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1 I D C E X E C U T I V E B R I E F It' s T i m e f o r Midsiz e F irms to Leve r a g e C l o ud C o m p u t i n g C a p a b i l i t i es : Key N e x t S t e p s May 2013 Adapted from Worldwide SMB 2013 Predictions: Impact of Changing Shifting Priorities, Preferences, and Challenges by Ray Boggs, IDC # Sponsored by NetApp Introduction Midsize businesses, those with employees, are under increasing competitive pressure from both above and below. Larger companies benefit from economies of scale as well as national and even global capabilities to go after customers that midsize firms may once have had to themselves. Smaller firms are leveraging new technology, building more efficient infrastructure, and showing great agility as they also compete with midsize firms for new customers. Clearly, a return to "business as usual" when it comes to technology investment will not be the answer for midsize firms fresh thinking is called for. For many companies, cloud computing (and the public cloud in particular) will be a new way to gain access to important productivity resources in an effective and affordable way. Firms need to expand and be flexible as business conditions change. But they also need to sharpen their defenses against vulnerability to make certain that they can recover from any accident, whether through disaster or human error, that might threaten the business. Empowering business growth and improving data protection are not contradictory goals since advanced technology can be deployed to effectively support both. A significant share of large businesses is already using cloud resources, and a growing share of midsized firms as well. The key question for midsize firms, of course, is whether cloud-delivered capabilities are more efficient and effective than traditional approaches. This IDC Executive Brief reviews different cloud computing approaches and provides a framework for evaluating different cloud solutions. It also reviews the kinds of resources that have gained the most traction with midsize firms, examines future trends, and discusses the five key questions that companies should consider as they move forward with potential cloud implementation. Cloud Computing Definition: Technology Resources Available "Off-Premises" Cloud computing may seem a variation of a classic approach to technology deployment a centralized resource that is shared remotely. It basically involves using a service provider to access resources that are hosted or located offsite and delivered through high-speed Internet connections. Web hosting or remotely hosted (such as hosted Exchange) is most common and, like remote storage, was being used by many midsize firms long before "cloud computing" became a popular term (and decades after the idea of time sharing helped reduce company IT costs). What's different about cloud computing is that offerings are organized and delivered in a very efficient and shared fashion. Of special interest to midsize firms are three cloud attributes: the quality of IDC 1320

2 remotely hosted offerings, the ease with which the offerings can be implemented, and the widespread availability of high-speed Internet connections that make effective implementation possible. Cloud computing is the overarching term that includes three basic categories: cloud applications, cloud platforms, and cloud infrastructure. The first two categories are sometimes included under the general heading of "software as a service" (SaaS) since the system infrastructure software part of cloud infrastructure is also included in SaaS. At present, the SaaS part of cloud computing accounts for the largest share of total cloud spending roughly two-thirds with all three categories benefiting from midmarket spending growth of about 20% annually. IDC's definition of cloud computing includes the following eight key attributes. The "standard" aspect is especially important since cloud resources are designed to meet a general market need rather than a specific customer need. For midsize firms, this means that cloud offerings will be designed to be affordable and less complicated, using standardized architecture and technologies. Of course, this also sets the stage for innovation and leverage by service providers looking to appeal to new customers. Shared, standard service built for a market (public), not a single customer Solution-packaged a "turnkey" offering, integrates required resources Self-service administration, provisioning; may require some "onboarding" support Elastic scaling dynamic and fine grained Use-based pricing supported by service metering Accessible via the Internet/IP ubiquitous (authorized) network access Standard UI technologies browsers, RIA clients, and underlying technologies Published service interface/api e.g., Web services APIs Key Benefits to Cloud Capabilities (and Why Midsize Firms Need to Think About Cloud Differently from Large Firms) The public cloud approach will be especially appropriate for the largest share of midsize firms. This is where the greatest economies and the easiest-to-implement solutions will be found. Larger companies have significant technology resources to draw on and can develop their own internal or "private cloud" resources to share among diverse locations globally. Larger companies may also prefer more complete control of their data and where it resides, or they may have very specialized needs, which would justify the greater expense of private cloud solutions. The nature of financial accounting can also make cloud solutions appealing to firms with more constrained financial resources because it allows them to more tightly align spending with resource use. Of course, the central benefits of cloud computing for midsize firms go far beyond improving financial ratios, with improvement in performance the key, both near term and long term. The potential labor savings associated with cloud solutions can free up scarce IT resources for the most critical tasks that can advance corporate goals, not just "keep the lights on," which is how many midmarket IT departments spend their time (especially in handling help desk and "break/fix" chores). In contrast to traditional on-premises IT capabilities, cloud resources are available in an unrestricted way to company users through the Internet. Upgrades are available automatically to the entire user population, with basic support provided as well. Factors encouraging cloud adoption are very much related to these benefits, as well as the basic "paying only for what you need." IDC

