Executive Summary...1

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2 Table of Contents Executive Summary Key Findings in the Cloud...3 Key Audiences for Service Providers to Target...3 Hosted Infrastructure...4 Web Presence...6 Hosted Communication and Collaboration...9 Hosted Business Hosted PBX Other Online Applications Conclusion... 13

3 Executive Summary Cloud computing has given small and medium businesses (SMBs) access to computing power, applications, and services that were formerly available only to large enterprises. Looking at the Australian SMB market in 2011, Parallels sees a developed market that still has strong opportunity for growth in all areas of Cloud services. In early 2011, Parallels surveyed 400 SMBs in Australia representing a broad cross-section of industries and sizes to learn about their current use of Cloud services, attitudes towards Cloud services, and future plans. Based both on the insights gained from these interviews and on our deep knowledge of the Cloud services market, Parallels has created a comprehensive view of the current SMB market in Australia for those Cloud services that are most useful to SMBs hosted infrastructure, Web presence, hosted communication and collaboration, and other online applications. This paper is a summary of that research, aimed at giving service providers practical insights into how to succeed in the Australian SMB Cloud services market. Parallels estimates the Australian SMB Cloud services market for hosted infrastructure, Web presence, and hosted communication and collaboration at $480M AUD in 2011, as noted in Figure 1. Of this spending, hosted infrastructure has the largest share, with $230M AUD; Web presence has $190M AUD; and hosted communication and collaboration has the remaining $60M. We also studied usage and attitudes for a fourth category of Cloud services, other online applications, but we did not size that market. Figure 1. SMB Cloud services market size in Australia $190M AUD $60M AUD $480M AUD $230M AUD Hosted Infrastructure Web Presence Hosted Communication and Collaboration Total Despite a healthy Cloud services market, Australian SMBs still fall behind SMBs in other developed countries in their adoption of Cloud services. Consequently, we believe this market still has ample room to grow. We see the largest share of opportunity in the hosted infrastructure and Web presence segments, as new adopters drive market growth. Replacing in-house solutions with Cloud services will also contribute substantial opportunity to the market. Finally, upselling customers by giving them new offerings, such as other online applications, will add further value to the market, as Australian SMBs increasingly move to the Cloud. 1

4 Definitions This research is focused on the Cloud segments that matter most to SMBs: hosted infrastructure, Web presence, hosted communication and collaboration, and a general category we refer to as other online services market as follows: Hosted infrastructure (also known as infrastructure-as-aservice). This category includes dedicated servers, virtual private servers (VPS), managed hosting, and utility or elastic computing. Web presence. This category includes Web hosting itself, plus blogging services, domain registration, SSL and e-commerce add-ons, and site-building tools. Hosted communication and collaboration. This category consists of business-class services, including security, archiving, and mobility; and phone services, including hosted PBX services and voice-over-ip (VoIP). Other online applications (also known as software-as-aservice, or SaaS). of software applications that can be accessed online content accounting, online backup and storage, online CRM, payroll and HR, phone conferencing, and Web conferencing. For each of these Cloud services, our research captured SMBs current use, their attitudes, and their future plans. For the hosted infrastructure, Web presence, and hosted communication and collaboration segments, we also calculated spending and market size. In future versions of this research, we plan to add spending details and market sizing for all Cloud service segments. small and medium businesses (SMBs), we as companies with 1 to 250 employees. Within this broad category, we further distinguish the following sub-categories for additional analysis of their use of IT staff/services and adoption trends: Micro SMBs (1-9 employees) Small SMBs (10-49 employees) Medium SMBs ( employees) Our research did not include businesses in Australia that have no employees, but this group of small businesses should still be considered good target for service providers within the Australian Cloud services space, as we believe this group would look quite similar to micro SMBs in terms of their IT needs. 2

