and without big upfront capital expenditures, paving they way for SAP and its partners to expand their addressable market.

Furthermore, SAP is infusing HANA into its SME offerings, announcing general availability of the 9.0 version of the SAP® Business One application, version for SAP HANA. This is the first business management solution for SMEs running on SAP’s in-memory HANA computing platform. It enables SMEs to analyze structured and unstructured information within seconds instead of days, and use predictive analytics to gain new insights into data and optimize business decision-making.

Powering Up Partner Programs

1-hands-holding-jigsawSAP is powering up partner recruitment to fuel SME expansion. The vendor recruited 500 partners in 2013, growing the partner base to more than 11,500 worldwide, with about 1,000 in the U.S. Gilroy indicated that SAP is planning for double-digit channel growth, but will take a selective recruiting tack. In addition to looking for partners with a next-generation development vision, such as Liquid Analytics, SAP wants partners that are ready to scale their businesses to keep pace with SAP’s double-digit growth in SME.

The vendor has introduced and refreshed several programs to help partners go to market more effectively, including:

  • SAP Marketing University, a free, foundational marketing program to empower partners with the marketing skills they need to grow their businesses. SAP indicates the program has already led to over $1 billion in lead generation activities. Once partners have gone through the program, SAP provides them with the same marketing assets that are available to its internal marketing and sales teams.
  • Partner involvement in SAP’s Run Like Never Before ad campaign, launched in October of 2013. To data, more than 200 partners have taken executed campaigns as part of this program, which is 100% MDF reimbursable.
  • New “buy now, pay later” SME financing options that give SMEs zero-percent financing for up to 24 months for the purchase of any SAP product on the reseller price list.

Perspective

We’ve all seen how quickly innovative, fast-growth SMEs can become marquee brands, from tech sector stars such as LinkedIn to consumer brands such as Green Mountain coffee . SAP sees this too—and that technology is putting the creation-destruction cycle for businesses in hyper-drive.

So SAP’s big bet on becoming the leading IT solutions provider for these high-growth SMEs makes sense. As important, SAP is making an authentic effort to consumerize the SAP experience by reducing friction in choosing, buying and using SAP solutions.

But in this noisy SME space, crowded with competitors coveting the same high-growth SMEs, SAP still needs to do more to dispel the long-standing myth that SAP is only a big business brand. Although SAP solutions may be a good fit for high-growth SMEs, the vendor isn’t a household name with them or the millenials that its is seeking out.

SAP will also need to be cautious not to overplay the millennial hand. While millenials are likely to be more digitally savvy than older generations, the U.S. Small Business Administration says that self-employment among younger age groups has actually been dropping. From 2005 to 2010, self-employment among indi­viduals age 25 and under decreased 19 percent, compared to a 7 percent drop in the overall population. In reality, self-employment rates increase with age. For example, they were 2 percent for those 25 and under and 23 percent for those 65 and over in 2010. Simply stated, while millenials may prove to apply technology in business in more innovative ways, they are a relatively small part of the entrepreneurial population.

However, SAP is moving in the right direction. As it increases its investment to understand and engage with SMEs, SAP can continue to fine-tune its SMB story, and widen the circle of high-growth SMEs that will hear it and relate to it.

Six Surprises That May Change Your View of Dell

Dellworld 2013Dell’s journey to transform itself from a hardware company to a solutions vendor has been ongoing for a couple of years. To achieve that, the company has been acquiring, building and blending hardware, software, services, cloud and open standards to broaden its technology footprint. But, much of Dell’s progress has been buried in the drama of the fight to take the company private.

As the first major event since the company’s tumultuous–but ultimately successful–struggle to go private, Dell World 2013 promised to be somewhat of a bellwether. Would Dell, newly freed from Wall Street’s constraints, reframe itself as innovative, end-to-end solutions provider?

Of course, one event won’t change things overnight. But Dell is off to a good start. At Dell World, the company unleashed, unveiled and underscored a comprehensive, innovative vision for its future. If you still view Dell as a stodgy hardware provider, here are six things it is doing that may surprise you–and prompt you to look at the company in a new light.  Consider that Dell is:

  1. Becoming an über-cloud provider: Except for its role as an arms supplier, the cloud has been a murky space for Dell. But at Dell World, it announced that Microsoft, CenturyLink, Dropbox and Google are on board with its expanded Dell Cloud Partner Program which is designed to give customers more choice and flexibility in the cloud, and to provide end-to-end support for offerings from multiple cloud vendors. For instance, customers gain the ability to manage single or multiple public, private and hybrid clouds through one pane of glass via Dell Cloud Manager (formerly Enstratius).
  2. Enabling customers to build open, private-cloud solutions based on Red Hat Enterprise Linux OpenStack PlatformDell is the first OEM vendor to collaborate with Red Hat to provide businesses with co-engineered solutions and dedicated support and services for OpenStack. The goal is give businesses more confidence in using OpenStack as an alternative to proprietary IaaS and PaaS (infrastructure and platform as-a-service) alternatives.
  3. Consolidating channel and direct sales teams into one organization: To support its transition from hardware maker to solutions provider, Dell announced that it is combining direct sales and partner sales into a single organization–and providing a 20% “compensation accelerator” to motivate direct sales to work with channel partners on seven solution areas. Dell also announced expanded profit and coverage opportunities for partners, including turning over 200,000 named accounts to the channel.
  4. Innovating in industries: I knew that Dell is a top technology provider in the healthcare industry, much of this a result of its acquisition of Perot Systems. But didn’t know that it is the top IT provider in healthcare, and is helping pioneer change in this quickly evolving industry. For instance, Dell Services helped launched a state exchange for the Massachusetts Health Connector, and manages and secures Dell Cloud Clinical Archive, one of the largest (with nearly 7 billion images) cloud-based, vendor-neutral medical image archives in the world. At Dell World, te company announced a new cloud-based hospital administration system (HIS), which will launch first in India. Dell is also increasing its focus on other industries, including finance, where it has launched digital transformation frameworks and payment transformation services to help banks reduce costs, retain customers and improve compliance. In the insurance area, Dell has won more than 10 multi-million dollar contracts in the last eighteen months with its Third Party Administration platform.
  5. Going mobile. Sure, you know that Dell has mobile devices–from the new convertible (laptop to tablet) XPS 11 and Venue 11 Pro tablet to the newly released Dell Chromebook 11 (designed for the education market). But, building on prior solutions , Dell announced Enterprise Mobility Management, a unified mobile management solution to managed devices, apps, and content, and Secure Remote Access Gateway to protect endpoints, which will be available through the channel in 2014. I also learned that Dell Services offers custom mobile app development.
  6. Extending its investments in innovation: In his keynote, Michael Dell unveiled two new programs designed to foster innovation. First, Dell has created a research division to pursue organic innovation with a five to ten-year focus. Second, Dell has upped its investment in Dell Ventures with a $300 million dollar Strategic Innovation Venture Fund, a five-fold increase over its initial $60M investment. The Venture Fund invests in early to growth stage companies in the technology areas that Dell is focusing on–storage, cloud computing, big data, data center, security and mobility. Dell’s model is to co-invest with venture capitalists, serve as a board advisor, and provide product and go-to-market resources to the companies it invests in. Dell also reaffirmed its pledge to provide a broad range of entrepreneurs with technology, financing, networking and knowledge via the Dell Center for Entrepreneurs. It highlighted this focus with Dell Pitch Slam which attracted 6-8 late stage startups from several regional events to Dell World, where they pitched their ideas to Michael Dell and other judges. Check out the winners–Guavus, Neverware, and Fantoo.

Summary and Perspective

M DellMaybe as important as the collective weight of all the announcements offered at Dell World 2013, Michael Dell deserves high praise for not only retaining so many employees, but for inspiring staff to stay the course through the trials and tribulations of the privatization process.

As Dell stated in his keynote, “I feel I’m part of the world’s biggest start-up.” His attitude seemed to be contagious among employees, creating a sense of excitement that I hadn’t seen at the past two Dell World events. This renewed commitment and energy from within is the essential first step to a successful transformation, and getting customers and the broader market to view Dell in a new light as well.

