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SMB Nation: Where Did All the Cloud Supporters Go?

Enthusiasm for cloud computing was (surprisingly) weak among attendees of this year's SMB Nation Fall conference.

Microsoft is famously "all in" on cloud computing. Is the same true of its partners in the small and midsize business (SMB) market? So far as attendees of the ninth annual SMB Nation Fall conference are concerned, maybe not so much.

Held Sept. 30 to Oct. 2 in Las Vegas, SMB Nation caters to the thousands of mostly smaller IT providers who serve companies with a few to a few dozen employees. While last year's show was packed with sessions about building a cloud service practice, this year's agenda leaned more heavily toward technical content about conventional, on-premises infrastructure solutions. That change stemmed from a poll of potential conferencegoers indicating tepid interest in cloud-related topics, according to Harry Brelsford, founder and chairman of SMB Nation Inc., the Bainbridge Island, Wash.-based company that hosts SMB Nation.

"Less than half our guys are excited about cloud," Brelsford says. "It's a huge cultural divide."

That's a far cry from the unabashed cloud boosterism voiced by Microsoft speakers like Maggie Chan Jones, director, Cloud Services and Office 365 in the Microsoft U.S. Marketing and Operations Group. Launched in June, Office 365 is the latest iteration of the Microsoft online collaboration and productivity suite. According to Jones during a keynote delivered the evening before the conference's official opening, demand for the new product is running strong. "The momentum has just been great," she said.

Doug Fraser, a guest speaker who joined Jones on stage, backed that assertion. Fraser is U.S. Microsoft alliance director and west region sales director for CloudStrategies LLC, a cloud solution provider in Cedar Knolls, N.J. Office 365 is easy to deploy and upgrade, he noted, and its recurring pay-as-you-go fee structure turns software from a capital expense into an operational one. "That part really appeals to customers," Fraser said.

For the moment, however, most SMB Nation attendees are still making up their minds about Office 365. Sessions concerning the solution drew large and attentive crowds, but few in those audiences were actively evaluating the product.

At least one partner who's selling Office 365, meanwhile, is having trouble overcoming his clients' security concerns. "When it comes to productivity tools, they still want to have the data in their own hands," says James Wright, an IT consultant from Jackson, Miss.

Enthusiasm was stronger among conferencegoers for Windows Small Business Server (SBS) 2011 Essentials, which combines on-site backup and file-sharing components with cloud-hosted e-mail and collaboration solutions. Based on a show of hands at multiple sessions, most SMB Nation attendees have successfully deployed that product, available since March, at least once. Adoption would probably be even stronger, presenter Jeff Middleton stated, if more SMBs were open to replacing their ancient implementations of SBS 2003. "Damn thing sticks like it's glued to the floor," said Middleton, who operates SBSmigration.com, a Web site offering advice and tools for performing SBS upgrades.

A similar dynamic helps explain weak initial demand among SMBs for devices running Windows Phone, according to Ed Roberts, president and CEO of Lethos Information Technologies, an IT consulting firm with offices across the western U.S. During a session about developing Windows Phone apps, Roberts noted that many potential buyers are trapped in mobile agreements that preclude them from switching handsets. "Even Microsoft employees have to wait until their contract is up to take advantage of the free Microsoft phone," he said.

For his part, Brelsford is more concerned these days about a longer-term issue: the greying of the SMB channel. "You go to some of the events and it's older guys," he says. "Our people are aging, retiring, even dying."

As a result, recruiting the next generation of SMB partners through outreach efforts at technical academies and other places where young techies gather is among his top priorities for the coming year. In addition to infusing conferences like SMB Nation with fresh blood, Brelsford observes, perhaps those newcomers will also prove a little more willing to embrace the cloud than their aging forebears.

About the Author

Rich Freeman is a Seattle, Wash.-based freelance writer specializing in business and technology.

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Reader Comments

Mon, Jan 23, 2012 Michael

SMB IT people are not going to embrace the cloud because there is no money to be made long term. I have seen first hand how big companies can decide they are no longer paying commissions, and your customers and commisions are gone in an instant. You really think I am going to trust cloud companies for commissions until I die? Customers don't trust the cloud, because they don't know where their data is, or if it is even being backed up. They also will not like the speed reduction compared to an on-premises server. They complain already sometimes even when the server is right in their office. Finally, cloud systems have problems, too, and who are you going to call? Cloud is way oversold.

Thu, Nov 17, 2011 Kevin Fream Tulsa, OK

So the bottom line is this: You must have 5-10 THOUSAND users before cloud becomes a viable recurring revenue business. The only way to make money on cloud is true business consulting. Infrastructure partners will be decimated in coming years.

