SaaS, ISPs Have an Edge Over Rivals in Expanding SMB Footprint

A question that we try to answer through the LSA’s Modern Commerce Monitor small business survey is the degree to which SMBs trust legacy channels to bring them into the world of cloud technology.

Our view going into the research was that media channels like Yellow Pages publishers and digital agencies would have a tough time crossing into the lanes of SMB SaaS companies. Yet the SaaS companies would have an easier time encroaching on the territory of media publishers and agencies.

Our thinking was that Square would have more success expanding into marketing-related services, for example, than a Yellow Pages publisher would have in rolling out a point of sale solution.

The reason we ask this question is pretty foundational to why we are doing this research. We want to know which market segments that touch small businesses (media, SaaS, telecom, banking, professional services, etc.) have the best opportunities to win enough trust and loyalty among SMBs to become a single (or at least primary) source for most or all of what an SMB needs to run its business in the cloud (and via their smartphones).

There were a few reasons why we believed tech-first companies, SaaS platforms in particular, would have an edge.

First, SaaS companies generally have higher NPS scores from SMBs than do media channels. We assumed that better customer experience would be a good foundation for expanding from a single to a multiple-solution relationship with SMBs.

Second, we assumed that companies rooted in software and cloud technology would simply be more likely to get the benefit of the doubt for expanding technology or software related relationships from small businesses than those coming from a non-technology or software heritage.

Our MCM findings have largely backed up our hypothesis.

We organize running a small business into three components: front-office (customer acquisition, engagement), middle-office (operations, fulfillment), and back-office (financial) solutions.

While most SMBs still work with multiple providers for all three areas, they overwhelmingly express a desire to work with a single source for most or all of these functions.

Our data consistently shows that small businesses have a going-in bias in favor of tech-related solutions when they think about entrusting more business functions to a single provider. Our latest wave of research gives a strong nod to SaaS companies and ISPs, with considerably less faith entrusted in media or agency channels, as this chart shows. The research was conducted in April this year, with a sample of 1,015 U.S. SMBs.

We are seeing more and more companies that had been focused on building media reseller channels adapt their strategies based on the changing market realities reflected in the MCM research.

One example is SMB SaaS platform provider Vendasta.

We chatted with CEO Brendan King after the company’s recent CAD40 million venture round, and we touched on the shift Vendasta has been going through from working mostly with media and agency resellers to pursuing more relationships with SaaS platforms, telecoms, VARs, MSPs and other tech-oriented channels.

As a result, Vendasta has adopted the term “cloud broker” to describe the role its channel partners need to evolve into. Here is a short clip from that interview.

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