5 Key Findings in the Cloud While Australia s Cloud services market in general is well-established, our research shows that its SMB market still has plenty of room to grow. Australian SMBs lag behind SMBs in other developed countries in their adoption of nearly every Cloud service. As Cloud services continue to come down in price and are marketed directly to targeted audiences of well as replacement of in-house IT services with hosted services. Key Audiences for Service Providers to Target providers to target, as shown in Figure 3. These consist of: 1. This is the largest segment of Chinese SMBs, with 53% of micro SMBs, 31% of small SMBs, and 13% of large SMBs falling into this category. For these do-it-yourself SMBs, the business owner or a senior member of the company handles all purchasing decisions, installation, and maintenance of IT solutions. Therefore, when targeting SMBs without any IT staff, the business decision behind Cloud services is the most important factor. They need to know need solutions whose user interface is simple enough to not require detailed IT expertise. Consequently, marketing messages services, while minimizing the technical complexity behind the solution. For SMBs marketing messages should emphasize business minimize technical complexity % 5 25% 2% 1 1% 77% 2% 58% 86% 23% 17% 7% 7% Micro SMBs Small SMBs Large SMBs No dedicated IT Staff IT Consultant Dedicated IT Staff I don t know 2. SMBs that hire IT consultants. Some 23% of small SMBs and 7% of large SMBs use IT consultants. The key target audience for the service provider in this case is the IT consultant(s) being hired. This is a more technical audience than the do-it-yourselfers. other technical advice. One of the best ways to reach SMBs that hire IT consultants is through a white-label, reseller offering that 3

6 targets IT consultants, giving them the opportunity to resell Cloud services to SMBs without having to manage the infrastructure. It that target the broader IT channel, including distributors, as this is fertile ground for reaching IT consultants. For SMBs that do have IT consultants marketing messages on should emphasize technical details. 3. Approximately 58% of small SMBs and 86% of large SMBs have dedicated IT staff. For this category of SMBs, IT personnel are the primary audience. While on to senior management, they are much more concerned with the technical aspects of the solution and whether or not it technical features will be the key selling points for this audience. The following sections examine Australian SMBs use of each of the four sub-segments of Cloud services in more detail, describing their current use of the service, their attitudes toward it, and their future plans for spending, as well as key opportunities and messaging for different target audiences. Throughout these sections, we will continue to look at each sub-segment (micro, small, and large) as it relates to each of the above three target SMB audiences. Hosted Infrastructure Hosted Infrastructure among Australian SMBs is currently a $230M AUD market, with approximately 150,000 hosted servers in use. Figure 3 shows hosted and in-house server use among Australian SMBs. While the Australian IT market is relatively mature, its SMBs use of hosted servers still falls behind that of most other developed countries. 12% of Australian SMBs report using hosted servers, as compared to an average of 2 of SMBs in other developed countries (including the US and most of the European Union). Because of this discrepancy, Parallels believes the Australian SMB hosted infrastructure market still has room to grow as it plays catch-up to the rest of the developed world. in-house servers with hosted servers, especially among SMBs without dedicated IT staff. For both do-it-yourself companies and those that use IT consultants, hosted servers have the advantage of requiring a low investment of time and maintenance effort. Of these two groups, micro SMBs, which mostly fall into the do-it-yourself IT category, represent the best opportunity. As Figure 3 shows, 19% of these companies currently use in house servers and 3 of these SMBs either already plan to switch from in-house to hosted servers in the next three years or might plan to do so. Small SMBs, the main target for IT consultants, also represent an opportunity. Currently, 66% of these companies have in-house servers, and 49% of those are considering switching to hosted servers in the next three years. Taken together, these two groups could add 124,000 hosted servers to the market. 4

7 Figure 3. Server penetration among Australian SMBs 10 14% 14% 75% 5 25% 71% 66% 65% 19% 6% 8% 2% 8% 15% 13% Micro SMBs Small SMBs Large SMBs Australian SMBs report using a hosted server Hosted Servers Both Hosted and In-house In-house Servers No Servers The second opportunity within the Australian SMB market is the adoption of hosted infrastructure by companies that currently don t use servers. Overall, Australian SMBs are underpenetrated in their use of servers of any kind, as compared to most other developed countries. Nearly 6 of Australian SMBs currently have no servers a number that is approximately 15% behind the developed world average. Again, the best opportunity is among the micro SMB do-it yourselfers, with 71% of these companies not currently using servers at all, and 36% years or considering doing so. This opportunity represents 172,000 hosted servers. Parallels believes the major factor delaying the adoption of hosted infrastructure in Australia is price (see Figure 4). Australian SMBs report 25% higher than server costs in the European Union. Of SMBs with in-house servers, 62% say that price is the major barrier to adoption of hosted servers, and price is also a leading purchase criterion for Australian SMBs that are selecting a service provider. These price concerns make the Australian SMB market an ideal opportunity encourage adoption among many Australian SMBs. Service providers should also be aware that connectivity and bandwidth are concerns for approximately 25% of Australian SMBs. Until Australia s Internet infrastructure is upgraded, these issues might delay the adoption of hosted infrastructure for some SMBs. Price is the major factor delaying Australian SMBs adoption of hosted making VPS ideal solution. 5

