Hosting the mid-market in the face of Google expansion

How can resellers compete in the hosted space against the hegemony of Google, Microsoft and the like? Dale Vile explains

The utility-like approach to hosted apps taken by the likes of Microsoft, Google, and Amazon tends to appeal to the two extremes of the market.

Smaller organisations like self-contained application offerings such as Office 365 that purport to remove a lot of traditional complexity and offer access to functionality they would find difficult to implement on-premise.

At the other end of the spectrum, many in the corporate IT world happily set up raw servers on Amazon, then drop their own application stacks onto them.

Meanwhile, the market segment that sits between the large enterprise market and what most people would regard as SMB is largely neglected. These are companies with 500 to 5,000 employees.

They may resemble enterprises in terms of functionality, complexity, performance, resilience, security, and so on, but often have over-stretched IT departments, with limited specialist skills, focused primarily on routine operations and support.

It is important not to over-generalise, but we have done enough research over the years to identify some characteristics of the mid-market that emerge time and time again.

These include the attitude that if it ain't broke, don't fix it, which means mid-market organisations, unlike their corporate cousins, do not invest much in infrastructure to keep up to date and future-proof.

Modernisation and refresh is therefore relatively rare. Most IT investment is associated with discrete projects that explicitly fulfil new or changing business requirements.

Pure IT projects tend to happen only when something is broken, becomes obsolete, or reaches capacity. It is usually reactive rather than proactive.

Enterprise-focused resellers that try to align their activities with the strategies and road maps of key accounts have struggled with this tendency. What's more, mid-market customers often do not have the bandwidth to investigate and pilot the emerging technologies that a lot of corporate sales teams are offered incentives to sell.

At the same time, the implications of IT decisions for complexity, migration, integration and risk keep the sales cycle under pressure – and it is arguably more intense when specialist skills are scarce and there is more emphasis on supplier and solution due diligence.

Unsurprisingly, some may decide the mid-market is more trouble than it is worth.

Over the past few months, however, hosted services providers have told us they are discovering the advantages of targeting the mid-market with the right approach.

This means, in part, acknowledging that IT departments in this sector may not be able to take on new technology areas in-house, such as private cloud or desktop virtualisation, but may have enough knowledge and expertise to understand the potential. They may therefore appreciate propositions that remove barriers to adoption.

The first traditional barrier is upfront capital investment. Hosted, subscription or contract-based offerings can certainly help here.

The second is about whether the customer has the skills to set up the environment, which may be required only for a finite amount of time during the initial migration and integration.

The third barrier to adoption concerns the best way to manage service levels, and support the business with an unfamiliar IT offering and limited resources to acquire experience and build confidence through prototypes and pilots.

Directly addressing the second two barriers is what separates the mid-market-focused providers we have spoken to recently from utility players such as Amazon, Google and Microsoft.

One example is Six Degrees, a relatively new entrant to UK hosting that is already seeing a lot of success by blending the right kind of services with the right kind of mid-market engagement model.

I have been told that this company considers a proper service, rather than an infrastructure rental approach, is required, combined with the right level of investment pre-sales.

Another example is SMB and SaaS-focused Cobweb Solutions. The firm continues to serve the needs of smaller businesses, but has been developing an alternative set of services and consultancy offerings for the mid-market.

Hybrid cloud messaging and collaboration offerings may configure the physical aspects of the Microsoft Exchange stack, for example, as part of the hosting agreement. However, the local IT department can use native Exchange tools – rather than a dumbed-down SaaS console – to manage the email environment as a fully integrated extension of on-premise infrastructure.

All our conversations with successful mid-market service providers reflect the importance of working with, rather than against or around, the customer's own IT team. There must be a strong element of support to back them up, but there must also be time spent to ensure that support and escalation processes are co-ordinated properly, making clear who is responsible for what.

Expectations must also be properly managed.

Going after this segment gets you away from all the utility-type activity in the broader SMB space. More targeted and thoughtful offerings and engagement models are opening some interesting doors for resellers.

Dale Vile is research director at Freeform Dynamics