Wed, Nov 2, 2011 Tim Wessels United States

I've worked in both the reseller channel and as an independent IT consultant since 1985. I got into IT when Novell and Local Area Networks got rolling. Cloud computing is the largest tectonic shift in the IT landscape I've seen since LANs. It is all about the "consumerization" of IT and IT delivered as a service. There is no doubt that the adoption of cloud computing services is disruptive to traditional IT and those who sell into traditional IT shops. A long term declining economy with little to no economic growth is forcing businesses of all sizes to evaluate how they obtain and consume information services. Startups are going to the cloud from the get-go because they have better uses for their capital than buying $5K servers and $10K in non-refundable software licenses and hiring someone to install, maintain and upgrade their premises hardware and software. This is all going away because it is unsustainable. Businesses are waking up to the understanding that they don't need to be in the IT technology business chained to software and hardware upgrade treadmills. Over the next 5 to 10 years IT as we know it will become unrecognizable as cloud computing becomes more pervasive. Microsoft has seen the writing on the wall and is investing $6B building out six cloud computing data centers. Resistance is futile. The SMB market will be assimilated in the cloud. Time to re-tool or retire.

Tue, Oct 25, 2011 Paul Szemplinski

Part 2: AR is a common means of financing for a SMB IT provider. Good luck going to the bank and selling them on why your line of credit should continue at X when AR is trending in a negative slope - at least for some period of time until your new annuity stream builds up. You understand that, but your banker, eh - another story. SMB providers have made reasonable margins over the years on annual software assurance contracts. Maintenance dollars are typically used to pay internal support people, equipment, software, etc. to manage a client base. It is a touchy subject with ownership to contemplate replacing annual maintenance dollars with monthly annuity's. On top of all this, you have an economy working against these SMB IT providers and their respective customers. Disrupting an already fragile environment by taking on what might be viewed as unnecessary risk is something the SMB market does not want to take in lieu of conducting "business as usual." All that said, these issues while seemingly insurmountable are actually all *short term* in nature that can be overcome when a business and financial plan are carefully crafted, The ROI and TCO are compelling for the buyer. The issues of security, up time and availability, etc. are only going to continually get better over time. There is a tremendous amount of money and the biggest of the big IT organizations behind the Cloud effort, IMO, the Cloud is here to stay, the economics of the business model speak for itself. The SMB market will eventually come around when the SMB IT community finds some semblance of economic stability (severely lacking at the moment) and taking a reasonable risk isn't discouraged among SMB IT providers and from their respective customers.

Tue, Oct 25, 2011 Paul Szemplinski

There are a number of factors playing out in the market that may coincide with the premise of this article and explain a few things. Having worked with a number of established resellers around the country, the introduction of Cloud offerings within their business/financial/sales models are probably being deemed "disruptive" and, on a variety of levels throughout the organization. Further disruption in an already fragile economic climate is something many business owners simply do not have an appetite for at the moment. Can you blame them? Just to name a handful of the challenges they will face: 1) Cash Flow 2) Financing Receivables 3) Commission Plans 4) Top line revenue growth 5) Annual Maintenance Contracts What business owner would be elated to jump in with both feet into the Cloud knowing that everyone of those above points - in the short term - will most likely be adversely affected when they embrace a Cloud strategy? Cloud transactions are a fraction of the size of an on-premise deal (in the first year) and subsequently so are the margin dollars, but not necessarily the percentages, especially over time. Short term vs. long term thinking. Hmm, take down a 100k on-premise deal or $3k a month (example only). If you don't address compensation plans, your sales reps will never sell it. Perhaps, it is time to look at the IT industry in a different light - like that of the insurance business and annuity streams that continually build up over the years. Completely different mind set, financial and business model - although arguably in the long term, a better organization and better valuation in the marketplace. How many 3k a month deals does a SMB IT provider need to have in their pipeline in order to satisfy the overhead it has built up over the many years its been in business? Organizational structure top down will need to be carefully examined. Continued...

Mon, Oct 24, 2011 Jim Sonoma County CA, USA

I wish I could have more faith in an ISP but let's face it. cables get cut, routers fail, routing tables get pooched. I have a lot more faith that my servers are going to be up and running 24x7 than the scores devices and of hops that it takes to get to a hosted provider. The recent issues with Blackberry are a very good example and didn't MS also have a hosted email outage recently?

Fri, Oct 21, 2011 Rich

Why is the cloud being forced on us? Even though many SMBs and MSPs would rather have on-premise the cloud is still being pushed. The hybrid approach is good but for the most part the cloud can't be trusted.

Fri, Oct 21, 2011 Greg Green Bay

Why would I want to give up my data to some data center in an unknown location with unknown security and delivered by an Internet with less than 100% reliability. "Cloud computing": just the latest way for vendors to try and pry our money away from us. In another couple of years the hue and cry will be for another "miracle" solution that we all must have and that will save the world.

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