Customer attrition is a normal part of business—no company expects to keep all its customers for a lifetime.
But what many ICT Solution Providers have seen over the past few years goes beyond normal or expected rates of customer churn. As we highlighted in the first installment of Dicker Data’s ‘Meeting of the Minds’ series, many Partners are watching as key customers go to market for new providers—or are lured away by competitors—at higher rates than ever before.
What is driving this trend? And what are your options to create greater stickiness when one of your key customers starts reviewing their ICT Providers? We’ll take a closer look in this article.
Why are Key Customers Going to Market?
A growing body of research—not to mention, plenty of anecdotal evidence—suggests that demand for cloud solutions continues to increase amongst Australian businesses.
Gartner, for instance, reports that end-user spending on public cloud services in Australia is expected to rise 17.6 per cent over last year to a total of $18.7 billion in 2022. Further data from Forrester finds that, “in 2022, 30% of APAC firms with cloud-first strategies will shift to cloud-native.”
In many instances, business users’ expectations for technology are set at home and brought from there into the office. Providers who do not provide the type of agility customers increasingly seek—especially those who only provide basic IT or break/fix services—may see higher rates of churn, lost renewals, and lost tenders compared to those offering more sophisticated solutions that meet modern expectations.
View our video on the Australian IT Provider Market Opportunity in SMB for more information.
Factors Driving Resistance
Despite growing evidence that business consumers are increasingly demanding cloud-centric solutions, many Partners are hesitant to move investments in private cloud infrastructure to public cloud platforms like Azure.
Some Partners view SPLA as a comfortable, less risky option, while others actively decline pursuing customer opportunities on Azure due to the potential for cost creep.
To better understand the factors that are driving this resistance, Jakub Wolinski, Cloud Services Manager at Dicker Data, surveyed SPLA-based MSPs on their evaluations and considerations of an Azure-first business model.
Perhaps unsurprisingly, cost management and profit margin considerations led the list of limiting factors, with customer questions, contractual obligations, and technical support also well-represented in participant responses.
It is important to note, however, that when pressed for more information the majority of participants demonstrated that they believed that Microsoft Azure “is always less profitable for SPLA Partners”. Additionally, many respondents who listed costs as their major consideration, we found, had last reviewed the platform 3-5 years ago.
Although the mechanisms involved in building economies of scale and reducing operating costs are different with Microsoft Azure, changes to Microsoft’s technical solutioning mean that it is now possible to create profitable business models that work on Azure.
The key to Partner success is not looking at Azure as a ‘like-for-like’ comparison, but rather, creating a new business model in parallel with existing offerings.
Essentially, the decision to move to Azure isn’t a ‘lift and shift’ conversation. For many Partners, making the decision to initiate a data centre migration will require an all-in business model change to see the true benefits of economy of scale and profitability they’re currently accustomed to.
Make Hay While the Sun Shines
While a business model overhaul may seem daunting, on paper, our survey also uncovered the fact that Partners with non-cloud customers in a managed service arrangements were more frequently pursued by vendors to “resell Azure Subscriptions (69%) versus looking at building a profitability-based business for migrating entire private cloud (25%)”. Clearly, this highlights that one of the major blockers to moving to cloud lies in the challenge of proving a sustainable business model.
Through Dicker Data’s Microsoft team, Partners have the opportunity to review their managed service business as a whole, as well as receive support in launching new profitable cloud offerings.
Taking this proactive approach might sound tedious. However, doing so will safeguard against scenarios where key customers (i.e. those that cover your infrastructure) begin reviewing their providers or worse losing them as a customer. Utilising vendor funding and programs allows you to prepare now for migrations to Azure that make commercial sense 1-3 years in the future.
Watch our short video on how you can access customer funding and programs from Dicker Data & Microsoft.
Positioned for the Win
Remember that 17.6% rise Gartner mentioned? As you know, many of your clients have KPIs to improve their business in the areas of customer experience, digital transformation, and growth. Incumbent Providers that aren’t offering solutions that support these goals may be especially vulnerable to the loss of key customers.
One way to think about ensuring your position—either by winning on your current offerings or through new, competitive solutions—is to focus on what you already know works. Tap into your sales team for feedback—especially in regional areas and states such as Queensland, Western Australia, and South Australia, where established relationships carry weight.
For example, you already know that your customers don’t care where their data is hosted—just that it can be accessed anytime, from anywhere, in a secure and cost-effective manner. Extending that line of thinking all the way through to deploying new cloud solutions could keep your business from being cut out of the conversation when your existing customers evaluate their IT requirements and decide to go to market.
Choosing Your Lane
As we look ahead, news of consolidation in Australia’s ICT industry might seem challenging. Yes, many businesses are considering hyperscalers’ offerings as a part of the conversation, often due to their greater degree of visibility. But there is still a role to play for local Partners—especially those who understand the specific needs of their communities and can build one-to-one relationships in a way that the major hyperscalers can’t.
As Australian businesses' security requirements expand due to pending legislation and government policies, Partners with private or hybrid cloud environments may increasingly be called on to support customers’ security requirements. As this demand grows, Partners will need to assess their existing security posture and determine whether or not the costs to provide a secure environment are worth it—or if there are options within public cloud that could help reduce their risk and liability.
This is where we encourage partners to consider the shared responsibility model on public cloud, which takes some of the liabilities away reducing your direct risk.
As you consider what the future looks like for your on-premises managed services, SPLA-based business model, or hardware-focussed practice, ask yourself:
What is your exit strategy for moving away from the costly hardware refresh cycle?
My daily conversations with Partners highlight, it’s still taking a precipitating event—such as a hard drive failing or a customer not being able to operate—to motivate Partners to make a change. The events are different for every single Partner, but it is the Partners that are taking the time now to seriously evaluate how they're going to operate in the future that are really coming into their own in this new landscape.
You're Not Alone!
Business model reviews and customer migrations are serious undertakings, but you don’t have to do them alone. The team at Dicker Data supports Partners in achieving their full potential through empowering them to offer industry-leading public cloud services.
"Leveraging Dicker Data’s pre-sales team was a gem,” explains Geoff Smith, a former MSP owner and current Microsoft Solutions Development Specialist at Dicker Data. “It’s something that’s really needed for Partners that have a smaller base of loyal clients to add that added value to the relationship when Azure deals pop up".