3 Note also the ease of resource management and deployment, which is of less concern to users than to the IT staff members who are responsible for those activities (see Figure 1). Access to advanced capabilities both applications and infrastructure is especially important for midsize companies. The ability of the cloud to provide reliable and affordable resources and management is especially compelling and can improve midmarket performance in the important areas of backup and recovery, as well as long-term archiving and disaster recovery. IDC believes this will be an area of increasing mid-market focus both from external obligations and internal operational preferences. F i g u r e 1 Understanding Midmarket Cloud Appeal and Concerns Factors Most Likely to Encourage Midsize Business Use of Cloud/Software as a Service Pay for capabilities as needed Ability to integrate in current application environment Ability to add new users without difficulty Ability to bring capabilities in-house if needed Remote management that eases IT staff workload Easier to support branch/remote offices Discourage Midsize Business Use of Cloud/Software as a Service Concern about data security Concern about recurring cost of ownership Concern about not "owning" software Concern about service reliability (including availability and backup) Loss of control of IT department over applications Prefer software and data remain onsite Use services along with on-premises resources Source: IDC, 2013 Factors discouraging cloud adoption have been remarkably consistent over time, with security as the perennial number one concern. What is noteworthy, though, is the decline in the percentage of firms, especially midsize businesses, citing security as a cloud adoption inhibitor. When IDC began asking five years ago about cloud drivers and inhibitors, security was cited by over 70% of small and medium-sized businesses (SMBs). That percentage had declined with increasing cloud familiarity and experience, but has returned to over 60% following some publicized data losses. Although security is still a concern, it is increasingly being addressed with strong service-level agreements (SLAs) and the support of major technology companies standing behind different service providers, some of which are channel partners. Thanks to the educational efforts of some suppliers, midsize firms are increasingly aware of their use of cloud solutions (e.g., for malware security updates), which in turn makes them more comfortable with online resource delivery. In many respects 2013 IDC 3

4 concern about security can actually be addressed through cloud resources like data protection and disaster recovery which can be used to supplement on-premises resources. Cloud Capabilities with the Greatest Midmarket Appeal At present, almost one-half of midsize firms in the U.S. are using public cloud solutions and IDC expects that the share will reach 2/3 early in Cloud use is growing in other regions as well, especially Western Europe (Private cloud solutions have less traction among midmarket firms in terms of both spending and share of firms using the technology, although activity continues to increase.) Spending on public cloud capabilities by midsize firms is also growing more rapidly than the segment's IT spending in general. IDC expects overall midmarket IT spending worldwide to grow by 6% in 2013, but spending on cloud resources will grow three times as fast, and the trend will continue through 2017 and beyond, with more cloud capabilities being added to supplement (and, increasingly, substitute for) on-premises resources. As noted, a number of basic resources have been obtained through hosted or online solutions, and these are the first steps toward cloud enablement. Midsize firms' use of cloud resources clearly shows the continuing importance of the "big three": Over 60% of midsize firms with cloud capabilities cite the use of security, data backup/archiving, or hosted (see Figure 2). These are natural and effective areas for cloud engagement, with both security and data backup/archiving being areas where firms continue to expand their use of cloud resources. Security capabilities, provided though public cloud resources, can extend to endpoint, network, and messaging security. Cloud delivery means that all parts of an organization can benefit from he same levels of security, effectively managed and consistently updated. IDC has found growing midmarket use of cloud-based security solutions, with roughly one-third of all midmarket security spending associated with online capabilities. Data backup and archiving, provided through the public cloud, can extend to related areas such as disaster recovery. In addition to providing consistent and reliable backup and data protection resources across the organization, cloud resources can simplify standardization, and "data protection as a service" can be easier to use while avoiding the capital expense of a secondary datacenter for backup and restore capabilities. (In addition, site failover capabilities can minimize the risks to productivity and goodwill associated with data loss and downtime.) Hosted is among the most familiar public cloud resources used by midmarket firms. Hosted often serves as the initial cloud capability (along with Web hosting) for small as well as midsize firms. In fact, some users may not even realize that hosted can be appropriately considered a cloud-based application. Hosted also sets the stage for a wide range of collaborative applications, with calendaring the most notable IDC

