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Tuesday, 11 October 2016

Can Cloud Providers Crack the SMB Market?

According to the US Census Bureau, 99.7% of all businesses in America are small businesses – those with fewer than 500 employees. In 2010, there were 27.9 million small businesses vs. 18,500 larger firms.

The SMB space, while having strong market potential, can present some challenges for organizations accustomed to selling into large enterprises.

Small businesses have different requirements and buying behaviors than their larger counterparts, making SMBs difficult to pursue for providers accustomed to chasing the enterprise market.

It’s a worthwhile endeavor, though, because there are a lot of small businesses out there that should be taking advantage of colocation or the cloud.

SMBs can leverage cloud and colocation services just as large enterprises do, but they need to learn how to target those small businesses as service providers.

SMB Fun Facts

There are a few things to understand about the SMB space before deciding to target it.

The first item to consider is churn. Half of all small businesses fail within the first five years, and only about 30% manage to make it to the 10-year mark.

The other is vulnerability. These businesses are also much more susceptible to economic downturns. This was confirmed by more closures and fewer startups emerging between 2008 and 2012 than in the previous decade.

While these figures may seem obvious, it’s important for service providers to understand that the SMB space is a volume game, and customer attrition is part of the deal.

What Services Do SMBs Need?

On the upside, the products that SMBs gravitate to are generally higher-margin services, such as private clouds, managed hosting and other managed services.

This can be the biggest difference between enterprises and SMBs; enterprises are willing to turn over part of the IT stack, but SMBs often prefer service providers to take over the entire IT stack. Most SMBs have understaffed IT teams, making offloading the IT burden very attractive.

When considering what services to offer SMBs, it’s important to allow for migration. This includes physically moving equipment to a datacenter, doing physical-to-virtual migration to a cloud environment, or migrating applications from one platform to another or to a SaaS model.

Colocation vs. Cloud

Many providers claim that SMBs are skipping colocation and going straight to the cloud.

However, 451 Research studies show that this isn't so black and white. In the ‘S’ portion  of the SMB market (<249 employees), companies are more likely to have some sort of cloud-based service (IaaS, SaaS, PaaS or hosted private cloud) than colocation services, but only by a margin of about 19 percentage points (49% to 30%).

In the ‘M’ segment of the SMB market (250-999 employees), the numbers are about even between cloud and colocation services (38.2% to 38.9%, respectively).

What Works and What Doesn’t

For SMBs, it isn’t necessarily about driving down operational costs (though that is important); it’s also about business enablement.

Office 365 is a classic example of this. The cost and hassle of managing a full messaging and collaboration suite for a SMB 10 years ago made it completely out of the question. Today, however, SMBs can enjoy the same technology and features that large enterprises use.

The same is true for services, such as disaster recovery or even backups. Years ago, SMBs rarely had disaster-recovery plans.

Today, many service providers offer disaster-recovery-as-a-service (DRaaS) with options for complete DR design, implementation and testing.

One example of this is Peak 10, which recently announced a tiered DRaaS product with lower-cost options to attract SMBs, as well as options to allow larger organizations to set different priorities on different workloads.

Of course, price matters. Flexibility and functionality are important, but if the price isn’t low enough, it’s a non-starter for SMBs.

Most of the security services that providers have added recently are an example of this phenomenon. Many providers report that it’s a real struggle to make their offerings affordable to SMBs because many SMBs see security as a 'nice to have' feature rather than the 'must have' feature that it is.


SMBs can be difficult to pursue for service providers accustomed to chasing large enterprises. However, it’s a worthwhile endeavor because there are a lot of small businesses that should be taking advantage of cloud and/or colocation services.

Small businesses have different needs and generally behave differently than their larger compatriots. But SMBs can leverage both colocation and the cloud just as large enterprises do, as long as providers are ready to lend a hand to get them there.
source: 451 Alliance

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