8 Figure 4. Reasons that Australian SMBs keep their servers in-house 10 75% 5 62% 46% 25% 29% 24% 17% 13% Price Security and privacy concerns application(s) needs to be in-house/ other technical concerns Bandwidth / connectivity issues application(s) not supported by any service provider Not recommended by my IT personnel/ consultant Micro SMBs Small SMBs Large SMBs Overall SMBs In addition to price, Australian SMBs rank the technical characteristics of the offering and a clear, informative Web site as their top criteria for purchasing hosted infrastructure (see Figure 5). Accordingly, service providers should clearly position the technical strengths of their offerings and foster a strong Web presence in order to market successfully to Australian SMBs. Figure 5. Australian SMBs ranking of purchase criteria for hosted Infrastructure Tech Characteristics Clear, Informative Website Price Pre-sale support Online Research Well known brand Recommendations Local provider Micro SMBs Small SMBs Large SMBs Overall SMBs Web Presence The market for Web presence services in Australia is already mature, with the majority of SMBs that have websites already using a service provider for hosting. However, with website penetration among Australian SMBs at 54%, Australia still lags behind that of other developed markets, where average penetration is over 65%. As a result, Parallels believes the largest opportunity in this segment is with SMBs that currently have no websites particularly in the case of micro and small SMBs that have no dedicated IT staff. Figure 6 shows website and Web presence penetration among the different sizes of SMBs. 6

9 Figure 6. Website and Web hosting penetration among Australian SMBs 10 75% % 29% 6% 46% Australian SMBs report having a website 25% 32% 27% 3 Micro SMBs Small SMBs Large SMBs Service Provider Self-hosted Don t Know Australian SMBs report high willingness to adopt a website hosted by a service provider, particularly among micro and small SMBs. Of those SMBs without websites, 35% of micro SMBs and 71% of small SMBs three years or might plan to do so. This opportunity could add 131,000 websites to the current market in the near term. Parallels also sees some opportunity among SMBs that currently selfhost their websites. For SMBs with no dedicated IT staff, self-hosting a website is a very complicated and time-consuming task. Among micro SMBs (1-9 employees), 1 currently self-host their website, and 57% either plan to switch to a service provider in the next three years or might plan to do so. Among small SMBs (10-49 employees), 29% selfhost their websites, and 67% either plan to switch to a service provider or might plan to do so. Encouraging these two sub-segments to make the switch could add 56,000 websites hosted by service providers to the market over the next three years. Even for the 3 of overall SMBs already using Web hosting from a service provider, opportunities exist to upsell them by offering ways for them to expand their Web presence and integrate this expanded presence with their primary website. Figure 7 shows Australian SMBs use of other forms of Web presence, beyond their stand-alone website. Some 2 of SMBs that already use third-party Web hosting intend to increase their spending in the next three years, making upselling a very real opportunity. Parallels believes the largest Web presence opportunity is with SMBs that currently have no websites particularly micro and small SMBs without dedicated 3 29% 2 19% 12% 12% 11% 1 1 6% 1 2% Facebook page Local directories E-commerce capabilities Linked-in company Blog Marketplace store Twitter Youtube page Rating sites Micro SMBs Small SMBs Large SMBs Overall SMBs 7

