Parallels SMB Cloud Insights TM for France

Transcription

1 Profit from the cloud TM 2012 Parallels SMB Cloud Insights TM for France France

2 Table of Contents Executive Summary...1 Definitions...2 Key Findings in the Cloud...3 Hosted Infrastructure...5 Web Presence...8 Hosted Communication and Collaboration Hosted Premium Business Hosted PBX Business Applications Conclusion...20

3 Executive Summary The cloud services market for small and medium businesses (SMBs) in France is growing rapidly and it s changing the way French SMBs consume IT. Increasing numbers of SMBs in France are rushing to leverage the value of the cloud in order to gain enterprise-level computing power, applications, and services at prices they can afford. Last year, our research found that SMBs in France lagged behind the rest of the developed world in their use of cloud services but our 2012 research shows that they are steadily closing the gap, especially among medium SMBs (those with 50 or more employees). Although looming economic concerns have lowered French SMBs projections for their spending over the next several years, we still expect steady growth in the use of cloud services to continue, as more and more French SMBs of all sizes become aware of the benefits the cloud can bring to their businesses. Having initially interviewed 400 French SMBs of different sizes and industries in 2011 about their cloud service consumption, plans, and attitudes, Parallels refreshed this research for 2012, conducting new interviews to determine what changes had taken place in the intervening months. Our research addressed SMBs cloud service use and attitudes both in general and with respect to four specific categories of cloud services: hosted infrastructure, web presence services, hosted communication and collaboration, and online business applications (a category also known as software-as-a-service, or SaaS). By combining the results of these interviews with our in-depth industry expertise, we have created a comprehensive view of the French SMB market for cloud services in 2012, including an understanding of how the space has grown and evolved over the past year. This paper summarizes our findings, with a focus on providing practical insights and identifying targeted opportunities that will help service providers drive growth in the French SMB cloud market in 2012 and beyond. In the spring of 2012, Parallels calculated the French SMB market across all categories of cloud services to be 1.24B. As shown in Figure 1, hosted infrastructure contributes 462M to this market, web presence services contribute 347M, hosted communication and collaboration (consisting of hosted premium business and hosted PBX) adds 48M, and business applications account for the remaining 383M. Parallels predicts the French SMB market will grow by 870M over the next three years, reaching 2.1B in Given this strong growth rate, service providers who become familiar with the various SMB audiences in France and market to them successfully will have ample opportunity to profit from the cloud, as French SMBs continue to catch up with the rest of the developed world in their use of cloud services. 1

4 Figure 1. SMB cloud services market size in France (2012) 383M 1.24B 347M 48M 462M Hosted Infrastructure Web Presence Services Hosted Communication & Collaboration Business Applications Total Definitions This research is focused on the cloud services that matter most to SMBs: hosted infrastructure, web presence services, hosted communication and collaboration, and a general category we refer to as business applications. We define each of these cloud service categories 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. In 2012, we expanded this category to include add-on applications and services for hosted infrastructure, such as control panels, development platforms, LAMP stack (Linux, Apache, MySQL, PHP), security, server backup, and SQL databases. Web presence. This category includes third-party web hosting, blogging services, domain registration, SSL and e-commerce add-ons, and site-building tools. In 2012, we expanded this category to include web server backup, content delivery networks (CDN), content management, mobile optimization tools, search engine optimization (SEO), and web server security and health monitoring. Hosted communication and collaboration. This category consists of business-class services, including security, archiving, and mobility; and hosted phone services, including hosted PBX. Business applications. This category covers ten major categories of software applications that can be accessed online file sharing, instant collaboration, online accounting, online backup and storage, online CRM, payroll and HR, phone conferencing, enterprise resource planning (ERP), support and help desk, and web conferencing. For each of these cloud service areas, Parallels captured SMBs current use, attitudes, future plans, and market size. As for our definition of small and medium businesses (SMBs) also known as small and medium enterprises, or SMEs we follow other research and academic organizations in defining SMBs as companies with 1 to 250 employees. There are around 2.56M such SMBs in France today. Sub-categories within the SMB segment include: 2

