Microsoft’s insights: how AI adoption can give SMBs an edge over larger companies

Paul Jevons:

Hello, and welcome to this Analysys Mason podcast series dedicated to the topic of artificial intelligence. My name is Paul Jevons and I'm a Director at Analysys Mason. During the series of podcasts, I'll be joined by business leaders from across the TMT landscape to hear their thoughts and gather their insights on AI, and we'll be exploring what it means to them, their organization and the industry.

Today I'm delighted to be joined by Aileen Hannah, SMB Voice of the Customer Director at Microsoft. Aileen focuses on looking at SMB customer trends to better understand how to help small businesses take advantage of digital and AI technologies that will help them meet their business goals. And we're also joined by Stela Bokun, who is a Partner at Analysys Mason. Stela and her team focus on the delivery of strategy and advisory projects to clients such as telecom vendors, regulators and technology companies such as hyperscalers and integrators. Welcome to you both and welcome to the podcast.

The rising relevance of AI for SMBs

Stela Bokun:

Thank you, Paul. Aileen, welcome to Analysys Mason podcast series. It's really great to have you with us today. You and I worked on numerous small and medium business-related projects in the past, and most of those projects involved us looking at how SMBs adopt new technologies and what these technologies mean for their businesses. While AI has been a topic of discussion for a long time now, the interest in AI has skyrocketed in the last year or so. So what is the relevance of the recent advances in AI for SMBs? How will these advances shape the SMB market going forward?

Aileen Hannah:

Great. Well, thank you very much for having me. First of all, I'm delighted to be here and be part of this podcast series. So let me take that question in two phases. So first, what is the relevance of the recent advances for SMBs in terms of AI? What we're seeing is for businesses of all sizes, AI offers the opportunity to unlock unprecedented productivity across teams and also to drive automation. What we're seeing in smaller businesses and SMBs specifically is that adoption of AI can really level the playing field, or even give smaller businesses an edge against larger companies. So for example, they can use generative AI to create new content like business plans or marketing campaigns, and things that might have taken them hours or days and may actually have needed resources that they didn't have, now can take seconds or minutes and can be done with people already on staff using generative AI. So that's a huge boost and really essentially makes AI a partner in their organisation instead of having to either hire new people or outsource something that may have been either beyond their skillset or beyond their budget.

Now, because SMBs can be more nimble in their adoption of AI, they can also see quicker results, and I think that might be where they'll get the edge, certainly in the near term. And from our research, we're seeing companies who have adopted AI are experiencing both top- and bottom-line benefits and the average return that they're seeing for every dollar they spend, and apologies, I'm going to speak in US dollars, but convert to the currency of your choice. But for every dollar spent, they're seeing about USD8 of return, and the ROI is very quick, so they're seeing time to value in under 6 months. So again, Stela you know because you've been around the industry for a long time, sometimes these projects can take several months, possibly years to really see that value. So anything under 6 months really becomes a quick win.

We're seeing that companies who have adopted AI are experiencing both top- and bottom-line benefits and the average return that they're seeing for every dollar spent is about USD8. – Aileen Hannah

Some examples in our early access programme that we had for Copilot for SMBs, we found that SMBs were saving considerable amount of time in their day. Summarising documents, again, would usually take hours to review and synthesise. Now it's taking minutes. Or even something as simple as summarising notes from a team meeting. So not having to take notes, annotate them, transcribe them and send them on. Then others found it useful when creating documents to use Copilot for a first draft that they could then build from as a draft versus starting with a blank sheet of paper. A study that we did back in 2003 showed that on average all of these types of productivity gains were equating to about 600 hours of saved time per year, which is massive.

Stela Bokun:

No, absolutely. Very, very impressive figures there. You mentioned several kind of areas where they are looking to adopt AI technology within. So you mentioned they're looking to use it for automation, but what about the areas within the business? So is it operations, marketing, sales, finance and related to that, the use cases that you see SMBs being the most interested in? So you mentioned some of them in your previous answer, but I'm interested in whether you have further insight.

