Why the mid-market should matter to the channel
- 16 January, 2018 12:40
Historically, big-name technology vendors have drawn heavily on the enterprise end of the market for much of their revenue, but this is changing as product and service delivery models transform, with the mid-market opening up as the next big buyer of top-tier tech.
This is according to Technology Business Research (TBR) senior strategy consultant and principal analyst, Geoff Woollacott, who has laid out the growing symbiotic relationship between big IT vendors and mid-market businesses in a special report released this month.
The mid-market segment is typically made up of businesses that sit in the range between small businesses and large companies, and is usually comprised of organisations that might have somewhere between 50 and 1000 employees.
While the mid-market appears poised to become the next market battleground for vendors, Woollacott warns that midmarket businesses have traditionally had a habit of viewing large technology vendors as too expensive or too technically complex to tap into easily.
This dynamic may have traditionally led to a more sluggish uptake of new technology among mid-market firms than is usually seen at the large enterprise end of the market, according to Woollacott.
Yet the ongoing compression of the technical innovation cycles driving the broader IT market’s development could ultimately see mid-market firms forced to move quickly on new technology in their efforts to protect their turf as larger enterprises begin to become more agile thanks to technology that lowers overheads and automates processes, such as supply chain optimisation.
“In short, mid-market nimbleness will come to larger enterprises, thereby challenging midmarket companies,” Woollacott said. “Therefore, mid-market firms have to embrace technology as fast as, if not faster than, their large competitive set.”
At the same time, Woollacott points out the vast and sweeping changes to end clients’ IT buying habits have changed with the emergence and ultimate domination of cloud-based as-a-service offerings in the tech landscape.
“Today, any company of any size can avail itself of the latest technological advancements brought to market by technology vendors at far more attractive price points delivered “as-a-Service,” he noted.
With the rise of subscription-based services, technology that would once have come with an initial capital outlay that only large enterprises could have managed now has a much lower barrier to entry for smaller organisations.
This dynamic sees smaller players begin to represent a much larger piece of the market pie for large vendors. This is good news for technology vendors that historically were able to maintain profitable businesses by focusing largely on servicing large enterprises with labour-heavy projects.
With the rise of as-a-service offerings and the drop-off the labour contingent, those historical profit pools have eroded, leaving large vendors to find ways of streamlining selling and customer set-up expenses to maintain profit margins.
“With compute costs declining, the vendors likewise must reach smaller and smaller businesses to offset declining engagement fees by ‘making it up on volume,’ which some call the ‘virtuous cycle of the ecosystem platform effect,’” Woollacott said.
The combined dynamic of more easily accessible technology services and an increasingly rapid innovation cycle has created the perfect storm for large vendors and mid-market clients to come together.
The valuable role of the reseller
This is where channel players step in, particularly smaller, boutique players, if Woollacott’s suggestion that “large services arms can sometimes lack the delivery models necessary to provide labour‐based orientation at reasonable price points” is anything to go by.
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“Large technology firms have the repeatable frameworks and the industry domain knowledge to more tightly align technology to requisite, transformative outcomes the mid-market needs,” Woollacott said. “The mid-market needs the technology, yet few midmarket enterprises will possess the necessary people skills.
“Both large vendors and the mid-market need a new business model similar to that of the midmarket enterprise for this transformation engagement.
“For example, very small boutique firms boast a mix of process knowledge experts across the entire operational stack of the mid-market industry domain, along with technology experts in application software configuration tools. Large vendor repeatable frameworks become the ‘white label’ reseller opportunity to simplify the technical challenges and accelerate adoption,” he said.
According to the analyst, the upfront engagement on a mid-market IT project can become a reasonable revenue opportunity for emerging boutique services firms.
At the same time, participation in the subscription revenue stream by handling user training and simple support calls provides the recurring revenue stream to create a body of boutique systems integrators built around the same monetisation models as the software-as-a-service (SaaS) vendors they partner with.
For Woollacott, smaller value-added resellers are nothing short of essential to the combined goals of both vendors and mid-market customers.
“Large enterprise technology vendors and the underserved mid-market need this intermediate value-added business service to develop quickly — for both of their sakes,” he said.
Reinforcing his argument for the importance of channel players, Woollacott notes that consumer‐oriented firms targeting the mid-market are increasingly giving away advisory services to set up the longer‐term subscription.
“This suggests competitive advantage for smaller technology firms able to sell SaaS applications to the mid-market with low‐cost or free technical support to establish the midmarket POC test,” he said.
“Larger services and application vendors that have shifted to cloud delivery models, meanwhile, such as Oracle and SAP, will have to rethink their overall go‐to‐market strategy in terms of what they deliver as free sales support versus fee‐based advisory services at the front of engagements while also considering the subscription fee structures.”
Woollacott goes on to warn that if vendors turn parts of the advisory services previously conceived as a revenue opportunity into a cost of sales function, subscription fees will need to stabilise or increase slightly to recoup the sales expense within the long tail of the recurring revenue stream.
“Messaging will have to shift, monetisation strategies will have to shift, and the nature of the partner business models will have to shift,” he said.