10 Parallels sees the top upsell opportunities for capturing this planned increase in Web presence spending in the following areas: Even for the already using opportunities exist to upsell ways for them to expand their Web presence. Website design tools. Some 41% of SMBs currently design their websites in-house. For the smallest SMBs, this number is nearly 5. Providing website design tools will help these SMBs create more sophisticated websites in-house without a big cash outlay. Social media. Facebook is currently the most popular form of Web presence in Australia, with 29% of SMBs using it. Rather than let Facebook become a threat to Web hosting, Parallels believes there is an opportunity for service providers to capitalize on this trend by enhancing their Web hosting offerings to give SMBs the ability to create Facebook pages and cross-link them to their own websites. The recent integration of Parallels Web Presence Builder with Facebook will allow SMBs to do just that. E-commerce. In Australia, over 2 of large SMBs have e-commerce capabilities, while only 1 of micro businesses do. Adding a plan with easy-to-use e-commerce features, such as shopping carts, will help service providers upsell the underpenetrated micro sub-segment. Figure 8 shows how Australian SMBs rank various criteria for purchasing service providers should make sure their offerings have a good Web presence, competitive pricing, and strong technical features. Figure 8. Australian SMBs ranking of Web presence purchase criteria Clear, Informative website Price Tech Characteristics Online Research Pre-sales support Well known brand Recommendations Local Provider Micro SMBs Small SMBs Large SMBs Overall SMBs 8

11 Hosted Communication and Collaboration Hosted communication and collaboration among Australian SMBs is currently a $60M AUD market. For this area of Cloud services, Parallels focused its research on two segments: premium hosted business and hosted PBX services. The overall market in Australia is small for both of these services. In the case of , although approximately 3 of Australian SMBs use hosted services, only 5% pay for premium which includes security, archiving, and mobility; the others get it free with their Web hosting. As for hosted PBX, this is an emerging Cloud service, with fewer than 2% of Australian SMBs reporting its use. service providers. Hosted Business Looking at use details for Australian SMBs, it s easy to understand why paid, hosted remains a very small market. As shown in Figure 9, free forms of dominate SMB use, with 37% using free provider accounts, such as Gmail, and 3 using free hosted through their Web hosting provider. With robust free offerings, convincing SMBs to pay can be quite challenging % 5 25% 11% 13% 1 13% 52% 45% 6 3 8% 3 13% 14% Micro SMBs Small SMBs Large SMBs Australian SMBs report using hosted services Hosted service provider ISP or Free provider In-house server No However, Parallels sees some opportunity among small SMBs, a key target segment for IT consultants. In this segment, over 5 of SMBs are currently using in-house servers an expensive and complicated solution for small companies. Hosted business is a the team collaboration aspects of a premium hosted offering and from a pay-per-seat pricing model. Our research found that 29% of house servers to paid, hosted in the next three years or are thinking of doing so. This opportunity adds up to 400,000 new hosted mailboxes. 9

12 Hosted business is a good choice for small SMBs currently using in-house as they can from its team collaboration aspects and from a pay-per-seat pricing model. In marketing premium hosted to Australian SMBs, service providers should be aware of these SMBs key purchase criteria. important an informative Website, strong technical characteristics, their own online research, price, and pre-sales support. While service be helpful for them to focus on differentiating their offerings with clear, targeted messaging and a strong Web presence. criteria for hosted Clear, Informative website Tech Characteristics Personal Research Price Pre-sales support Recommendations Local Provider Well known brand Micro SMBs Small SMBs Large SMBs Overall SMBs Hosted PBX Figure 11 shows Australian SMBs current usage of different types of Cloud service, it currently has only a small market among Australian SMBs, with approximately 2% penetration. However, in countries like the US, where hosted PBX is somewhat more established, approximately 7% of SMBs are using the service and adoption is growing rapidly. Parallels expects to see similar growth and opportunity among the Australian SMB market as hosted PBX becomes more recognized and mainstream. SMBs (excluding mobile use) 10 8% 6% 4% Australian SMBs report using hosted PBX system 75% 5 25% 73% 24% 65% 3 59% 18% 1% 5% 7% Micro SMBs Small SMBs Large SMBs Hosted/virtual PBX In-house PBX Regular phone lines No phone lines 10