Challenges and barriers to AI adoption

Aileen Hannah:

Yeah. What we're seeing by some margin is that the top use case at the moment is sales and marketing and generation of content, followed by customer engagement. Those are mainly in a bring your own AI scenario, and I'll talk about that in a second because it's worth noting because it's an interesting trend. If you look at it from the BDM angle so a business decision maker going, "Hey, how can I use AI for my company?" As opposed to an individual contributor saying, "How can it make me more productive?" Then we're starting to see the automation of processes, things like chatbots and customer relationship management. That's where we're seeing the focus. One thing I do want to call out, I think this is fascinating. We've known for years that digital maturity is correlated to faster growth, more resilience and AI certainly has the ability to accelerate that for companies that adopt it early.

But what's fascinating is that a lot of the SMB adoption is being driven by employees, not by the business top-down. Actually, from the business top-down, we're finding that SMBs are lagging slightly. So enterprise companies, 71% of them are already using AI compared with 52% of smaller businesses, but the adoption within the employee base is 60% in SMB. We're kind of equating it to the bring your own device movement that we saw with phones and tablets entering the workplace. This is bring your own AI, and that drives a trend that's also quite interesting, which is the proliferation of applications. So what we're finding is that employees will look for an app to help them do the one thing that they're trying to do versus looking at a platform that can cover all the AI needs. And I think over time we will see that shift as companies really start to look at, "Hey, how do we consolidate?" Because managing 15 apps is going to be much harder than having a platform that can go across the needs of the business.

Stela Bokun:

Great. Great. Thank you for that. Yeah, absolutely. Some of our research also showed that companies that are early adopters of technology typically have leaders who are early adopters of technology in their own personal lives. So I'm not surprised with some of these findings that you shared with us. Do you see any difference between what's happening in small businesses versus medium-sized businesses?

Aileen Hannah:

Yes, absolutely. From what we are seeing right now, size doesn't seem to be a major differentiator. What we're seeing more of is an industry skew for the moment. So for example, we have one customer in the manufacturing space and a common use case that they told us that is across their industry is writing proposals. And what we found is talking to larger, even though they're kind of a medium-sized business, as you were saying around about that in the 50 to maybe 100 space, larger manufacturing companies of, we have one with 28 000 seats, similar challenges.

So we're finding that the use cases tend to be more industry-specific than size-related. Healthcare we're seeing patient management in the retail and hospitality sector. We're seeing staff rota and shift scheduling as a common scenario. And then as I mentioned, we are definitely seeing that proliferation of apps that maybe one app may be more suited to a smaller business than a larger business. But again, we're tending to see that they're more about those either horizontal or vertical applications as opposed to size-related. Yeah. So that's just what we're seeing right now, but it could change.

Trust and compliance in AI

Stela Bokun:

Yeah, absolutely. It makes sense. Shifting gears towards challenges or barriers to adoption. So we've seen from our previous research that SMBs often face many challenges as they look to adopt new technologies. What are some of the key challenges or barriers to adoption of AI for SMBs? Is it that they're lacking skills? Is it the cost of AI-enabled solutions or ethical implications of AI? There could be many, right?

Aileen Hannah:

Yes. Great. And you hit the biggest one right off the bat. It's skills, and again, not an SMB challenge. We're seeing that across the board or not uniquely an SMB challenge, I should say. So one of the considerations that businesses will have to make is, well, how do they garner those skills? Do they employ people or do they look for partners, et cetera? One consideration for SMB owners and decision makers will be how to embrace their team's excitement and adoption but making sure it's done compliantly and securely. Because I think one of the... and you were also alluding to this, there's kind of ethical concerns, but there are actually also compliance, regulatory and security concerns. And we do see the word trust coming up a lot in our sentiment research that we do around AI. And so businesses and individuals want to be able to trust that AI is functioning as a benefit to their organisation or to themselves personally.