Disclaimer: I attended Dell World as an invited media guest.

SMB Spotlight: IBM’s New Midmarket GM Talks About the SoftLayer Acquisition

ibmsmarterplante-150x150Laurie: Hi, this Laurie McCabe from the SMB Group, and in today’s SMB Spotlight I’m speaking with John Mason, who is IBM’s new General Manager and VP for Midmarket. Hi John. Thanks for joining me on this two-part discussion about developments at IBM in the midmarket and SMB space. In our first discussion, I’d like to focus on the IBM acquisition of SoftLayer, which I understand provides dedicated hosting, cloud computing and cloud services offerings.

Before that though, I’d like to learn more about you and your background. I understand you’re relatively new to IBM. Can you tell us a little bit about where you’ve been and what kind of experience you bring to your role?


John: Thanks Laurie. I appreciate the opportunity to speak with you. I joined IBM three months ago. I started my career at Compaq in the 80s. I spent thirteen years there and moved to Cisco, and ran the SME and midmarket business with Cisco in Europe, Middle East, Africa.

Then, I ran global channels for Nokia’s Enterprise business. I also ran a mobile cloud service in eReading and News for a couple of years, and a white label mobile messaging service provider that had been acquired during my time there.

So, when the discussion started with IBM, it was an interesting combination of different hardware, software and services businesses in small and midsize enterprise and across mobile and social. It was the opportunity to combine that with IBM’s amazing global reach in over 170 countries and find ways to get that to the millions of small and midsized companies. Many are possibly not even doing any business with IBM today but can benefit from those solutions.

Laurie: What will you be focusing on in your new role as GM, John?

John: Finding new opportunities to grow the business and bring mobile and social and analytics, and particularly cloud solutions to small or midsized businesses. This means working very closely with our partner organization and focusing on MSPs as the key route market.

Laurie: Thanks for that background. So help me understand a little bit about the SoftLayer acquisition and why it’s so important. IBM makes a lot of acquisitions in general, and I think probably at least a dozen in the cloud area. What makes SoftLayer stand out for IBM?

ibmsoftlayerimage-150x110John: This is one of those few times in our industry where there’s an absolutely fundamental shift that changes everything. When client-server computing started taking off was one, and when mobile really went to a whole new level was another. Now, with cloud, we’re seeing a major shift, which is very beneficial to smaller and midsized companies. They may not have the IT expertise in-house to take advantage of some of the technologies that larger companies are able to use, but now through cloud, they can use more advanced solutions without having to deal with the complexities.

Laurie: Tell us about what SoftLayer does and how that will help IBM help SMBs? What does it give IBM you that it didn’t have in the cloud area?

John: The SoftLayer acquisition was driven by a change in the way that customers are looking to buy. I would say it’s as simple as answering these questions. Is this technology solution is going to be hosted at your place or mine? Is this something that I have to build and manage on my premises, or is it something that I can tap into through a web browser to connect to infrastructure that’s sitting somewhere else outside of my physical office buildings? Then, is that going to be dedicated to me or is it something that I share with somebody else? So, it’s really your place or mine, shared or dedicated, and what software brings is the ability to offer the full range of different deployment options.

That’s whether it’s a complete public cloud solution or it’s a private cloud or it’s some mix of some parts public, some parts private in a hybrid deployment. SoftLayer lets us accelerate our ability to deliver those pieces across a broad range of different businesses and different services.

Laurie: What about purchasing and pricing mechanisms for customers?

John: Yes, that’s really key. It’s really important to make it easy and simple to understand what the offering is, and how can I choose the combination that is right for me. Then make it really easy for them to purchase and deploy that solution.

The beauty of SoftLayer is they have a very simple credit card purchase capability. You can be up and running literally within the hour and choose whether you want to be billed monthly or hourly. It’s simple and flexible, and that’s as important as the underlying technology.

Laurie: One of the other things that I’m curious about is that it seems like managed services is another big part of the SoftLayer business. IBM has been heavily courting managed service providers (MSPs) for quite some time. Does this create a conflict with them?

John: SoftLayer is really complementary to what we’re doing with MSPs. In fact, we’ve had a number of key wins with MSPs for SoftLayer with service providers who have said, “I really don’t want to have to manage this infrastructure myself. It’s not my core business. My focus is on security services or hosted exchange services. So, rather than me scarce resources building and managing an infrastructure layer, I’d rather focus on the higher value services on top of that, and I’ll use SoftLayer as infrastructure.”

Laurie: Will they be able to resell SoftLayer?

John: Yes, there’s that too. MSPs can use SoftLayer themselves as part of their own infrastructure, or they can resell it to customers together with other value-add services that they bring to the mix.

Laurie: Where does SoftLayer sit in terms of IBM’s SmartCloud services?

John: SoftLayer gives us the ability to accelerate our own leadership position, scale out the smaller cloud service portfolio, add additional higher value services and solutions across mobile and data analytics, social–together with partners. It’s the combination of all of that into a solution that adds value for customers.

Laurie: What kind of experience in SMB and midmarket does SoftLayer bring that IBM can leverage, and how will you do that?

John: I mentioned this earlier in our conversation when we talked about what attracted me to the role at IBM. Frankly, the SoftLayer acquisition hadn’t closed but had been publicly announced. That was a real additional level of credibility that we could use to address the SMB market because SoftLayer had over 20,000 SMB customers already. They clearly have a very strong focus on that market and a solution that is very simple, easy for the smaller customer to understand, choose, purchase, deploy and operate.

So, to me that said IBM’s not just talking about the midmarket, but actually putting a significant investment in technologies, ease of purchase and deployment to enable this. SoftLayer convinced me that we very serious about this and that was a decider for me.

Laurie: What does the bigger go to market plan look like? Many SMBs still think IBM doesn’t have solutions that are relevant for them. How are you going to change that?

John: First, we need to be careful that we don’t hug SoftLayer to death. We need to give them space to continue to operate their own very successful go to market model. There’s always a risk when a big company acquires a smaller company that sometimes the big company process can slow down the smaller company. We will be very diligent about ensuring that doesn’t happen and that SoftLayer continues to operate somewhat independently with their existing go to market model.

At the same time, we need to take advantage of what they bring and combine that with IBM’s traditional business partners, managed service provider partners, and some of the ISVs that we work with. Really, this is more about connecting the ecosystem that needs to work together to deliver solutions to small and midsized companies. SoftLayer helps us accelerate that with a full range of all types of different deployment options–everything from bare metal dedicated servers, virtualized shared servers, managed private and public cloud through to a full range of storage and networking and managed services.

Laurie: So, what does success look like here if this all goes according to plan?

John: I think we’ll see continued acceleration of cloud adoption within small and midsized companies and SoftLayer will help to significantly accelerate the deployment of both hybrid private and public cloud solutions for small and midsized companies. I certainly expect the 20,000 existing SoftLayer customers will increase significantly without putting a specific number on it. Beyond that, it’s about helping MSPs to accelerate their offerings with more value-add services above and beyond the infrastructure layer. That way we really bring complete solutions for small and midsized companies that are simple to deploy and use.

Laurie: John, thank you for joining me, and I look forward to our next discussion, when we will talk about IBM’s other new plans for SMB and mid-market customers.

John: Thank you Laurie. I appreciate the opportunity to have this discussion and certainly look forward to future discussions we’ll have.

This is the first of a two-part SMB Spotlight interview with John Mason, IBM’s General Manager and VP for Midmarket, sponsored by IBM. In the second post, I’ll ask John about other new IBM strategies and developments for SMB and midmarket companies and channel partners.

Sage Summit 2013: That Was Then, This Is Now

logoI’m a bit behind in getting my wrap up and thoughts on Sage Summit–Sage’s annual event for business partners and customers–together. But better late than never! As you can see in the related links at the end of this post, I’ve attended these events for many years. During this time, Sage North America has gone through many significant changes to bring sharper focus to its mission and more value to its customers. At this year’s event, I saw promising signs that these efforts are beginning to pay off.

