In-Depth

Microsoft's SMB Partners Say Goodbye to Small Business Server

Time runs out on new sales of the venerable Windows Small Business Server this month. Having had plenty of warning, the SMB partner community is already moving on.

When the clock strikes midnight on Dec. 31, 2013, one of the best partner businesses in the history of the Microsoft channel goes away. Microsoft partners will no longer be able to buy new copies of Windows Small Business Server (SBS) and deploy them for their customers.

SBS has been a mainstay of the partner community for more than a decade. It's a self-contained combination of file server, e-mail server and other server components that powered the back-end of small businesses. It helped launch and support thousands of partner businesses for more than the last decade.

"Other than Microsoft Office, I think Small Business Server is the greatest product Microsoft has ever come up with," says Karl Palachuk, a blogger, trainer and SBS expert. "People literally built their entire business on Small Business Server. If you started your [IT consulting] business in 2000 and you started selling SBS, you bought Harry Brelsford's book and you said, 'Wow, I can do that.'"

This doesn't come as a surprise to the partner community. Rumors circulated even before Microsoft announced in July 2012 that the current version, Windows Small Business Server 2011, would be the last. At the time, Microsoft conveyed that SBS 2011 wouldn't be available for sale after June 30, 2013. Since then, it's been available only from original equipment manufacturers (OEMs) like Hewlett-Packard Co., who could ship the OS with a new server. Even that limited sourcing ends on Dec. 31.

"Other than Microsoft Office, I think Small Business Server is the greatest product Microsoft has ever come up with."

Karl Palachuk, Blogger, Trainer and SBS expert.

Partner Reaction
Harry Brelsford built a following on the foundation of SBS with books like his 875-page tome, Small Business Server 2000 Best Practices, and his regular SMB Nation conferences. He has been doing his part to steer the community toward newer technologies like the cloud.

He's been frustrated by the refusal of some SBS-focused partners to face up to the product's sales deadline."I'm concerned about our partner community with its deer-in-the-headlights, what-do-I-do-now fixation," Brelsford says. "I don't feel our people are moving on fast enough."

Others think that the partner community is taking the necessary steps. Amy Babinchak, president of Harbor Computer Services in Royal Oak, Mich., organized a recent training event for SMB partners in Irvine, Calif. "I think you can find a few sticks in the mud, but we had 150 attendees," Babinchak confirms. "They were traditional SBS folks, and we talked about the future of IT in that session. My sense is that at least everybody that was there was moving along, and they were being proactive about it and doing things in a smart business way to keep things afloat."

Palachuk acknowledges that partners were angry in the summer of 2012 when Microsoft broke the news about SBS' coming demise. Palachuk himself wrote on his blog that Microsoft was making a mistake. "The reaction to the announcement was justified from the perspective of the people who built their business on SBS. The concern was that business was going to go away. Those people just needed to have the perspective that they're in the technology business, not in the Small Business Server business," he says now. "The interesting thing is that after such hullabaloo when the announcement was first made, it has turned into not quite a non-event, but pretty close to a non-event."

What Technology's Next?
Some partners have used the deadline itself to drive new business. "We've always been firm believers in using the latest version of the software," says Babinchak. "When SBS 2011 came out, we were already talking to our customers that had 4-year-old servers that it was time to upgrade. But then when the notification came, we went to all of them and said, 'We think we should upgrade now.' They did, and that's sort of translated to a pretty good year for us."

In the post-SBS era, Microsoft is primarily encouraging partners to guide customers down one of two paths. Microsoft's preferred path is for small-business customers to adopt Office 365 and move to monthly payments in perpetuity. That deal brings full versions of Office 2013 along with hosted Exchange, SharePoint and options to use Lync, along with other cloud components.

At the SMB Nation Fall conference, Microsoft presenters pitched partners on that approach. SMB partners who sell Office 365 can bill customers for migration projects and claim recurring revenues from Microsoft for the customers' monthly payments.

Microsoft also launched an edition of Windows Server to replace SBS called Windows Server 2012 Essentials. That was recently updated with an R2 edition. Unlike SBS, the Essentials server doesn't include Exchange, which many partners say was the most important component of SBS. Instead, partners would use the server in a hybrid scenario and hook customers up to a hosted Exchange service or deploy Exchange on a separate server with an additional licensing cost for the customer.

Steve Banks of Banks Consulting Northwest Inc. and a Microsoft Small Business Server MVP has been doing some Office 365 deployments for customers comfortable with the cloud. He's also experimenting with a broad range of Microsoft technologies to fill out the stack for customers who want on-premises solutions.

"Small Business Server 2011 is a great product. It has simple installation. You deploy it, you know it's deployed, and you're not having to fight with certificates on your Exchange Server and internal versus external users. It's hard to get away from that," Banks says. Now partners who want to do on-premises solutions for customers must master a number of different technologies. Banks uses Windows Server 2012 Essentials, Hyper-V virtual machines, Exchange Server, Terminal Services and Windows MultiPoint Server. "You've got to get your game up," he says.

For partners serving customers in industries with compliance issues or running critical vertical applications that require an on-premises server, that game must include virtualization and familiarity with a host of Microsoft server products, he says.