What are the key challenges or barriers to adoption of AI? – Stela Bokun

Its skills. – Aileen Hannah

So I do think that you will see more thought and consideration being given to that. Another challenge is actually data. So a lot of the promise of how AI will drive the benefits for a business is being able to access that business's data to build content, generative AI content from their dataset. It has to be clean data. So an easy win is something like Copilot for Microsoft 365 for business, because if you're already using that and using Microsoft 365, your data is already there and in context for your use cases.

But if you are planning to build line of business applications, then you maybe have to think about where is your data currently sitting? Is it in a good clean state? But I would say that definitely skills, compliance, trust, data, those are some of the things out there. And just related to the skills, one actually is around prompt engineering because what we are finding is, not surprisingly, in early use cases, people are like, "This sounds great, let me have a go." And the way that they're using generative AI or they're writing their prompts is pretty much like they would write in a search engine versus writing a true prompt for generative AI. So the results that they're getting are maybe not what they were hoping for in that initial instance. So that skilling also comes into, "Hey, how do I write a good prompt so that I get the best out of the potential of AI?"

Stela Bokun:

Absolutely makes sense. I think some of these barriers that you talked about, they are very relevant to some larger enterprises too, not only to SMBs. So as you mentioned, maybe the size of the organisation is not a defining factor here, particularly the issue with poor data quality, lacking data strategy and AI strategy overall can be a big barrier. Did you find that the adoption of some of the use cases is more challenging for SMBs than others?

Aileen Hannah:

The one thing I would say, obviously with SMBs, that skills challenge can be a bigger barrier for them because the more complex the use case, the more specialist the skillset they need. So they, just like larger businesses, might look for easier places to get started rather than maybe going for the more complex use cases. So what we're seeing is not a challenge in adopting, but probably going for the lowest hanging fruit around. I already mentioned this, the marketing, social media, that's been one of the first go-to areas for many SMBs. We are definitely seeing customer service automation. So I'd say those are probably the two big ones that we're seeing straight out the gate. There are ROI wins for customers as they do that. So just a couple of examples to add some colour. We had a study that looked at that marketing and social media area, and what we found was that SMBs using generative AI for their marketing and social media were reporting a 35% higher engagement by using generative AI to create more relevant social media content. So that's fantastic.

And then on that service automation side, a couple of examples. We had one dental office, or rather a company that had 10 dental offices. They had a challenge with no-show patients that was costing them about 20 000 to 70 000 annually depending on the year. And it turns out the root cause was customers found it hard to update appointments. So by incorporating AI into their CRM system, they were able to make it easier for customers to make changes and it reduced the number of no-shows by 20%. So you can imagine that 20% of 70 000 annually, that's a pretty big chunk if you're a small or medium-sized business. So I think that we will definitely find more data around the challenges as this matures, but right now everyone's going for, "Hey, where's the quickest win? Where's the easiest?" So we're seeing the good stuff come out very quickly, which is great, and that's exactly what we want to see.

Stela Bokun:

Great. Makes sense. And very, very attractive kind of low hanging fruits there, some of these examples that you mentioned. So what resources does Microsoft have to help SMBs navigate the challenges to get as quickly as possible to the benefits of AI? Some of these that you commented on earlier.

Aileen Hannah:

So I think that there is a couple of things with this. Obviously within the products themselves that we are bringing to market. The introduction of Copilot for Microsoft 365 for business earlier this year means that now our SMB customers have the same capabilities as enterprises to be using those generative AI functionalities within the products. So all those things I just mentioned around enhancing customer service, boosting personal productivity, whizzing through manual tasks in minutes versus hours, improving marketing efficiency, jump-starting content creation, I could go on. Those things are now all within the product should an SMB want to add Copilot onto their existing Microsoft 365 for business. But in terms of other assets and resources that we have that would help them in skilling et cetera, Microsoft's very proud of its partner ecosystem. So we have an amazing network of partners globally who are able to help SMBs build a strategy, create line of business custom apps if that's what they want to do, or provide training on how to use the technologies are there.