That Was Then

Sage North America has been on a transformational journey since 2009, when Sue Swenson took over as CEO, made some tough choices, and began setting the wheels in motion to change the company’s downward trajectory. In the four years since, the company hired another new CEO, Pascal Houillon, in 2011. Under his leadership, Sage made some controversial (at the time) moves to unify the Sage brand and product names and divest Sage of seven non-core businesses, including ACT! and SalesLogix, which had large installed bases. To help streamline the company’s focus on its core business and on improving customers’ experience with Sage, Houillon also brought some fresh talent into the executive ranks.

This Is Now

The result of all this is a more focused, purposeful Sage. Gone are the days of trying (unsuccessfully) to rationalize an unfathomable number of overlapping products. On Houillon’s watch, it is unacceptable for Sage executives to position the Sage portfolio in different ways. At Sage Summit 2013, the executive team was singing from the same hymnal regarding Sage’s core positioning and messages:

  • Continue to focus on its core businesses (accounting, payroll, payment processing, ERP, etc) for very small businesses, SMBs and the midmarketSlide1. Key to executing on this is the company’s move to centralize R&D Centers of Excellence for cloud, mobility, customer experience. In the past, each individual product brand would undertake separate development efforts for new functionality. Now, Sage R&D develops new features, extensions and add-ons once (for mobility or analytics, for instance) that individual product groups can replicate across their solutions. Sage is also in the process (though not yet there) of standardizing service and support offerings. It launched Sage City, a new centralized online community for customers, business partners and employees, last month. And, Sage will make new acquisitions when needed to supplement its core solution focus.
  • Expand its connected services strategy and offerings. Sage is building more cloud services, such as SageExchange.com, Sage Mobile Sales, and Sage CRM, that connect to core financials and ERP solutions, as well as for partners to build and sell add-on connected services. The company’s big picture vision is to “liberate” data and services that had been locked into ERP so that customers can use them in the cloud, anywhere, anytime, and from any device. Sage is building a data cloud on Microsoft’s Azure platform with common connectors, bi-directional synch, multi-tenant storage and disaster recovery. This means that Sage connected services will work the same way regardless of the backend ERP/financials Sage customers use. This will all come together in the Sage Marketplace, slated to launch in FY14.
  • Going all-in on the subscription pricing and the cloud. Sage now offers subscription-based pricing for all of its solutions, and comps partners on a percentage of subscription sales over the life of a contract. It has also committed to developing cloud versions for its solutions, including a cloud version of Sage ERP X3, which will feature a user pure web experience when available in 2014.

Taking the Marketing Road Less Travelled

sage lisltensThe Sage commitment to putting customer experience first underpins these initiatives. Sage has several initiatives underway to up its listening game, such as the Sage Listens RV Relay, which is allowing Sage to also kick off a “Shop Local” campaign to encourage people to shop with local businesses.

In contrast to the “build it and they will come” tack that most tech companies take, Sage is taking its cue from the Proctors and Gambles of the world. It is getting customer input upfront before developing new products and functionality. Sage is hearing that customers want easy to use, flexible solutions, mobile capabilities and a low-cost of entry, and is concentrating resources on these areas. In fact, in one of the breakouts, when an analyst asked a Sage executive about social and big data plans, the exec said that customers are not calling these out as priorities. He added that while Sage isn’t ignoring these areas, it is prioritizing development and marketing based on customer input.

For instance, Sage recently launched Sage Healthcare Advisory Services , which includes a new “My Workforce Analyzer” tool to help SMBs understand plan for the Affordable Care Act. Analytics are under the covers, of course, to help SMBs develop what-if scenarios and optimize planning. But Sage isn’t calling it a big data solution.

Sage has often been knocked about for not keeping pace with the generational shift in the North American workforce. But it is now facing the facts–specifically that people born before 1968 will comprise less than 20% of the workforce by 2015. Sage is recalibrating its strategy to align more closely with different generational expectations. As Brad Smith, EVP of Customer Experience stated in his keynote, “We have to over-service the pre-PC guys but we also have to find ways to reach the ‘digital natives.’”

To that end, Sage demoed a voice-to-text initiative in which users can use voice-activated mobile technology to interface with ERP systems on mobile devices. It’s sort of like Siri, but within the context of the business and business workflows, so it appears to do a better job of handling user queries and requests. While the voice command initiative is in its infancy, it could be a key differentiator in the future.

Finally, Sage is putting its money where its mouth is, by tying Sage metrics and compensation for all Sage execs to Sage Net Promoter scores (NPS). The company’s previously shrinking North America business has grown 4% year-over-year.

Channeling The Channel

6a00d8345177fc69e20192ac233035970dSMB Group research shows that accountants/CPAs and technology business partners represent 2 of the top 3 influencer channels for SMBs selecting financials and related business solutions, with peers in other businesses rounding out the list. Sage has a large channel in both areas–with over 25,000 accountants in North America and more than 26,000 technology reseller partners worldwide. But over the past few years, cloud competitors have been trying to poach these very valuable resources.

Accordingly, Sage has several new initiatives underway to re-focus partners back on Sage. In addition to committing to provide cloud-based offerings across the portfolio to give partners a Sage cloud offering, Sage is:

  • Partnering with the Business Learning Institute to develop a curriculum for accountants to help them provide more competitive services to their SMB clients.
  • Planning to launch a new certification program for accountants focused on startup market, with a collaborative version of Sage One, Sage’s solution for very small businesses, to make it easier for them to automate tasks and take care of clients.
  • Introducing the Sage Advisor Partner Dashboard, which uses current customer data to help Sage reseller and accountant partners more readily identify new opportunities in the installed base, and provide a more personalized, consultative sales experience.

Sage is also recruiting new partners for midmarket Sage ERP X3, and new accountant partners to help it build traction among very small businesses for the Sage One solution.

Summary and Perspective

Minus ACT! and SalesLogix customers and partners, this year’s Sage Summit was smaller than in 2012. But, the energy level was much higher. Sage executives were more confident and relaxed, and the messages they delivered were consistent and crisp. Sage demos were more engaging, and even at times, entertaining.

Key metrics, including rising NPS scores, modest growth in its North America business, and a stock price that recently reached its highest point in 13 years are also good signs for Sage. As important, conversations with customers at the event led me to conclude that “Sage Listens” has moved beyond a slogan to put the programs in place to proactively engage customers.

However, there are a few areas in which I believe Sage needs to double down:

  • Sage One marketing. Worldwide, Sage has about 10,000 customers using this very small business management solution today. But most of the millions of very small businesses have never heard of it. Sage needs to significantly enhance awareness and demand gen campaigns to become more than a blip on the radar.
  • Third-party connected services . Sage has a big installed base, which should make it an attractive partner for third-party developers–especially now that developers can write just one connector and reuse it for all of Sage’s core products. But Sage has only about 20 endorsed connected partner services today. Again, many developers don’t know about this opportunity. Sage must raise its overall visibility in the developer community and launch a targeted recruitment program to get developers to build the apps that its customers need.
  • Clarity around CRM. After divesting ACT! and SalesLogix, the company’s sole solution here is Sage CRM. But other than discussing integration and a cloud version of Sage CRM that is in the works, CRM was very low profile at the event. Given Sage’s focus on core financials/ERP it leads me to wonder how committed is Sage to Sage CRM, and if will make the investments required to provide a truly first-rate CRM solution.
  • Innovation. Sage made a good case for its direction in the cloud, mobile and integration areas. However, analysts and press did and will continue to hound it on social and big data/analytics. While Sage customers may not have put these areas at the top of their priority lists yet, it’s only a matter of time before they do. Sage needs to get out in front in these areas.

That said, it’s challenging to do everything at once. The Sage leadership team has made the decision to move forward instead of standing still. All in all, I get the impression that Sage as a company has a better sense of who it is, where it’s going and how it will serve SMBs.