5 F i g u r e 2 Share of Midmarket Firms Using Different Cloud Capabilities Security Data backup/archiving Hosted Web serving Database/database management Storage on demand Personal productivity applications Messaging/collaboration (%) Source: IDC, 2013 The second tier of cloud applications, cited by 40 50% of midmarket cloud users, includes categories such as Web serving and personal productivity applications (such as sales force automation) that are well suited to online delivery. Note that simple storage on demand is different from data backup and archiving. The convenience of on-demand online storage appeals to midsize firms, but data backup and archiving are more central than supplementary when it comes to improving infrastructure strength and management resources. Storage is a key enabler for a wide range of advanced capabilities that midsize firms rely on, and the ability of the cloud to support effective data backup and archiving, as well as disaster recovery, makes it especially appealing. While some firms may still worry about having critical data off-premises "in the cloud," that view has been broadly replaced by the understanding that data can be better protected and more easily retrieved when kept securely by service providers than when managed by on-premises solutions that midsize firms might be considering. Of course, it will be important to check the track record of any service provider and make sure that company has recovery SLAs to meet your needs IDC 5

6 Five Steps to Effective Cloud Engagement: What Critical Questions Should We Ask Ourselves Moving Forward? As important as it is to examine the capabilities and costs of different cloud solutions, it is just as important to review the company environment in which those solutions will be deployed. IDC has found that the following comprehensive internal review can make a significant difference in helping identify the right cloud resources for a given company and also pave the way for effective cloud deployment: How are IT resources used to support company objectives today? Assess your current IT environment, including network capabilities, key resources being used, business continuity and data protection processes, and the extent and nature of any online application use. This assessment needs to be done objectively and will serve as a starting point for any major IT investment decision, not just cloud deployment. How physically diverse/complicated is your company? Confirm the current number of your company's sites/locations and how that number is likely to change in the coming years. (Does your company have a single site for all IT versus multiple sites needing support?) The more geographically diverse your operations, the more potentially appealing a cloud solution will be. But if diverse processes and solutions are used in different locations, the coordination and consolidation around a single approach will require hard work, regardless of whether a new cloud or on-premises solution is preferred. What is your company's structural pace of change/evolution? Evaluate how your company is likely to grow, both organically and through mergers and acquisitions, in the coming years. If your company is growing rapidly, the ability of cloud resources to scale up (and down) can be a real advantage. Similarly, if you expect increasing merger and acquisition activities to enhance company growth, cloud resources may be easier to extend to new organizational constituents, at least when compared with purely on-premises approaches. Storage, data protection, and disaster recovery resources can also be more easily shared through cloud-based solutions. What role do mobile workers play in your company? (And what role should they be playing?) Review your company's policies and practices regarding mobile workers and support to identify potential areas of improvement, especially if increased mobile activity is anticipated (which is likely the case). Cloud-based approaches can help improve mobile worker productivity, providing access to applications as well as data (which makes effective cloud storage all the more important). How are external forces influencing a cloud adoption decision? Look beyond your own company environment and examine the ways that external pressures are encouraging or discouraging the adoption of different cloud-based solutions. This would certainly include competitors that may be already benefiting from cloud-related economies, but it also means understanding the changing regulatory environment. Maintaining data security is important for everyone, but in some industries, clear legal mandates must be followed. The flexibility of cloud resources and the level of security provided may make them ideal in some cases, and the ability to move data and applications back on-premises if necessary is a capability that some midsize firms cite as a factor encouraging cloud adoption IDC

