Microsoft is directing partner attention to an expanding small and medium-sized business (SMB) opportunity across Australia and New Zealand (A/NZ), highlighting a base housing more than 2.7 million customers and a $16.7 billion total addressable market potential.
Such numbers confirm SMB as the largest commercial segment on both sides of the Tasman, an area in which new end-user demands are accelerating in relation to the deployment of digital technologies and utilisation of managed services.
Defined as typically ranging from sole traders to organisations with up to 300 employees, more than 2.2 million SMB customers currently exist in Australia, in addition to over 550,000 in New Zealand.
According to Capitalis findings -- research commissioned by Microsoft and Dicker Data -- local SMB spending on managed service providers (MSPs) and system integrators will grow 12 per cent annually until 2025, with investment specific to digital transformation technology and services hitting $16.7 billion in 2022.
But with millions of customers to engage, and billions of dollars to target, the partner ecosystem is missing the mark in terms of maximising the true potential of the SMB segment.
“There’s opportunity within the SMB space but our partner ecosystem isn’t directly lined up at this moment,” observed Gretta Svendsen, Head of SMB across A/NZ at Microsoft.
Despite acknowledging that a “strong ecosystem” servicing SMB customers already exists for Microsoft, Svendsen stressed that future success will require a shift in partner focus.
“We want partners to skate to where the puck is going, rather than where the puck is right now,” she explained. “This market is growing and is showing no signs of slowing down. We can see where customers are wanting partners to go and where they are wanting to drive their business, our role is to help guide partners along the way.”
According to research findings, two trends are converging to create a “pressing need” for partners in the market -- SMBs are accelerating digital transformation plans and are embracing platform solutions to “do more with less”.
This is motivated by an end-user desire to enhance digital security while growing the business and driving innovative agendas, alongside improving efficiencies and empowering talent.
“The SMB market presents an enormous opportunity for our partner community to grow their businesses while making a positive economic and social impact across A/NZ at a critical time,” noted Vanessa Sorenson, Chief Partner Officer across A/NZ and Managing Director of New Zealand at Microsoft.
“SMBs are looking for partners who get their business and can actually communicate the impact of their decisions in a way that is easy to understand.
“It’s important for partners to not only have technology specialists but great communicators and people from diverse backgrounds who understand customers. That’s the biggest shift we’re seeing in the SMB space.”
For Vlad Mitnovetski -- speaking to ARN and Reseller News as COO of Dicker Data -- partners are the “driving force” behind the digitisation of communities and businesses post-pandemic, creating “boundless opportunities” for growth and impact in the process.
“80 per cent of our business is SMB so this market is very close to our heart,” Mitnovetski added. “But by nature of definition, this is a very difficult segment to service because of the sheer number of businesses. We see a very reactive approach to SMBs and many tier-one vendors gear programs predominantly to enterprise or mid-market segments, which naturally is used to complexity.
“Since COVID-19 however, SMBs have become a lot more demanding and want vendors to push specific programs -- as a distributor we are understanding this level of specialisation and taking a more proactive approach.”
Targeting SMB personas
In assessing the purchasing patterns of SMBs, Svendsen advised partners to understand the different personas operating within the market, an exercise designed to deep-dive into the investment motivations of end-users during the next 12-24 months.
According to research findings, five core personas exist spanning digital-first start-up; established digital-first; increasing digital maturity; low-tech start-up and established low-tech.
“Buying patterns vary depending on digital maturity,” Svendsen said. “SMBs that succeed base technology decisions on the advice and guidance of a partner which is a shift away from just buying licensing. Instead, they are embracing managed services and seeking to leverage IP [intellectual property] created by partners to fit their needs.”
'Digital-first start-ups' have been in business fewer than seven years and are viewed as “innovative and tech-savvy”, with a desire for “high growth and venture capital investment”. Approximately 50,000 such customers exist in A/NZ, with an addressable market in excess of $4.6 billion and key investments centred around analytics, marketing automation and security.
Meanwhile, 'established digital-first' SMBs have been operating for more than seven years and are motivated by a desire to continue “growing and scaling”, as well as acquiring new customers, improving profitability and optimising business processes.
This group of roughly 47,000 customers commands a market potential of $5.3 billion and a product line-up which includes security, customer relationship management (CRM), hybrid work, marketing and analytics offerings.
'Increasing digital maturity' SMBs are often based on a bricks-and-mortar model but are seeking to digitise more operations to increase reach and scale, find new opportunities and improve profit margins. This sub-segment houses approximately 74,000 customers on both sides of the Tasman, spending $4.6 billion on security, hybrid work, inventory management and marketing automation solutions.
“There’s such a big opportunity for partners who are not already servicing this market,” Svendsen added. “Because they might not have a big in-house technology department like our enterprise customers, SMBs want partners to show up and support them.”