Related posts:

Sage Streamlining Takes a Major Turn With the Sale of ACT! and SalesLogix

Sage Turns a New Leaf: Top Takeaways from Sage Summit 2012

Sage’s Rebranding: More than a Name Change

Sage Summit 2011: Tackling the Sage NA Branding Challenge

Impressions from Sage Insights 2009

Sage Streamlining Takes a Major Turn With the Sale of ACT! and SalesLogix

sage imagesLast week, The Sage Group announced that it is selling its Sage Act! contact manager and SalesLogix CRM to Swiftpage. Swiftpage is a U.S. based digital marketing software vendor and has been a Sage partner supplying Sage E-Marketing as a connected service for three-plus years. The move is part of Sage’s strategy to streamline its business software portfolio and focus on its core application areas, accounting, ERP and payroll. Sage is also selling Sage Nonprofit Solutions to Accel-KKR, a private equity firm.

In addition, Sage is unloading four solutions sold in Europe. Combined, these sales amount to about $145 million, and result in a loss to Sage. Accel-KKR and Sage provided Swiftpage with significant capital to help finance Swiftpage’s SalesLogix and ACT! purchases. Sage will retain 16.1% ownership in this deal.

The sale affects about 1,000 of Sage’s 13,000 employees, with about 250 people from Sage ACT! and SalesLogix moving to Swiftpage. In my conversation with Himanshu Palsule, Sage’s North American support group is working with Swiftpage to put an escalation process in place for customers.

Sage isn’t exiting the CRM market, however. It is retaining Sage CRM (which it acquired as part of its purchase of ACCPAC several years ago) as its core CRM product.

Following Through On a Strategy to Streamline

Sage’s announcement doesn’t come as a big surprise. At Sage Summit 2012 last August, Sage North America management revealed its strategy to concentrate development on what Sage termed core solutions areas–namely financials, ERP, and payroll, as discussed in my post, Sage Turns a New Leaf: Top Takeaways from Sage Summit 2012.

At the event, Sage North America CEO Pascal Houillon set forth Sage’s strategy to move from a heavily decentralized product management and marketing approach to one that is more centralized and focused—and to put the company on a stronger growth trajectory. By streamlining its offerings, Sage intends to provide customers and partners with a more integrated experience and more flexibility to take advantage of new cloud-based connected services.

Shedding CRM Solutions That Weren’t Keeping Pace with Market Trends

Over the years, Sage has been very acquisitive. But many of its acquisitions haven’t really paid off. This has been particularly true for Sage ACT! and SalesLogix, both of which Sage acquired in 2001 when it bought Interact Commerce. Sage bought these products when desktop and client-server computing were at their peak–but about to wane. Since then, of course, the likes of Salesforce.com, Zoho CRM, Nimble and many other CRM cloud offerings have come to the forefront. Meanwhile, Sage has struggled to make the cloud transition with its CRM products. In addition, Sage hasn’t been able to keep pace with developing the new social capabilities that customers want in CRM solutions. These limitations have made it difficult to sell these products to new customers.

While Sage did develop integrations for ACT! and SalesLogix with its financials solutions, its attempts to cross-sell CRM to its installed base of financials and ERP customers met with limited success. The partner channel and end-user decision-makers for CRM and financials solutions are very different, and Sage was unable to develop an effective method to bridge the gap. As a result, there is very little customer overlap between the two.

With ACT! and SalesLogix off the plate, Sage intends to increase its focus on its core financials and ERP products, including Sage 50 (formerly Peachtree), Sage 1oo ERP (formerly Sage ERP MAS 90 & 200), Sage 300 ERP (formerly ACCPAC), and Sage ERP X3, and provide a richer set of connected services for these solutions.

Moving Forward

For a very long time, Sage has looked to acquisitions as a way to fuel growth, acquiring scores of business software products over the years. Sage has had a hard time rationalizing its strategy, sparking much criticism for having a cluttered portfolio, too many products and not enough focus.

Now, Sage is taking a 180-degree turn to sell off surplus solutions, freeing up development and marketing resources to create cleaner, more integrated solutions and messaging. While it’s too early to tell if this new strategy will result in the growth Sage is looking for, the move does give the company more bandwidth to concentrate on its core financial solutions, and give its remaining Sage CRM product the types of cloud, social  and mobile capabilities that it needs to be competitive. In addition, Sage no longer has to contend with the politics of competing product lines and partner channels.

While the move may be a bit emotionally jarring for current ACT!  and SalesLogix customers, they shouldn’t experience too much change in the short term. Over time, they may in fact see an upside, if Swiftpage, which has a strong focus in the digital marketing space,  can infuse the former Sage solutions with the updated cloud, social and mobile capabilities that they will need to attract new customers.

SAP Shines the Spotlight on Small and Medium Businesses

SAP SME SummitSAP’s stellar success in building its blue-chip large enterprise business has often overshadowed its considerable but quieter achievements in small and medium business (SMBs) markets. But SAP is not a household name in the SMB community. Even technology insiders are often surprised to learn that SMBs (or as SAP refers them, small and medium enterprises, or SMEs) account for the majority of SAP’s 197,000 customer base.

But at SAP’s first small and medium-sized enterprise (SME) summit, hosted at the company’s New York offices in late November, co-CEO Bill McDermott and other key SAP execs made it clear that SAP is intensifying its aspirations and endeavors with new programs and initiatives that reach well beyond its conventional solutions.

From SME Solutions to an SME Ecosystem

Over the last few years, SAP has steadily grown its SME business with its traditional solution offerings. For instance, year-over-year revenues have grown 20% for SAP Business One, SAP’s flagship ERP offering for small businesses. As discussed in The Progressive SMB: Customer Stories are Worth 1,000 Analyst Words, SAP has been particularly attractive to Progressive SMBs, who realize the increasingly direct connection between strategic IT investments and successful business outcomes.

The steady growth of SAP solutions has been admirable, but, as we learned at the SME Summit, SAP is casting a much wider net through a series of different initiatives that bring SAP’s big data, mobile and cloud capabilities to smaller organizations in a more accessible manner. Together, these are starting to take the shape of a growing SAP SME ecosystem. For instance, SAP is:

  • Growing and enabling the traditional partner channel. SAP channel partners currently account for one-third of SAP SME sales. SAP intends to raise this to 40% by 2015. To help accomplish this, SAP is enabling more of its traditional partners (VARs, SIs, MSPs, etc.) with Rapid Deployment Solutions (RDS).  Currently, SAP offers 150 RDS solutions, which provide businesses with fixed cost, fixed scope preconfigured software, best practices and implementation services that give customers everything they need to get up and running in just a few weeks. RDS has proven to be very instrumental in driving SAP’s growth in the SME sector. In the past year, RDS deployments in SME have outpaced the 500%+ overall RDS growth rate over the prior year. The importance of building and enabling the channel cannot be underestimated: according to SMB Group’s 2012 SMB Routes to Market Study, over half of SMBs purchase business applications through indirect channels.
  • Recruiting partners to build micro-vertical solutions on Business One. The small business market is actually very fragmented. While all small businesses share some common needs, each micro-vertical has unique requirements and needs specific capabilities when it comes to business software. SAP is building a development-focused partner channel to zero in on the needs of each micro-vertical. For instance, SAP partner Orchestra is building specialized solutions on Business One for small businesses in the fuel, beer and food industries. OrchestraBeer was showcased at the Summit. In this video interview, Ryan Hilliard, CEO of Hilliard’s Beer, a small startup with less than 10 employees, explains to me why he selected OrchestraBeer. Ryan plans to grow his business, and wanted a solution that would grow with him, and one over the lifetime of his business. But he also needed a turnkey solution geared to his business, and able to track specific metrics–such as batches and barrels of beer for visibility into his supply chain and production.
  • Empowering startups with SAP HANA. At the Summit, SAP announced that it has powered over 150 startups in Silicon Valley with SAP HANA. These startups are using HANA as a development platform to provide SMBs with a new, user-friendly generation of real-time analytics and advanced predictive solutions. For instance, Vish Canaran, CEO of Liquid Analytics, talked about his company’s cloud-based, mobile analytics applications for iPhone, iPad, Blackberry and Android users.  As Vish explained to me in this video discussion, Liquid Analytics starts with the user experience to help optimize productivity. Liquid Analytics apps use gamification and predictive analytics to help make it easier, quicker and more fun for wholesale industry sales reps to place orders and set and meet sales goals. As noted in SMB Group’s 2012 SMB Routes to Market Study, the data fire hose is running at full blast and shows little signs of abating. But, the big gap in big data is painfully evident for small businesses: Just 18% have purchased/upgraded a business intelligence solution in the past 24 months, and only 17% plan to do so in the next 12 months. Solutions such as Liquid Analytics show promise to offer small businesses an accessible, user-friendly ways to harness big data for business good.
  • Extending the Ariba network effect. As part of SAP’s recent Ariba acquisition, every SAP customer gets a free connection into the Ariba network (and any company, whether an SAP customer or not, can enroll as a Supplier on the Ariba Network). As revealed in our 2012 SMB Routes to Market Study, about one-quarter of SMBs sell goods and services to large enterprises. Since attracting new customers, growing revenues, and increasing profitability are perennial SMB challenges, we expect that SMB interest and involvement in big company supplier networks to heat up in 2013. As discussed in SMB Group’s Top 10 SMB Technology Predictions for 2013, access to the Ariba network is one opportunity that SMBs can leverage to compete for their share of the $300 billion dollars that large businesses spend annually on goods and services.

