Microsoft Tells Channel To Embrace Hosted Services

A new global SMB study from Microsoft shows that IT is definitely a business enabler, helping to drive higher revenues, and that the hosted services segment is growing much more rapidly than the classic channel model.
"If they're a [classic VAR] not thinking about hosted solutions, that's something they should be doing," says Elliot Curtis, Microsoft's director of US Hosting Partner Channel. "We see that in our business across the U.S., that hosting is growing much more rapidly than the classic parts of the business."

All the evidence supports this, says Curtis, including Microsoft's new global SMB IT and Hosted IT Index 2010, which examined how SMBs fared during the recession and how they use technology. "We see technology is clearly an enabler for business growth in the SMB space."

That's true for both SMBs that are purchasing in the traditional model and perhaps even more so in alternative models such as hosted services, he says.

Between November 2009 and January 2010 researchers questioned 3,193 small and midsize businesses (up to 500 employees) across 15 countries: Australia, China, France, Germany, India, Japan, the Netherlands, Norway, Poland, Singapore, South Africa, South Korea, Spain, the U.K. and the U.S. Despite the recession, more SMBs (52 percent) reported an increase in revenue than in 2008 (39 percent).

There was a huge increase in the number of SMBs viewing IT as critical to their business, shooting up 20 percent to 55 percent from two years ago. Even more significant, of this group, 60 percent saw revenues grow over the last 12 months, while SMBs viewing IT as not important, less than 29 percent saw revenue increase.

The news gets even better for hosted -- or cloud-based -- computing. More than 40 percent of the respondents that use hosted or cloud technology reported revenue rises of 30 percent or more compared with 90 percent of respondents not using hosted technology that saw decreases in revenue. The most-cited benefits were reduced cost and IT management and maintenance, as well as increased business value, productivity and competitiveness.

Microsoft also found that the awareness of hosted services jumped strongly over the last two years, with 65 percent using hosted software to some extent, while 73 percent of the remainder have considered it, compared with only 44 percent in the 2008 Index. The concept of
"renting" IT as a service is gaining favor, with 36 percent of respondents saying a pay-as-you-go model would be attractive.

Several months ago AMI-Partners reported that North American SMBs not only want managed services, but that they want them now. According to their quarterly surveys, annual spending on remote managed IT services  is expected to increase 3.3 times in the next five years, representing a compounded annual growth rate of 28 percent.

"The biggest surprise is that we've been seeing increasing interest in managed services from SMBs for some years, but the level of increase is quite high in the last year," said Anil Miglani, SVP of IT Infrastructure and Managed Services at AMI. He attributed the strong growth to economic conditions and the need for SMBs to reduce costs, and to better manage IT, which are in line with Microsoft's new data.

Curtis says that both studies show significant increases in both the consideration and adoption of hosted services. "From my experience, we're certainly seeing significant adoption in the U.S." He attributes part of that growth to the large number of suppliers. "There's a lot of choice for businesses in the U.S. and we're seeing a lot of them adopt these technologies."

It's clear to him Curtis that the channel should be thinking hard about how they move up the value chain in terms of their delivery of business services. "An IT provider has to be delivering a much more value-laden service than simply reselling hardware or a solution."

The second major takeaway from the study is that classic VARs need to begin looking at either a partnering strategy or get into the hosting business themselves, he adds.