At the other end of the scale, the potential intensifies for partners to transition laggards into leaders.
'Low-tech start-ups' are less mature and likely to be entrepreneurs or self-starters with fewer than 20 employees, typically working in areas such as services, consulting and small-scale retail. Despite a smaller addressable market of $700 million -- coupled with a product line-up targeting security, inventory management and analytics -- more than 230,000 customers exist within this space.
Such scale is only eclipsed by the bottom end of the maturity spectrum, in the form of 'established low-tech' SMBs.
Operating for more than seven years with a satisfaction to maintain market position, these laggards want “exceptional value” from IT products and services.
Over 360,000 customers make up this persona, spending approximately $1.5 billion on hybrid work, inventory management, security and marketing automation products.
“Some businesses over time have started to acquire technology and made choices more on a point-by-point basis, aligned to their business needs,” Svendsen explained. “As a result, customers can have technology stacks comprising of 20 vendors and we’re seeing a desire to move to a single platform which houses most of their technology choices.”
Whether cyber security, supporting hybrid work or business application modernisation, Svendsen advised partners to adopt “end-to-end” platform conversations with SMBs to help consolidate offerings while increasing stickiness during the purchasing process.
Can enterprise-grade solutions service SMBs?
While the potential for growth via an expanding sector is clear, the ecosystem has a poor track record in converting enterprise-grade solutions into viable SMB offerings.
“The important play is breaking the complexity of enterprise-grade solutions and making the process simple and easy to consume,” Mitnovetski stated. “We’re hungry for solutions like this and in partnering with Microsoft, continue to focus our efforts on training, enabling and scaling those solutions within the SMB space.
“We know SMB is not an easy market to service and it took a lot of hard work to get the model and motion right at Dicker Data. But we act as an extension of the Microsoft team and continue to grow our understanding of this specialised segment to make it less threatening for partners to pursue.”
Based on extensive experience within the SMB space, Mitnovetski accepted that in general, smaller partners are better geared toward servicing this segment compared to enterprise providers.
“They usually have a better feel and understanding of SMB requirements which can be incredibly unique,” he said. “Enterprise focused partners cannot offer the same closeness and understanding of the business, which is how we add value as a distributor.
“We currently have over 2000 small partners deploying enterprise solutions for SMBs on a daily basis, which is evidence that this market can be incredibly successful. Lots of MSPs are jumping on-board and leveraging our services and experiences, whether technology, finance or even ESG [environmental, social, and governance[ expertise.”
In addition to reducing the barriers to entry for partners via distribution, Sorenson advised that as market conditions change, customer priorities evolve in parallel.
“This part of the market is recognising the need to remain competitive,” she said. “To cut costs and optimise operations, they do actually need their eggs in one basket -- they require a platform to dial up or down based on requirements.
“That process becomes easier at SMB level because most are not hampered by legacy. Gone are the days of that old licensing model in which customers invest but don't maximise the technology -- now they can become more agile and smarter.”
For Sorenson, such an approach is accelerating despite an inflammatory economic environment.
“SMBs don’t want to own 15 different versions of a product, nor do they want a pick and mix style approach,” she added. “They want a partner capable of delivering an end-to-end offering via a platform play.”
According to research findings, 51 per cent of SMBs expect partners to “proactively recommend new solutions”, but up to 40 per cent of SMBs will switch suppliers if satisfaction levels drop.
“SMBs look for simplified versions of enterprise-grade software and can look for solutions that are accessible and out-of-the-box,” Svendsen said. “For example, solutions such as Microsoft Defender offers enterprise-grade security for SMBs because they face the same bad actors and attacks. This is why the unique IP our partners build on top of those solutions is important.”
Sizing up partner potential
In looking forward, Svendsen highlighted the “big pool” of customers seeking partner guidance in the months ahead, outlining that opportunity exists across the entire spectrum of technology providers in A/NZ.
“There’s a lot of fish in here and enough for every partner to be participating, provided they ask themselves some key questions,” she noted. “Am I currently servicing digital businesses? Am I lined up to meet the cyber security opportunity?
“Am I maximising the potential of managed services beyond a pure licensing conversation? Am I innovating on top of the Microsoft platform and creating unique differentiation?”
For existing Microsoft partners already servicing SMB customers, Svendsen recommended skating to where the puck is going. For partners operating in other market segments or new to Microsoft, creating an additional revenue stream is the advised go-to-market strategy.
“It’s time for partners to grab this opportunity to avoid being left behind,” Sorenson cautioned. “The enterprise customer base is saturated and at the top end of town, there’s so many different partners all over the same accounts. But there’s a play in being a great technology partner for SMBs, a market which is loyal and open to digital transformation.”