Looking Beyond Technology

SAP is also expanding its engagements with influencers, venture capitalists, governmental agencies and other vital SME catalysts. The Summit’s “Power of Small” panel featured speakers with wide-ranging perspectives and influence in the SME market, and underscored that SAP’s focus will go well beyond technology to include initiatives focused on policy, people, capital to help create an environment in which SMEs can thrive.

For example, Linda Rottenberg of Endeavor, who pioneered the examination of how high-growth business can transform economies, discussed the necessity of “mentor capital” for SME success. At the event, Bill McDermott announced that SAP has committed to help Endeavor select, mentor, and accelerate high-impact entrepreneurs on a global scale. Sunil Hirani of trueEX examined the effect of immigration policies on entrepreneurship in the U.S., and the importance of aligning governmental policies to help SMEs prosper.

Perspective

With these initiatives, SAP is tapping into a very important trend. As discussed in SMB Group’s Top 10 SMB Technology Predictions for 2013, Progressive SMBs, who invest more in technology and use technology for competitive advantage are also much more likely to anticipate revenue gains than peers whose tech investments are flat or declining. We also see this gap widening year over year, and expect that it will continue to do so.

Although not everyone at SAP may yet “get” small business, it was clear from the event that Co-CEO Bill McDermott does understand them, and also values the increasingly make or break role that technology plays for SMEs. SAP’s commitment to enabling partners to expose it technology in a relevant way, and its investment in the broader SME community were on display at this high-profile event, making it clear that McDermott wants to make SAP a household name among SMEs.  A lofty goal, to be sure, but one that SAP is very committed to aspiring to.

Report Card: 2012 Top 10 SMB Technology Market Predictions

–by Laurie McCabe and Sanjeev Aggarwal, SMB Group

Before developing our 2013 predictions, we wanted to assess how we did on our 2012 Top 10 SMB Technology Predictions. Here’s our take–please let us know what grades you would have given us!

And stay tuned for our Top 10 SMB Technology Predictions for 2013, which we will post in a couple of weeks!

Note: On this grading scale, 5 means that we came closest to hitting the mark, and 1 means we missed it entirely.

Prediction Score  Comments
1.     Economic Anxiety Lowers SMB Revenue Expectations and Tightens Tech Wallets 4 Year-over-year data from our annual SMB Routes to Market Studies indicated that more small and medium businesses (SMBs)* were forecasting flat or decreased IT spending heading into 2012 compared to 2011. Given SMB budget constraints and the plethora of solutions aimed at SMBs, vendors had to work harder to convince budget-constrained SMBs that their solutions would really help address top SMB business challenges to attract new customers, grow revenues and maintain profitability. More SMBs turned to lower-risk, pay-as-you-go cloud options, and several vendors (IBM, Dell and HP, to name a few) introduced new and/or enhanced financing options to help SMBs overcome financial hurdles.
2.     The SMB Progressive Class Gains Ground  5 We identified a distinct category of SMBs that we termed “Progressive SMBs,” who see technology as integral to achieving business goals and to gaining a competitive edge. Progressive SMBs invest more and purchase more sophisticated solutions than their counterparts. Trending analysis from our 2011 to 2012 Routes to Market Studies show that the percentage of SMBs in the Progressive category is growing. Furthermore, Progressive SMBs continue to gain ground over SMBs that skimp on technology in terms of expected business performance.
3.     The SMB Social Media Divide Grows  5 SMB adoption of social media did indeed jump, from 44% to 53% among small businesses (and from 52% to 63% among medium businesses from 2011 to 2012, based on trending analysis in our SMB Social Business Studies. The divide between social media haves and have-nots is also growing: our research reveals that 65% of SMBs that use social business tools anticipate revenue gains, while only 17% of “non-social” SMBs expect revenues to increase.
4.     Cloud Becomes the New Normal 4 SMBs haven’t swapped out all of their on-premises solutions in favor of the cloud–but the puck is clearly moving to the cloud in all application areas. The evolution is continuing at a steady pace, as evidenced by trending analysis in our annual SMB Routes to Market Studies. In some areas, cloud is poised to overtake on-premises solutions. For instance, over 30% of SMBs that purchased or upgraded collaboration, marketing automation, BI and data backup in the past 24 months chose cloud, and over 40% of SMBs planning to purchase solutions in those areas in the next month plan cloud deployments. 
5.     Mobile Application Use Extends Beyond Email to Business Applications 5 SMBs significantly ramped up mobile business application use and plans in 2012, as evidenced by trending analysis from our annual SMB Mobile Solutions Studies. More SMBs are providing mobile business apps to employees in categories ranging from CRM to time management to expense reporting.  In addition, adoption of external-facing (for customers, partners and suppliers) mobile apps and websites also rose considerably.  For instance, SMB use of a mobile-friendly website is up 10% among small businesses and 23% among medium businesses.
6.     Increased SMB Business Intelligence (BI) and Analytics Investments Are Sparked by the Social-Mobile-Cloud Triumvirate  3 The avalanche of data generated by cloud, social and mobile has certainly created the need for better analytics. However, year-over year trending data from our SMB Routes to Market Studies reveals a mixed bag in terms of adoption. Use of BI solutions among medium businesses spiked 24% in the past year, but adoption rose just 2% among small businesses. While vendors appear to be doing a good job of developing and marketing BI solutions tailored to the needs of medium businesses, they have not yet figured out the right formula for smaller ones.
7.     Managed Services Meet Mobile 5 We forecast that the explosion of mobile devices and apps, “bring your own device” (BYOD) phenomenon and the increasing concerns about security would spark increased demand for and more solutions to manage mobile on the back-end. Our annual SMB Mobile Solutions Studies show that SMB adoption of mobile management services—from simple device management to comprehensive mobile management platforms—has accelerated rapidly. For instance, 16% of SMBs have already deployed an outsourced mobile management platform, and 30% plan to do so within a year.
8.     The Accidental Entrepreneur Spikes Demand for No-Employee Small Business Solutions 5 Small businesses without a payroll make up more than 70% of America’s 27 million companies. We hypothesized that the 2008 recession and subsequent layoffs generated a new and often “accidental” breed of entrepreneurs that would spike demand for—and growth of—applications targeted to meet the needs of these businesses. And they have. New and improved cloud-based and mobile apps from traditional small business powerhouses (Sage, Intuit, Microsoft, Google, etc.), SOHO pioneers (Freshbooks, Nimble, Dropbox, Zoho, etc.), and freelance talent sourcing solutions from companies such as Elance and oDesk are making it easier than ever for SOHOs to get their work done.
9.     Increased Adoption of Collaboration and Communication Services in Integrated Suites 4 Trending from our Routes to Market Study Medium businesses shows that overall, use and plans to deploy collaboration solutions is up year-over-year. Low-cost, low-risk, cloud-based collaboration and communications services have made it easier for SMBs to use integrated collaboration tools, while eliminating the inconvenience of using multiple sign-ons and interfaces.The fact that vendors are integrating more into their offerings—such as  Google integrating Google+ hangouts, IBM SmartCloud Engage adding social communities and Citrix adding video capabilities to GoToMeeting—doesn’t hurt either.
10.   The IT Channel Continues to Shape-Shift. 5 Cloud, social and mobile trends continue to reshape how channel partners must deliver value across the board. SMBs are increasingly choosing to purchase directly from software and cloud vendors in most areas. And Managed Service Providers (MSPs) have gained ground as a purchase channel over VARs in several solution areas, including security, BI and collaboration. The need for more specialized business and/or technology expertise has also made some types of channel players more relevant in each specific solution category than others.

