The Doyle Report: Channel Foot-Dragging Impedes SMB Adoption of Cloud Services

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SMBs want cloud services. To help streamline their operations. To help enter adjacent markets. And to create new revenue streams.

But SMBs face a litany of challenges when it comes to implementing cloud services, not the least of which is a lack of channel participation in the burgeoning market, according to AppDirect, which has commissioned a new study on SMB adoption of cloud services.

AppDirect, the San Francisco-based developer of an ecommerce platform that helps ISVs sell cloud-based apps as a service, teamed with Regina Corso Consulting in late 2016 to produce the new “SMB Cloud Service Adoption Report,” which debuted publicly today. (For the purposes of this study, small businesses were defined as organizations with 250 employees
or less.)

Among the key findings of the study:

Where SMBs source their cloud services is, perhaps, even more interesting. While nearly half buy their SaaS solutions primarily from vendors directly, AppDirect’s study reveals some dissatisfaction with this mode of consumption. “Even though most SMBs buy their software from individual vendors, most also say that dealing with different vendors is a pain,” concluded the report. “In fact, 67 percent of SMBs say that having to go to multiple vendors for services is ‘a waste of their time.’”

The report goes on to say that many SMBs feel “overwhelmed” by the sheer number of choices facing them. Not surprisingly, 73 percent of SMBs say “they need help understanding all of the options,” according to the report.

While this creates significant opportunity for third-party companies including telecom providers and local IT consultancies, there are more SMBs in need of cloud services support than there are channel companies ideally positioned to help them. This mismatch is effectively limiting the growth of the market, says AppDirect co-founder and co-CEO Daniel Saks.

“SaaS is being limited by a lack of channel participation,” says Saks, who adds that many channel companies are perfectly positioned to help SMBs offload the burden of services selection, implementation, support and billing.

“Channels need to choose whether they want to be relevant in the cloud or not,” says Saks. The ones that don’t, he adds, will continue to have plenty of traditional opportunities until they inevitably run out. But those that develop sustainable, targeted and differentiated value propositions around the cloud will prosper long afterwards.

Channel companies used to be defined by the type of market in which they worked. “So you were an MSP, a hoster, a VAR, a telco or cableco, etc.,” says Saks. “In the future, I think everyone will be a cloud services provider, but their difference will be defined by the value they bring to their vertical or regional market. So expect to see companies go to market as a cloud services provider for doctors in Arkansas, or a cloud services provider for hairdressers in California, etc.”

Saks fully expects robust channels for selling cloud services to develop. But they will include a mix of traditional channel companies, new cloud services brokers and professional consultants who provide vertical market or business function expertise to customers. The latter are often called “specialized” partners because they work outside of the traditional information and communications technology (ICT) industry in fields as diverse as real estate, accounting or advertising. Despite this, they nonetheless influence the consumption of web services by others.

“The future of the VAR is going to be a cloud services provider that sells to a specific segment. Take that cloud services provider selling to doctors in Arkansas. This company will provide vertical applications bundled with the horizontal applications that are relevant in that geography. We’ve seen the mass channel be effective at getting a business to use email, communications and security. That’s how you get to the average of 2-3 cloud services used by SMBs today. But the future of cloud and the driver to get that number up to 20-30 apps per business is [an organization] that can sell multiple vertical apps tied to multiple horizontal apps that are customized for a business,” says Saks.