So I really can't emphasise enough how valuable our partners are going to be in this space. And that's true whether or not we're just talking about leveraging technologies like Copilot or actually building those line of business apps. So we've got Copilot studio and Azure Open AI. Again, going back to that skills challenge, it may be that an SMB feels like they don't want to bring those skills in-house, so those partners would definitely be a fantastic resource.

Then in terms of resources that we have from a Microsoft angle, one of the things we heard loud and clear from customers was when we talk about a digital maturity journey or an AI readiness perspective, they may not know where they are on that journey or how ready they are. So we took that feedback to heart and created a tool called the AI Compass, which actually uses generative AI to give customers a personalised report based on their industry, the size of their business, their current digital maturity and what they want to focus on in their business for the next 12 months.

Now that's a free resource and it takes about 5–10 minutes to complete, and then a company will get that personalised report that they can use either for internal strategy development or, as I mentioned, going to a partner and having them help implement with the next practical steps that the report would give them.

We're also doing other things really to put our money where our mouth is. You may be familiar with something called the customer copyright protection, and that's something that Microsoft has created or that we're offering. And what it means that is that as long as the customer uses the guardrails and the content filters that we have built into our Microsoft products, if a third party sues them for copyright infringement for using a Copilot service or the output that they generate from that, we, Microsoft, will defend the customer and pay the amount of any adverse judgments or settlements that could result in a lawsuit. So I think that's a pretty powerful statement saying, "Hey, we've got your back." And then finally, if a customer is really just looking to get started and they want some inspiration, we've got some amazing white papers and guides available to help develop AI responsibly. So coming back to that trust piece again, and a great place to find information is we have a Microsoft Small Business resource centre. So if a customer just searches that, they'll find white papers, inspirational articles, et cetera, to really help them navigate and get started.

Stela Bokun:

Thanks, Aileen. A lot of resources indeed. I echo your point about the partners. A lot of our research actually supports that point. So SMBs expect a lot from their technology partners these days. MSPs, value-added resellers, telcos, SIs, they expect not only kind of technical support, but they expect strategic support and they expect that the partners help them to close some of that skill gap that you mentioned, and I'm sure that Microsoft's partners are well positioned to do that. So for the very end, I would like to ask you, what would be your one key message for all your customers and partners regarding the importance of AI for SMBs in general?

Aileen Hannah:

We're seeing projections that generative AI is going to add nearly USD10 trillion to the global GDP over the next 10 years. So therefore, I would say it's essential to start looking now at ways that SMBs can start adopting that technology now, or they'll find themselves behind the competitive curve very, very quickly. And to echo your earlier point, partners have a key role to play here. So whether it's services, skills or off-the-shelf apps, that could be a quick way to get started. But I suppose my one key message is to pick a use case aligned to your top business priority as an SMB and just get started now.

Pick a use case aligned to your top business priority as an SMB and just get started now. – Aileen Hannah

Stela Bokun:

Great. Thank you very much, Aileen. It has been a pleasure talking to you about this very important topic. And thank you all for listening to this podcast. Paul, back to you.

Paul Jevons:

Thanks, Aileen. Thanks, Stela. And Aileen, really interesting points covered in terms of the particular relevance to the SMB customers. And I do like the opportunity that it presents to perhaps behave and respond like a much larger company, but at the same time be able to potentially realise some of those benefits a lot faster than a bigger company can. So thank you for that. So yeah, that brings us to the end of today's discussion. Thank you to my guests, Aileen and Stela. Don't forget, if you wish to automatically receive future episodes, please subscribe to the Analysys Mason Podcast. Thank you very much for listening.