*In SMB Group Syndicated Survey studies, we define small businesses as those with 1-99 employees, and medium businesses as having 100-999 employees.

For more information on our most recent SMB Mobile, Social Business and Routes to Market Studies, please visit our website, www.smb-gr.com, or contact Sanjeev Aggarwal, Sanjeev.aggarwal@smb-gr.com, 508-410-3562.

 

MSP Cloud Challenges in the Midmarket–and How IBM Helps Meet Them

In my recent post, A View From the MSP Trenches: Cloud Opportunities in the Midmarket, I examined how MSPs see the midmarket opportunity shaping up, and why they are partnering with IBM to capitalize on these opportunities. I discussed how MSPs are taking advantage of cloud-based technology solutions and IBM’s offerings to help their midmarket companies offload infrastructure management, deploy the leading-edge solutions, and achieve the performance, availability and security required for mission-critical applications.

I also wanted to learn more about the challenges that MSPs face, and how they work with IBM to surmount these hurdles. This post focuses on that side of my conversation with the same three MSPs, who I’ll reintroduce here:

  • Oxford Networks characterizes itself as “a 112 year-old start-up,” which began as a phone company and has since reinvented itself a couple of times over to become a high-end carrier’s carrier transport network. Oxford recently acquired an MSP and a data center, and is building on this to offer a spectrum of IT and telecom services to SMBs.
  • Perimeter E-Security delivers highly secure infrastructure protection and compliance solutions via its security-as-a-software platform, including: firewall management and monitoring, vulnerability scanning, intrusion detection and prevention, hosted email, hosted collaboration, email security, message archiving and mobile device management. Perimeter offers its services in the cloud, and on customer premises.  About two-thirds of its customers are small and midsize businesses (SMBs).
  • Velocity Technology Solutions provides virtual private cloud managed application and hosting services for its customers’ ERP solutions. It also hosts and manages connected applications, such as analytics and workforce automation; and complementary technical solutions, such as imaging. Velocity offers remote managed services for customers’ on premises applications, including a full replication service for disaster recovery.  Velocity’s customers range from businesses with about $50M in annual revenues to the Fortune 500.

MSPs must keep pace with a rapidly changing technology landscape and provide consistent, high performance cloud services. After all, that’s precisely why their customers are outsourcing infrastructure and application management to them in the first place. In their view, IBM provides them with the proven solutions and expertise that they need to deliver superior quality of service. As Tom Bruno, President & CEO, Velocity Technology Solutions, noted, “IBM has the most stable infrastructure. We can tap into the strength and girth of IBM to get the peace of mind that we need to deliver high-availability service.”

Some of the specific areas in which MSPs find strong value in the IBM partnership include:

  • Resources to scale and grow. By standardizing on IBM hardware and middleware, they are able to efficiently create and manage a high-availability environment. For instance, Velocity Technology Solutions works closely with IBM to identify and standardize the server, storage, and middleware stack to support “just about any application the customer wants,” according to Bruno.  “One of the biggest challenges is that ERP is advancing so fast–with a rush of analytics, mobile apps, collaboration and process flow. Customers want to upgrade, and with IBM, we can get these upgrades down to a science, and offer customers freedom of choice.” Or, as Craig Gunderson, President & CEO of Oxford Networks told me, “When we acquired the data center, it wasn’t up to snuff. IBM technologists helped us to reconfigure it and build for the future.”
  • Speed and agility. The bar to stay ahead of the technology curve is rising quickly, and MSPs must move at warp speed to stay ahead of it. While MSPs are often small or midmarket companies themselves, their IBM partnerships help give them the agility they need to take advantage of leading-edge technologies. “The IBM SmartCloud, DataFlex, V Systems and other IBM solutions are core to our PaaS and IaaS offerings. This means we can make more capabilities available more quickly to customers,” notes Gunderson.  MSPs need a stable but flexible technology foundation, says Perimeter E-Security’s Andrew Jacquith. “We add a terabyte of data per day to our cloud email and archiving platforms. IBM helps provide a secure, scalable cloud fabric to support our growth.”
  • End-to-end services. MSPs don’t want to or can’t provide everything a customer may need across the entire technology spectrum. But they are taking advantage of IBM’s ecosystem to broaden their service portfolios and give their customers a one-stop shopping experience. At Oxford Networks, for example, “Customers are asking us to be more of a business solutions provider. This wasn’t our core competency, but we can provide end-to-end solutions via IBM SaaS partners’ says Gunderson. “Partnering with other partners in the IBM ecosystem gives us the ability to meet the converging needs of our customers.”

In late September, IBM launched new global initiatives for MSPs, which provide additional resources to help them meet core technology challenges, including:

  • Access to four new Global Centers of Excellence (in addition to 40 existing IBM Innovation Centers). These centers provide MSPs with hands-on technical skills in technologies such asIBM SmartCloud, PureSystems, storage, security and collaboration.
  • A new virtual briefing center for MSPs to share ideas and knowledge about industry trends, customer requirements and best practices with their peers and with IBM experts.
  • PureSystems, which provides a new, integrated, by-design platform to tune hardware and software resources for data intensive workloads, and gain more flexibility to configure applications for either an on-premise or hosted environment.
  • More options for IBM SmartCloud, giving MSPs the choice to either integrate SmartCloud as an IBM-backed solution, or provide SmartCloud under their own brand.

Profitable business growth is another key challenge for all companies, and MSPs are no exception. The MSPs I spoke with believe that IBM sets itself apart with the quality of business planning and marketing support that it provides. “IBM partners with us to help us plan and capture more midmarket business,” states E-Perimeter’s Jacquith.  “The level of partnering is very deep.”

In the case of Oxford Networks, IBM and its advertising firm, Ogilivy and Mather, helped Oxford to determine which markets to focus on and how to grow intelligently. IBM also brings in Avnet personnel to help Oxford educate customers and prospects.  “IBM is very hands-on. We have never seen another company provide this level of support,” says Gunderson.

IBM new global initiatives for MSPs also offer more marketing and operational support. These included dedicated marketing and sales support, and a new program to help MSPs build a complete marketing plan. Other assistance includes a four-part education seminar to help MSPs use social media to grow their businesses, and IBM analytic capabilities to identify new customers and drive more repeat business.

IBM Global Financing (IGF) is stepping in with flexible, affordable financing options to help MSPs acquire the solutions and services they need to grow. Plans include 12-month, 0% loans for IBM Systems, Storage and Software. MSPs that select PureSystems platforms can also defer their first payment for 90 days.

All told, IBM’s focus on MSPs adds up to a tremendous value not only for MSPs, but for their customers. Instead of just throwing resources at them, IBM has put together an integrated program to address their technology and business challenges. In addition, IBM’s dedicated marketing and sales support provides MSPs with real people who get to know them and understand their individual goals and challenges. With this coordinated and personalized approach, IBM can to get the right resources to MSPs when and how they need it. In turn, these MSPs will be able acquire the skills and resources they need to help their midmarket customers achieve their goals.

