RIP to an SMB hero

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This article appeared in the September issue of CRN magazine.

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RIP to an SMB hero

The new financial year began with a shock for many Microsoft resellers. A gaping hole in the 2012 lineup of Windows Servers confirmed what many had suspected – Microsoft Windows Small Business Server was dead. 

After limited success enticing partners to sell cloud services, Microsoft was giving them a firm shove by eliminating one of the hero products for SMBs around the world.

Small Business Server, best known by its acronym SBS, was a cheap and simple way for smaller businesses to access Microsoft server technology. It was a dependable workhorse for handling email and centralised file storage and, most importantly for the channel, it was the key to a healthy services revenue.

The work that goes into installing, upgrading and maintaining SBS generates hourly fees and managed services contracts that keep many resellers in the black. Mark O’Shea, Microsoft’s point man in Australia for SBS until February this year, says opinions have been divided within the channel community.

Resellers already selling Office 365 weren’t caught offguard by the announcement, but those who were heavily invested in the SBS world have understandably been more vocal about the server’s passing. Partners with business models that revolve around SBS must move quickly to reinvent themselves, O’Shea says.

“As we enter a world where SBS is not going to be an option there are things Microsoft partners need to think about. First of all, what will the replacement technology be and what kind of timeframe will they need to implement that?”

One of the common complaints about accessing cloud services is the high cost of reliable internet connections. But available bandwidth and other issues are not going to remain for long, O’Shea says. Some partners disagree.

“So what is available for small businesses with unreliable, laggy, low-performance internet connections like satellite or 3G (which are the only services available)? Sometimes all I have available is 500kbps for 8-10 users. Surely the cloud isn’t the best solution for this customer,” commented Nat Wallis on a story on website BoxFreeIT.

“Unfortunately for 95 percent of my customers NBN will not be available (in the form of FTTN at least). I agree rationalisation is appropriate and we all do it in business, “I just disagree with Microsoft (whose attitude) seems to be ‘the cloud is the solution to all your problems’”.

The protest

A group of Australian resellers is writing a letter to Microsoft CEO Steve Ballmer asking Microsoft to consider the impact of its decision to kill off Small Business Server.

“We are concerned that Microsoft are not looking at the 5-year picture that SMBs need to look at. They are really wiping out their support in the lower space in favour of a cloud-only approach,” says Wayne Small, director of Correct Solutions and founder of, a technical website about Small Business Server. “We don’t think the cloud is always the right solution.”

The resellers have put together a spreadsheet which shows SMBs could spend much more to own a Microsoft server under the new licensing regime. Windows Server Essentials 2012 is designed to work out of the box with a maximum of 25 users; all Microsoft licences are included in the price.

However, if a business moves to 26 staff, it is forced to buy 26 user licences (CALs) to give access to that additional employee. The CALs are priced at Microsoft’s standard enterprise rate – the discounted SMB price disappeared with SBS.

“That 26th user comes at a high cost,” Small says. 

It is still possible for SMBs to run their email themselves but it will cost a lot more. Windows Essentials lets you run on-premise Exchange Server on a second server. However, the SMB will have to buy an extra copy of Windows Server, Exchange Server and Windows and Exchange CALs.

“By killing SBS they’ve also killed the pricing discounts they used to give small businesses so they could have higher quality products. Small businesses pay the same price (for Windows servers) as a 200-user site,” Small says. “Microsoft are doing what’s right for their shareholders, not for their consumers.”

The cloud approach could also be more expensive.

A server set up with an average configuration, plus an average annual maintenance contract, owned over five years could cost less than the equivalent number of licences on Office 365, Small says. SMBs hold onto their servers for up to 5 years, longer than mid-market and enterprise, he says.

“I would love Microsoft to seriously consider the costs of small business and provide a more competitively priced on-premise solution as they have done for the past 15 years."

Search for new revenue

The implications of losing Small Business Server are dire for some sections of the channel. It is unlikely all resellers will have the business nous or the energy to shift their businesses from server maintenance contracts to cloud consulting services. 

The commissions on Office 365 are tiny compared to the margins on an hourly service rate. Office 365’s small business P1 plan pays just 50¢ per user per month in the second year onwards. But resellers contacted by Cloud Channel were confident they could become even more profitable under Office 365, despite the loss of server revenue.

“Our fees are set on the number of devices customers have. Although servers will reduce the number of devices clients have is increasing. I think it’s pretty much going to stay strong and continue to grow,” Mark Giles of Phrixus Technologies says.

Phrixus’ four technicians manage 700 endpoints (servers, laptops, desktops and mobile devices) between them. Giles hopes to raise the ratio to 300 devices per technician through better automation. And Office 365 will also reduce costs and raise margins, Giles says.

“I think Office 365 will help because once it’s set up it is quite nice and easy (to maintain). There are less disasters than with clients’ servers.” 

Small agreed that business would improve overall due to the shift to the cloud.

The loss of Small Business Server “does have some impact on the overall margins, yes. But if anything I see revenues may go down but profitability may go up because we do more consulting and we don’t have to potentially build the servers,” Small says. 

“There’s a unique selling proposition of integrating cloud and on-premise solutions. We see a very bright, rosy future over the next five years because the thing we focus on is providing business solutions to our customers.”

Search for alternatives 

Microsoft’s decision to announce availability for Small Business Server until the end of 2013 gives resellers a short timeframe to migrate customers from older versions of SBS to the standard or premium upgrade paths. 

Several resellers have said they were moving to non-Microsoft products such as the Kerio suite. One commenter suggested on BoxFreeIT running Kerio Connect for email and Kerio Workplace for collaboration on a Server 2008 R2 (or Server 2012 Standard once it is released).

“Kerio in the last two years have been making themselves very well known in the SMB space,” Phrixus’ Giles told CRN. “They have a good reputation already and they work well with the channel. So they are a good solution.” 

Phrixus’ client base includes 70 Small Business Servers, up to 20 of which are refreshed each year, Giles says. He is trying to upgrade them “before Microsoft pulls the plug”.

“We’re not against cloud computing – we are migrating some to the cloud – but we hate that they’re forcing you down the path. Clients want the choice,” Giles says. “I think it’s a bad decision by Microsoft to assume that everyone wants to go cloud.”

When asked for comment on the death of Small Business Server, Microsoft’s only response was to point Cloud Channel to a company blog post on how to add more than 25 customers to Windows Server Essentials 2012.

O’Shea, while proud of his efforts at selling Small Business Server in the Australian market, has put it behind him. He now works for Microsoft reseller Paradyne which only sells Office 365.

Copyright © CRN Australia. All rights reserved.

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