13 The easiest target for service providers looking to step into the hosted PBX market is SMBs that currently use in-house PBX systems. As is the case with other Cloud services, micro and small SMBs without dedicated IT staff are the best potential audiences. In these size groups, 18% and 65%, respectively, are currently using in-house PBX. Of these, 17% of micro SMBs and 37% of small SMBs are considering adopting hosted PBX in the next three years. This opportunity for replacing in-house PBX systems could add 660,000 hosted PBX lines to the market. Figure 12 shows Australian SMBs key reasons for not purchasing hosted PBX. Because the hosted PBX market is a new area for many service providers successfully sell hosted PBX services to Australian SMBs: Replacing in-house PBX systems with hosted systems could hosted PBX lines to the market. Keep price low. Price is a leading concern among SMBs with in-house PBX systems, with 43% naming price as the main reason they haven t switched to hosted PBX, and 39% concerned about sunk costs in their current in-house PBX system. Offering small bundles and keeping prices low will help SMBs overcome these concerns and make the switch. Educate SMBs. Some 34% of SMBs say they haven t heard of hosted PBX. Targeted marketing campaigns will help educate SMBs and raise the visibility of the service. Create a strong brand. When SMBs ranked key purchase criteria for hosted PBX, well-known brand was the leading criterion, followed by strong technical characteristics (see Figure 13). In the more established US market for hosted PBX, companies with strong branding and an association with phone systems such as RingCentral and phone.com are leading providers. Service providers looking to sell hosted PBX in Australia should similarly focus on building a strong, recognizable brand. Figure 12. Reasons that Australian SMB give for not purchasing hosted PBX systems % 39% 34% 34% 32% % 3% Price Already paid for an in-house PBX Technical concerns Do not know about hosted/ virtual PBX Security and privacy concerns Not recommended by my IT personnal/ consultant We are planning to switch Micro SMBs Small SMBs Large SMBs Overall SMBs 11

14 Other Online Applications Service providers that add other online applications to their Cloud be able to tremendous growth in this service category in upcoming years. Other online applications (also known as software-as-a-service, or SaaS) are a rapidly growing area of Cloud services. Because of the wide range of applications now available through the Cloud and the low cost barriers to adoption of most offerings Parallels expects to see strong growth in this market over the next several years. Our research showed that Australian SMBs have strong interest in other online applications. Parallels estimates that 49% of Australian SMBs are currently using some form of other online applications, including both free and paid subscribers. As Figure 14 illustrates, the leading online backup, with 22%, 15%, 14%, and 13% penetration, respectively. for growth. SMBs report that they intend to pay more (or start paying) for all categories of online applications except content management. The types of applications they are most willing to pay for are Web conferencing, -archiving, and payroll/hr applications, with 19%, 14% and 13% of current users, respectively, planning to increase their spending on these applications in the next three years. Many Australian SMBs also plan to adopt new online applications. Among users of existing online applications, the new applications they are most likely to adopt over the next three years are online backup and storage (8%) and phone conferencing (8%). Service providers that add other online tremendous growth in this service category in upcoming years. Figure 14. Current use of other online applications (both paid and free) among Australian SMBs 25% Australian SMBs report using some form of other online applications 2 15% 1 5% 6% 16% Online accounting File sharing 8% 4% 7% Payroll and HR 4% 1 9% Online backup and storage 4% 5% Phone conferencing 2% 6% archiving solution 5% 2% Web conferencing 3% 1% 2% 2% Content management Online CRM SMBs planning to purchase 6% 6% 1% 8% 4% 8% 3% 3% 3% Paid Free 12

15 Conclusion Parallels estimates the size of the current Cloud services market for Australian SMBs including hosted infrastructure, Web hosting, and hosted communication and collaboration at $480M AUD. Although the market overall is fairly mature, our research shows that ample opportunity still exists as Australian SMBs catch up to SMBs in the rest of the developed world in their use of Cloud services. Parallels sees this market growth driven by two main areas: 1. Adoption of net new Cloud services by SMBs needing IT solutions 2. Replacement of in-house IT solutions with Cloud services Our research shows that service providers should differentiate between their key SMB audiences do-it-yourselfers, those that hire IT consultants, and those with dedicated IT staff. Service providers that successfully target each of these audiences with the right Australian SMB market Parallels Holdings Ltd. All rights reserved. The Parallels logo and Parallels are registered trademarks of Parallels Holdings Ltd. No part of this publication may be reproduced, photocopied or stored on a retrieval system or transmitted without the expressed written consent of Parallels. About Parallels the broadest set of solutions demanded by small businesses. Founded in 1999, Parallels is a fast-growing company with 800 employees in North America, Europe, and Asia. For more information, please visit Contact Info Emily Kruger, Customer Insights Manager ekruger@parallels.com Eugenio Ferrante, Director of Customer Satisfaction & Knowledge eferrante@parallels.com

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