This is the fourth of a five-part blog series by SMB Group that examines the evolution of midmarket business technology solutions and IBM’s Managed Service Provider Channel programs. In the next post, I’ll discuss upcoming IBM’s MSP program announcements slated for November.

A View From the MSP Trenches: Cloud Opportunities in the Midmarket

As discussed in my blog, IBM’s Managed Service Provider Initiatives for Midmarket: An Interview with Mike McClurg, IBM views MSPs as an increasingly critical channel for delivering cloud-based technology solutions to midmarket companies. Just a few days after I posted this interview, IBM announced that it would further strengthen its initiatives to help MSPs meet the growing midmarket demand for cloud services.

Now, all research (including SMB Group studies) points to a rise in midmarket adoption of cloud solutions. But, what do MSPs see as the key midmarket hotspots, how are they turning these into opportunities for their businesses, and how is IBM helping them? To help answer these questions, I spoke with three very different IBM MSP partners to find out their views on the cloud opportunity:

  • Oxford Networks characterizes itself as “a 112 year-old start-up,” which began as a phone company and has since reinvented itself a couple of times over to become a high-end carrier’s carrier transport network. Oxford recently acquired an MSP and is building on this to offer a spectrum of IT and telecom services SMBs.
  • Perimeter E-Security delivers highly secure infrastructure protection and compliance solutions via its security-as-a-software platform, including: firewall management and monitoring, vulnerability scanning, intrusion detection and prevention, hosted email, hosted collaboration, email security, message archiving and mobile device management. Perimeter offers its on demand in the cloud, and on customer premises.  About two-thirds of its customers are small and midsize businesses (SMBs).
  • Velocity Technology Solutions provides virtual private cloud managed application and hosting services for its customers’ ERP solutions. It also hosts and manages connected applications, such as analytics and workforce automation; and complementary technical solutions, such as imaging. In addition, Velocity offers remote managed services for customers’ on premises applications, including a full replication service for disaster recovery.  Velocity’s customers range from businesses with about $50M in annual revenues to the Fortune 500.

Despite different technology and market footprints, these MSPs share a similar view of the compelling opportunities to provide cloud services in the midmarket. They are zeroing in to meet  customers’ requirements in several key areas:

1. Offloadinfrastructure management. More midmarket companies want to outsource management of the “IT plumbing” that their businesses require—from infrastructure and telecom to middleware and applications. Demand for IaaS services is spiking as customers seek to move resources from IT to other, more strategic areas of the business. Often, the need for application upgrades trigger a move to an MSP. “Businesses have been there, done that and have little appetite to go through the headaches again”, according to Tom Bruno, President & CEO, Velocity Technology Solutions, “Our opportunity is to take software and turn it into a utility or dial tone for our customers.”But, says Bruno, “the most important thing we can have is our customers’ trust—trust translates into availability. Partnering with IBM gives us the peace of mind that we can deliver.”

Many companies aren’t ready to put all of their applications into the cloud, but still want to offload management. Offering remote managed services for customers’ on-premises applications gives MSPs with another healthy revenue opportunity in the near term.  And, as Bruno puts it, remote managed services also provide these customers with “an on ramp to the cloud.” Bruno envisions that IBM PureSystems will give Velocity even more flexibility to tailor offerings for either an on-premise or private cloud environment.

2. Implement the leading edge technology solutions necessary to grow their businesses. Midmarket businesses increasingly recognize that they need leading edge IT solutions to be competitive. But in most cases, they lack the IT skills and expertise to keep up with these technology changes. According to Craig Gunderson, President & CEO of Oxford Networks, “Our customers know that technology is moving very fast and disrupting the status quo. Moving to the cloud and outsourcing is often the only way that they can maintain a competitive position.” By providing customers with a fully managed data center, PaaS and IaaS solutions, Oxford can “give them far more capabilities than they could have on their own, with fewer limits, and at a lower cost.”

Mobile is a prime example of an area in which SMBs need to innovate, but struggle to keep pace. Perimeter recently rolled out a new mobile security offering that provides best practice guidance and services to help SMBs comply with privacy statutes in world in which “bring your own device” is becoming the norm.

Oxford’s Gunderson and Andrew Jaquith, Chief Technology Officer, Perimeter E-Security, both view new access to IBM’s four new Global Centers of Excellence as key to helping them keep up swiftly evolving market demands. By leveraging IBM’s technical and best practice expertise, they can develop the scalable and reliable new solutions that their clients will require.

3. Provide stronger security, availability and performance levels. Companies know that an IT outage or security breach can seriously compromised or even destroy their businesses. Jaquith asserts that as industries become more regulated, they are increasingly held to higher security standards, similar to what banks have become accustomed to. As a result, “Demand is rising for end-to-end security solutions for messaging—including mailboxes, archiving, encryption, control and reporting, content filtering and more. But the technology needed for this is getting very complicated.”

Jaquith sees IBM as “a technology leader that gets the cloud, and a partner to help us achieve our goal to provide instant-on, scalable and elastic cloud services.” IBM storage and security solutions underpin Perimeter’s current offerings. With IBM’s new MSP initiatives, Jaquith sees opportunities to develop new services built on IBM SmartCloud, which provides enterprise-class cloud computing technologies and services for securely building and using private, public and hybrid clouds.

 The demand for higher availability solutions is also rising. Velocity’s Bruno notes that “Midmarket businesses may have 5 to 20 applications in the back office alone. They want providers to get the formula down for higher availability.” Velocity does this by providing standardized virtualization solutions and a single source of support across applications—from break/fix to functional, “how do I do this” support.

One of the common threads I heard was that midmarket companies are looking for comprehensive services. Although they may want to tap into discrete services in an incremental way, they want them to integrate with each other in a Lego-like fashion. Since few MSPs can provide everything, those I spoke with emphasized the importance of being part of a strong ecosystem. For example, at Oxford Networks, the focus is IaaS and PaaS services. But Gunderson and team work with IBM and its ecosystem partners to also provide SaaS solutions to customers when they are a good fit. Meanwhile, as Velocity’s Bruno explained, “Everything is advancing so fast in the ERP world. There’s a rush of analytics, industry apps, mobile apps, collaboration requirements and more. This creates more complexity in the infrastructure.  We can tap into IBM and its expertise to provide new services more efficiently.”

Clearly, the rapid rate and pace of change in technology—and what it means for business—creates an enormous opportunity. MSPs can leverage economies of scale and skill to provide better-performing and more cost-effective IT solutions than midmarket companies can attain relying only on internal IT resources.

But capitalizing on this opportunity also presents challenges for MSPs, who need to keep ahead of the technology learning curve, improve their marketing skills and programs, and identify and enter new markets. In my next post in this series, I’ll discuss these challenges, and how these three MSPs work with IBM’s MSP program to help address them.

This is the third of a five-part blog series by SMB Group that examines the evolution of midmarket business technology solutions and IBM’s Managed Service Provider Channel programs. In the next post, I’ll look at what MSPs see as their top challenges, and the role IBM plays in helping them to meet them.

IBM’s Managed Service Provider Initiatives for Midmarket: An Interview with Mike McClurg

Here’s an edited transcript of my interview with Mike McClurg, VP of Global Midmarket Sales for IBM. [If you’d like to listen to the recorded podcast, click on the orange circle below].

Laurie: Mike, thanks so much for joining us today. Before we dive into our conversation about IBM’s strategy and programs for managed service providers (MSPs), can you give us a big picture view of IBM’s midmarket strategy?

Mike: Sure. In IBM, we typically classify midmarket accounts as firms with 1000 or fewer employees. Our midmarket initiative is global, and midmarket is one of our fastest growing segments, including growth markets, such as Brazil, Russia, India, China and Eastern Europe. We’re seeing real expansion of the midmarket and SMB client base in those geographies as they build out their infrastructure. We’re also seeing nice growth in traditional major markets.

