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SMBs Brace for a Cloudy Future

Attendees at SMB Nation Fall 2010 see peril and opportunity in the rise of cloud computing.

Cindy Bates, Microsoft's vice president of U.S. SMB and Distribution, has a gift for understatement. "The cloud is a little bit of a buzz word," said Bates during her keynote address at this year's SMB Nation Fall conference, held in late October in Las Vegas.

Indeed, cloud computing-related topics dominated the agenda at SMB Nation, a semi-annual gathering of VARs, managed services providers (MSPs) and other partners that focus on small to midsize businesses (SMBs). Many such companies currently earn much of their income deploying and maintaining hardware. Thanks to the cloud, however, that's a doomed business model, according to several conference presenters.

"You guys aren't going to be making a lot of revenue from setup and implementation," said Scott Barlow, vice president of sales and product management at Reflexion Networks Inc., a Woburn, Mass.-based vendor of hosted e-mail services. Karl Palachuk, CEO of KPEnterprises Business Consulting Inc., a Certified Partner and cloud services provider in Sacramento, Calif., was even more emphatic: "Ninety percent of your clients have bought their last server, and they're moving to the cloud with you or without you," he warned his audience.

Predictions like that had conference attendees scrambling for advice on adapting to a fast-changing marketplace. Grant Thompson was one of many speakers with thoughts on that topic. Thompson is a solutions architect at MG Technology Group LLC, a Gold Certified Partner and provider of business solutions and cloud hosting services in Bainbridge Island, Wash. Going forward, he suggested, partners will need to serve less as technicians than as strategic consultants with the know-how to help clients integrate and deploy complete cloud-based solutions targeting industry-specific needs.

Of course, attendees expressed plenty of skepticism toward the cloud as well. Paul Milcheck, an IT consultant at infrastructure planning and implementation services firm CPU Technical Services, of Woodside, Calif., spoke for many conferencegoers when he likened cloud computing to "snake oil" that his clients neither want nor need. And even partners who embrace the cloud don't expect it to displace on-premises infrastructure entirely. "I think it's unrealistic to say customers are going to get rid of everything," said Dave Sobel, CEO of Certified Partner Evolve Technologies, a business IT consultancy in Fairfax, Va. Like many of his peers, Sobel expects most SMBs to deploy hybrid solutions combining cloud and on-site resources.

Microsoft apparently agrees, at least as far as smaller SMBs are concerned. The company used a heavily attended opening day session to tout "Aurora," the code name for the forthcoming hybrid-friendly edition of its Small Business Server product.

"Ninety percent of your clients have bought their last server, and they're moving to the cloud with you or without you."
Karl Palachuk, CEO, KPEnterprises Business Consulting Inc.

More importantly, it's a potential antidote to lagging channel enthusiasm for the Microsoft Small Business Server franchise, according to Harry Brelsford, CEO of SMB Nation Inc., the Bainbridge Island, Wash.-based company that hosts SMB Nation. As recently as a few months ago, Brelsford says, many partners viewed Small Business Server as an aging and irrelevant product.

Microsoft tried to drum up similar excitement among conference attendees for Office 365, a new cloud-based offering scheduled for release in 2011. Unveiled before SMB Nation began, the system joins hosted apps from the Microsoft Business Productivity Online Suite (BPOS) with a new online edition of its flagship Microsoft Office product. Microsoft will share 18 percent of first-year revenues with resellers and 6 percent thereafter. "That's obviously a great way to build an annuity base," said Bates, who added that partners can also make money selling migration, consulting and support services.

That can only be good news for the SMB channel, Brelsford notes. Though business conditions have improved since last fall, most partners are still working hard just to keep growth rates flat. "They're hurting," he says. Any new opportunity is a welcome one -- even if it's as potentially threatening to settled business practices as cloud computing.

About the Author

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