Selling servers to SMBs is a ‘dying business,’ says Parallels

By Gabey Goh September 25, 2013

One-third of Asian SMBs with in-house servers plan to replace existing IT assets with IaaS
‘The server you sell today will be the last you sell to an SMB,’ says Parallels CEO

Selling servers to SMBs is a ‘dying business,’ says Parallels IF you are building servers and selling them to small and medium businesses (SMBs) as end-users, you’re essentially in a dying business.

That was the observation made by Parallels chief executive officer Birger Steen (pic) during his keynote presentation at World Hosting Day Asia, which is taking place at Marina Bay Sands Convention Centre, Singapore.

The hosting and cloud services enablement and cross-platform solutions provider was the diamond sponsor for the event, which saw over 500 key decision makers across Asia Pacific participating in the two-day conference which kicked off on Sept 24.

In his speech, Steen said that one reason why this was a dying business was the on-going global shift for SMBs toward cloud-based services and the outsourcing of IT infrastructure requirements to third party providers.

Citing Parallels’ latest Asia Pacific SMB Cloud Insights report, he said that one-third of Asian SMBs with in-house servers plan to replace their existing IT assets with Infrastructure-as-a-Service (IaaS) offerings, with the IaaS market growing 32% in the last year in the Asia Pacific region alone.

“About US$2.5 billion will come from SMBs adding their first server as IaaS. The server you sell today will be the last you sell to an SMB, because once the hardware’s lifecycle is up, they will go buy what they need from an external provider,” he added.

Out of the total estimated US$10.9 billion market opportunity for Asia Pacific SMB cloud services, IaaS contributes US$3.7 billion, according to the Parallels report.

Web presence and web applications contribute US$2.3 billion; hosted communication and collaboration (composed of hosted premium email and hosted private branch exchange or PBX) adds US$937 million; and business applications accounts for the remaining US$3.8 million.

Steen said that the rate of acceleration in the adoption of SMB cloud services is expected to ramp up over the next three to five years, and it was imperative for providers from all ends of the spectrum, from hosting providers to telco operators, to ensure that their offerings fit the demands of an extremely diverse and dynamic market to maximise business opportunities.

“It is important to have a keen understanding of the IT purchase motivations of the SMB segment as it directly translated to how you present and sell to customers.

“For example, very few SMBs have the in-house IT expertise and prefer to buy bundled packages which include the website, alongside other business-side services,” he said.

In addition, Parallels’ research indicates that over 70% of SMBs first try an online application for free before buying it. In Asia, 39% of SMBs on average will buy the app after the trial period expires, while 17% purchase the app in order to access more product features.

Steen said that SMB customers prefer to buy what they need the first time, which is especially relevant to micro-enterprises with up to nine employees.

After the first sale however, providers have a one-in-four shot at going back to their small to mid-sized enterprise customers to sell upgrades and expanded packages.

“So it becomes critical that providers explain the case very well for the inclusion of value-added services such as search engine optimisation, security and back-up capabilities, upfront,” he added.

Maximising cloud opportunities

In his keynote, Steen outlined four critical factors providers must look into to maximise their cloud services opportunities and find success.

The first is to have relevant offerings for SMBs, and the onus is on providers to build the right services catalogue that would appeal to a diverse range of needs.

“You need to package, promote and sell cloud services the way you sell any other offering. It needs to be complete and have trade-up options. An online cloud store-front does not sell by itself,” he said.

The second factor that providers must consider is their ability to promote and drive compelling upsell bundles.

Steen said that providers should explore opportunities to bundle free sversion of products with core services as limited use terms are likely to offer better upgrade results.

The third factor centres on the ability to sell and drive integrated sales motions. Offline concerns include the readiness and knowledge of a provider’s network of resellers and partners to present solutions in a compelling fashion, with online component support in the form of shopping cart readiness, online content availability and data-driven insights into customer needs.

“The sales and support part for traditional hosters would be second nature to them, but for providers entering the space from adjacent industries, this is where the devil’s in the details.

“I’ve never seen anybody get it right the first time – typically you would have too much resources locked up in different sales motions. making the shift challenging,” said Steen.

With regards to online readiness, he said that providers need to be “obsessive” about the more mechanical and back-end components, and he advised providers to establish in-house teams of experts in cloud selling, which would translate into more meaningful training for new talent.

The final and quite possibly the most significant factor is the ability to activate and retain customers, as this has a direct impact on bottom-line and growth prospects.

“Your activation rate is the most important success factor. You can sell lots of premium emails and add-ons, but if you don't check in one or two months down the road to verify use, you can be very sure that the customer is going to drop off over time due to lack of use,” Steen said.

He added that it is important to have a structured internal process for on-boarding new customers to urge them use what they paid for, and provide support.

“It is not easy but with careful product management, careful category management, and clarity into who needs what from your customer base and when, it can be done,” Steen said.