In Michigan, Harbor Computer Services' Babinchak isn't using the Windows Server 2012 Essentials products. Instead, she's seeing customers take one of two main routes post-SBS. "We're definitely seeing a little bit of a split where our larger customers are not as comfortable with the monthly recurring cost as our smaller customers. We're getting quite a lot of pushback on cloud from larger clients with 75-80 employees, where [they don't want] to add a monthly cost to their bottom line," she says.

Much of that reluctance comes from the nature of the industries in which many of Harbor's customers are involved -- primarily manufacturing and engineering companies that are subject to business cycles and are very protective of their cash flow. The conversation about recurring costs comes up for most companies with more than about 20 employees, although many of the 20- to 35-employee customers eventually opt for a cloud solution, she says.

Like Banks, Babinchak is satisfied that Microsoft still has the range of options her customers need. "Though SBS was definitely our bread and butter for many, many years, I still think we have all the options available that our clients want and need," she says.

Palachuk falls into a class of partners for whom the switch from SBS means Microsoft ends up with less of the total sale. "It's not like it's a punitive thing," Palachuk explains. "If SBS is no longer an option, many of the things that make sense are no longer owned by Microsoft."

His company's cloud offering to customers uses Hosted Exchange through Rackspace. "Our storage is through Rackspace. When I look at all the products that we sell through that bundle, Microsoft gets a piece of Exchange but they don't get a piece of anything else that we're selling as a replacement for SBS," Palachuk says. For customers who want some local storage, Palachuk is keeping the payment model the same. Those customers rent a very small server backed up via hosted storage.

One thing Palachuk hasn't seen among his SMB partner peers is any type of move to Linux-based alternatives. There was a fair amount of talk among SBS partners a year ago about considering Linux when SBS went away. "These projects to do a wholesale replacement of everything in SBS with Linux have really gone absolutely nowhere," Palachuk says. "Part of it is there really isn't a need to have all of those things in one box anymore. When the Internet was iffy and speeds were slow and the world was just a different place, having it all under your control in-house in one box made a lot of sense. Ten years later, everyone has access to fast Internet and everyone can get cloud backup. Clients are able to see that other people are doing this."

For his part, Brelsford is also seeing very little movement away from Microsoft. "People are going to fall in step with Microsoft. It's like being a McDonald's franchise holder and being a little frustrated with the new menu. At the end of the day, you're not going to give up your McDonald's franchise," Brelsford says. "I think the breakage to Apple and Google and open source will be single-digit, at best."

Meanwhile, Palachuk notes one technical upside of a post-SBS world. "It's become a lot easier for us to make those migrations. Moving SBS, where you had everything in one box, to another SBS, where everything's in one box; that's a pretty complicated job," he says. "When you're moving Exchange to this server, Active Directory to that server and Terminal Services to another server? That's an easier move and then you throw SBS away. The migration off SBS is a lot easier than migrating SBS to SBS."

Customer Reaction
One of the things both customers and partners liked about SBS was cost. The server bundle was a good deal for a solution that bundled Exchange. However, partners are reporting very little pushback from customers about the cost of current solutions versus the old ones. "Most small-business owners don't remember what they paid for their server back in 2003 or 2008," Banks says. "It's the partners who have that history in our mind and think, 'Man, the cost really jumped up.'"

That said, when comparing an old SBS installation to a new on-premises installation with multiple Windows Server licenses, virtual machines and separate Exchange licenses, Banks says "the complexity and cost of that compared to SBS 2011 is just through the roof."

With customers who are price-sensitive, Banks puts the ball in their court. He had one customer with an old Dell server running SBS that was becoming unreliable. Banks gave him two prices. "Here's your cost for Google Apps, Dropbox and your storage requirements for what you currently have. Here's a microserver with full warranties and RAID that will be paid in 2.5-3 years. He stuck with the on-premises server."

Harbor's Babinchak has had similar experiences with customers' reaction to the pricing change. While there's some hesitation about committing to monthly payments versus taking the more familiar project approach, the overall bill either way hasn't been a big deal. "Nobody's really had a heart attack over the pricing change. I don't think it's been as traumatic for them as a lot of people seem to think it might be for their clients," she says.

"People are going to fall in step with Microsoft. I think the breakage to Apple and Google and open source will be single-digit, at best."

Harry Brelsford, CEO, SMB Nation.

Moving On
Once the deadline for selling new SBS 2011 licenses hits at the end of this month, little will change for the time being. New implementations will require new technological approaches. But partners will carry on with maintenance work on old SBS implementations as if nothing has changed. The components of SBS 2008 will continue to be supported for several more years, and the components of SBS 2011 are good for even longer.

Partners expect to turn to other opportunities in the near term. For Brelsford, the big opportunity for small-business partners in 2014 is Windows XP migrations. On April 8, 2014, Microsoft ends support for the 12-year-old OS. For Babinchak, the next big set of projects for 2014 is helping small-business customers manage the bring-your-own-device trend by building more robust and secure company networks.

When the industry focus does return to small-business infrastructure, Brelsford says, "My hope and desire is that in the next year or two there will be broad acceptance of Office 365."

At that time, Babinchak says SMB partners will need to adjust their business models, although she thinks tweaks rather than full transformations may be sufficient. "I expect that we'll be seeing less revenue from migrations in the future than we have in the past. I think we'll see less revenue from server maintenance and monitoring," she says. "That ultimately means we have to replace that revenue with new things. We'll have to change our focus to recurring revenue and also acquiring more customers."

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