7 Where to Go to Obtain Cloud Resources: Diverse Choices Regarding Sourcing On the surface, it would seem that the most natural way to acquire cloud computing resources would be to arrange for purchase online. After all, that is how cloud resources are delivered, and service providers often have the ability to support that approach. Yet most midsize firms use different channel partners, whether local value-added resellers (VARs) or systems integrators that they have worked with in the past. Why would price-sensitive midsize companies be willing to bring other participants into the process? The reason is the close relationship that many midsize firms have with their local technology sources, whether VARs, computer dealers, or systems integrators. Technology resellers are increasingly familiar with advanced cloud capabilities, and some even serve as hosts of online technology resources they may build and sell their own capabilities, brand third-party services as their own (white label), or resell the branded services of others. In any event, a trusted technology provider brings multiple benefits to a midsize customer. These VARs or systems integrators know the customer technology environments and are able to help integrate cloud capabilities with existing on-premises resources. They can also help with implementation (through training) and work with the technology and business management to design a road map for cloud deployment that will extract maximum value from existing IT investments while moving ahead with acquisition plans, sometimes across multiple branch office locations. While midsize firms might be tempted to "go it alone" and acquire cloud resources online, it will likely be worth an additional investment to involve channel partners that will make sure that a company's staff and processes are not disrupted and that integration happens smoothly as new capabilities are acquired. Conclusion and Recommendations Although cloud computing can be seen as a compelling and appealing way to provision advanced technology in an effective and affordable fashion, midsize firms still need to address critical issues before they move forward with major cloud engagements: Integrating business priorities and IT priorities with cloud deployment strategy. A company's or business unit's strategic goals and supporting IT strategies need to be clearly articulated and understood so that any cloud strategy can be built on a sound conceptual foundation. Cloud investments should support larger company objectives and advance long-term IT goals as well as deliver on near-term financial objectives. Capitalizing on the flexibility and business agility associated with cloud computing for maximum impact. Simply providing a lower-cost approach to technology deployment will not make cloud computing into a game-changing investment for midsize firms. While improved efficiency is appealing, the real benefit of cloud computing is its potentially transformative role in providing access to consistent resources across the organization. Advanced business applications are obvious examples of this, especially from the user's perspective. But even more compelling for the organization can be improvements in infrastructure performance and capabilities, especially those related to data protection and disaster recovery. The consistent deployment and regular updating associated with cloud-based resources will set the stage for continuing business success. Leveraging existing IT investments and practices through cloud computing deployment. Significant IT resources are already in place at midsize firms, and although cloud capabilities represent a new approach to technology provisioning, off-premises resources will continue to rely on an extensive established user infrastructure. The integration of cloud and noncloud resources 2013 IDC 7

8 as part of a long-term technology road map is a key goal of current users, a view that others thinking about cloud adoption can learn from. Integration can take different forms, of course, and the most popular cloud applications often enable other technologies in effective ways. Looking forward, midsize firms should anticipate and encourage what will likely be an increasing pattern of collaborative engagement between both remote and on-premises resources. A B O U T T H I S P U B L I C A T I ON This publication was produced by IDC Go-to-Market Services. The opinion, analysis, and research results presented herein are drawn from more detailed research and analysis independently conducted and published by IDC, unless specific vendor sponsorship is noted. IDC Go-to-Market Services makes IDC content available in a wide range of formats for distribution by various companies. A license to distribute IDC content does not imply endorsement of or opinion about the licensee. C O P Y R I G H T A N D R E S T R I C T I O N S Any IDC information or reference to IDC that is to be used in advertising, press releases, or promotional materials requires prior written approval from IDC. For permission requests, contact the GMS information line at or Translation and/or localization of this document requires an additional license from IDC. For more information on IDC, visit For more information on IDC GMS, visit Global Headquarters: 5 Speen Street Framingham, MA USA P F IDC

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