Our products and services range from servers and storage that SMBs use to build their infrastructure, to business analytics tools such as IBM SPSS software and IBM Cognos software which are very popular to help create smarter approaches to manage data and knowledge. We also provide cloud capabilities and management and administrative services, to name a couple of the services we offer.

Trends show that midmarket customers are moving into some of IBM’s core strength areas—for instance, outsourcing through MSPs, business analytics and big data in the services area. So it’s an exciting time for us with the midmarket business.

Laurie: Can you tell us a bit about your background, Mike?

Mike: I have been with IBM for four years. I came from XIV, a storage company that IBM acquired in 2008. Prior to that, I ran channel and SMB businesses for EMC and Sun Microsystems. I’m fairly new in terms of my IBM tenure, but have long experience with the channel and SMBs.

Laurie: Thanks. So, turning to IBM’s MSP initiative, how do MSPs fit into the picture for IBM?

Mike: We look at it from a customer demand perspective. We see more interest from midmarket customers to leverage outsourced solutions. It is very appealing for them to roll out a new application and leverage standard solutions without expanding their IT organizations or building a lot of infrastructure. MSPs can help them do it quicker and with less upfront investment and risk. So outsourcing and MSPs are key trends.

Laurie: There are so many areas in which technology is evolving so quickly—cloud, and mobile, social, and analytics. Even if SMBs want to do some of this in-house, the pace of change is so rapid that they can’t get new solutions in place quickly enough with only in-house resources.

Mike: That is exactly right. Their IT organizations are working 9 to 6 five days a week, so it’s great to have a business partner that can provide a mission-critical applications such as email with a 24/7 service level. And they can leverage cloud capabilities for security monitoring.

Another benefit is that an MSP sees millions of intrusion detections a day, and can do statistical analysis to understand where the next one is likely to come from. That’s a level of sophistication that a midsized firm probably doesn’t have. But they can leverage that from an MSP partner.

Laurie: So MSPs can provide not only economies of scale, but economies of skill because of experience. But the MSP area can be very blurry, with a lot of definitions and overlap between MSPs and other partners like VARs or solution providers. How does IBM define MSP, and what type provides the best synergy with IBM?

Mike: We look at it from a few different perspectives. First, there is the traditional non-cloud MSP, which is what folks typically think of when they talk about an MSP: They provide network system management outsourced infrastructure management.

But we’re seeing real growth among cloud service providers, who fit into three categories: infrastructure as a service, platform as a service and software as a service. The best way to think of it is how much does that service provider provide as an outsource service to the end-user customer?

  • Infrastructure as a service (IaaS) providers are traditional MSPs that provide servers, storage and management capabilities such as security and backup.
  • Platform as a service (PaaS) providers provide infrastructure plus a development runtime environment.
  • Software as a service (SaaS) providers manage everything, including your application and data, for you.

IBM has programs for each type. IaaS MSPs are great partners for our Tivoli management tools, servers, storage and endpoint management tools for mobile applications. PaaS providers also use solutions such as Cognos, an analytics tool, SPSS and Rational development tools. SaaS providers may work with IBM partners who have built on IBM infrastructure or the IBM SmartCloud Enterprise.

Laurie: Several major IT vendors are courting MSPs. What differentiates IBM?

Mike: When we talk to MSPs, their needs focus on two areas. One is they’re looking for a full offering. Can I buy a platform, management tools, platform development tools and services? IBM has a really strong story to tell up and down the whole continuum of offerings—not only the products, but also the services.

We tune our offerings so that an MSP can plug-in anywhere. If they need a platform, we’ve got that. If they’re developing a vertical service that they’re rolling out and they would like to offer a managed backup or a managed security service as part of that, we have it and it’s available, priced and configured so that they can integrate it into their solution and sell it to their end-user customers. We’ve got a lot of flexible offerings and capabilities to address their needs.

Laurie: It sounds almost like they can get as many of the LEGO pieces as they want.

Mike: That’s the way we like to think of it. You define what your business is, and IBM will plug-in the areas that are not core to you or where you could use some help. If it’s another service that augments the business that you’re in, then that’s the way we’d like to work with you.

The other thing that’s really exciting is that IBM is very focused on how do we build a business relationship with an MSP? What do we do for joint marketing to drive demand for their services? We both have an interest in them being successful because the more they sell, the more they consume the technology we provide to them.

We focus on their people and capabilities, leveraging our background and business partner experience. We’ve done a lot in the last three years to assist with marketing support for our business partners to help them go to market as opposed to us just handing them a lead. We’re much more efficient if we put more money and investment and skills in their hands, supported with marketing investments and some other services that we can provide to them.

Sure, we’re a technology provider, we’ll hit all of your needs there, but we’re really focused on the business relationship and how we provide you the marketing support to drive demand, and how you can leverage the IBM brand and logo in the marketplace.

Laurie: What is the traction like with IBM for MSPs so far?

Mike: Explosive growth. We’ve gone from a couple hundred of MSPs to 1400 globally in just a few months since we’ve focused on bringing our message to them. We’ve kept it kind of a quiet secret; but since we’ve been starting to drive the discussion with partners, it’s starting to expand very rapidly.

Laurie: What are the best opportunities for MSPs in the midmarket to work with IBM on, if you had to pick a couple of sweet spots?

Mike: Most of our business today comes from the IaaS providers—the traditional hosters that are building out infrastructure. In major markets, they’re looking at systems like IBM PureSystems, which is an advanced fully functional platform. In growth markets, they’re saying come in and help us with our data center strategy and how we should build out these data centers.

But the other two areas, PaaS and SaaS, are ones that we’re really seeing explosive growth in. In PaaS, we’ve got partners developing environments based on IBM Rational software and IBM Cognos software, and some SaaS partners are using IBM SmartCloud Enterprise and Cognos tools. All three are great areas, and we’ve got a good story to tell for all of them.

Laurie: Can you give me an example of a specific MSP that’s really taken the bull by the horns and done a great job?

Mike: Yes. I’ll talk about one from Austria, a company called Pitagora. They developed a CFO dashboard around SmartCloud Enterprise in Cognos, which they host in our environment. They had been a traditional IBM Business Partner, so this was a great way for them to add significant value and launch a whole new services arm based on Cognos and their expertise in business analytics.

Laurie: What should an MSP know about the programmatic aspects of working with IBM?

Mike: Where to get information. Go to IBM PartnerWorld – Managed Service Providers, which is part of IBM’s global partner program. We’ve got information about the top offerings, depending on the type of business partner or service provider you are, and what would be the right way to engage with us from an offering perspective and from a business development perspective.

There’s a form you can fill out there, and we’ve got a business development team to understand your business and help you map IBM’s resources to your business. We’ve got folks that are really smart about this business. All they do is work with service providers to understand their needs and how to bring the full force of IBM to help them.

Laurie: How is the business model structured?

Mike: We’ve made it a lot easier to register, and the business development executive we assign will stay on and work with the MSP partner. Our business motto is that the partner will have an assigned person not just for the sign-up phase, but also once we’ve both decided this is the right partnership, getting those first few customers and starting to scale the business.

Laurie: Mike, I just have one more question to ask. What would be the most important takeaway you would want an MSP to have in terms of how they view IBM?

Mike: You know, it’s funny. I think when we have that conversation with MSPs, generally we’re not the first name that they think of in this space. But our team is focused on being an active participant in this marketplace. We’ve been listening, and what we’re hearing is that MSPs need a full set of offerings and somebody that really views this as a partnership and is willing to invest upfront in developing the business jointly.

Our key message to MSPs is that we are very interested in this business and in working with you. We’ve got a lot of very exciting things to offer, and there is a lot of leverage and benefit from being affiliated with IBM—so we would absolutely love to talk to them. The next step would be to take a look at IBM PartnerWorld – Managed Service Providers and get the ball rolling, and we’ll follow back up with them. We’re very committed to this business, and we would love to talk to them.

This is the second of a five-part blog series by SMB Group that examines the evolution of midmarket business technology solutions and IBM’s Managed Service Provider Channel programs. In the next post, we’ll look at the opportunities and challenges from an MSP perspective.

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