5 Micro SMBs (companies with 1-9 employees) Small SMBs (companies with employees) Medium SMBs (companies with employees) Our research does not include businesses in France that have no employees (sole proprietor only), but this group of small businesses should still be considered a good market for cloud services in France, as it has many of the same characteristics and IT needs as micro SMBs. Key Findings in the Cloud Our research showed that the French cloud market grew by over 2 overall during the course of 2011, with some services especially hosted communication and collaboration growing much faster. Over the next several years, even more French SMBs will be entering the cloud and expanding their use of cloud services, providing huge opportunities for service providers that are able to market to them successfully. Parallels found that different sizes and categories of SMBs have different needs and plans for their cloud service use. Therefore, for service providers to grow their cloud business, it is essential both to know their SMB audiences and to offer them the right services. Know Who the IT Decision Makers Are As noted in our 2011 research, knowing who makes the IT decisions is critical both for selecting the right products to sell to SMBs and for marketing them successfully. As Figure 2 illustrates, we found that the French SMB market consists of three separate decision-making groups: SMBs with no IT staff ( do-it-yourselfers ). For these SMBs, the business owner or a senior member of the company handles all IT purchasing decisions, as well as installation and maintenance of IT solutions. These decision makers need to know how a cloud service will benefit their business and their bottom line. They also need solutions whose user interface is simple enough to not require detailed IT expertise. To market successfully to this group, focus on the business benefits of cloud services, while minimizing technical complexity. SMBs that hire IT consultants. IT consultants want to know about the technical specifications of the cloud service, its configuration and management, best practices, and other technical advice. Having a white-label reseller offering designed for IT consultants one that gives them the opportunity to resell cloud services to the SMB end customer without having to manage the infrastructure themselves will help reach this target audience, as will sales and marketing strategies that target the broader IT channel, including distributors. Target the right IT decision maker with the right marketing messages: for SMBs with no IT staff, stress business benefits; for SMBs that hire IT consultants or have dedicated IT staff, stress technical benefits. SMBs with a dedicated IT staff. For these SMBs, IT personnel are the primary audience. While they need to know the business benefits so they can pass them on to senior management, they themselves are much more concerned with the technical aspects of the solution and whether or not it fits the needs of 3

6 their company. Clear, detailed documentation about technical specifications, strong support, and cutting-edge technical features will be the key selling points for this audience. Figure 2. IT staff reported by different sizes of French SMBs (2012) 10 1% 1% 5% 75% 4 38% 5 9% 8% 68% 25% 5 53% 15% 12% Micro SMBs Small SMBs Medium SMBs No dedicated IT staff IT consultants Dedicated IT staff I don t know Target Each Opportunity with the Right Services To help service providers target their marketing efforts, we have identified three major groups of SMBs that represent cloud service growth opportunities: Growth opportunities exist among cloud converters (SMBs moving from in-house solutions to the cloud); cloud leapers (SMBs going straight to the cloud); and cloud expanders (SMBs expanding their current use of cloud services). Cloud converters. These SMBs currently have in-house solutions but are either moving or planning to move to hosted services. For example, many SMBs that currently have in-house servers may switch to hosted servers when it comes time to upgrade their infrastructure. Cloud leapers. This category consists of SMBs that currently are not using an in-house IT solution (that is, they have no servers, no web server, or no PBX system) and are likely to move straight to the cloud, leaping over the typical intermediate step of purchasing in-house IT. These companies might have rudimentary IT equipment, such as external hard drives for storage or Excel workbooks for accounting, but they don t have the level of in-house infrastructure or software used by the cloud converters. This category also includes startups that choose cloud services over traditional in-house IT as they start their business. Cloud expanders. These SMBs, which are already using some form of cloud services, represent an opportunity for upselling to new and expanded cloud offerings. SMB size is also an important factor, as it s likely to influence both which cloud usage category a business falls into and who its IT decision makers are. For instance, micro SMBs are most likely to be cloud leapers and do-it-yourselfers, with no dedicated IT staff. Size also influences what kinds of services SMBs are most likely to buy. Knowing the opportunity for each type of cloud service in each SMB size category will help service providers target their marketing and sales efforts to reach the right audiences. 4

7 The following sections examine French SMBs use of each of the four categories of cloud services in more detail, describing their current use of these services, how they choose which services to purchase (or not to purchase), and what their future plans for spending are. Throughout these sections, we look at each market sub-segment (micro, small, and medium) as it relates to the above three target SMB audiences (do-it-yourselfers, IT consultants, and dedicated IT staff) and opportunity segments (cloud converters, cloud leapers, and cloud expanders). In each case, we detail the opportunities, how best to target them, and with which services. Hosted Infrastructure The hosted infrastructure market in France has grown by a strong 25% since our 2011 research, reaching a current value of 462M. As Figure 3 illustrates, 2 of French SMBs now use hosted servers a rate that nearly matches that of other parts of the developed world. We expect this strong growth to continue across all areas of hosted infrastructure over the next several years. With an additional 11% of SMBs entering the server market in the past year including purchasers of both in-house and hosted servers 5 of all French SMBs are now using a server of some kind for their business. Overall, new server adopters chose in-house servers and hosted servers at nearly equal rates, leading to moderate to strong growth in both in-house and hosted infrastructure across all sizes of French SMBs. The hosted infrastructure market in France has grown by 25% over the past year, and we expect strong growth to continue through The increase in hosted server adoption was largest among micro SMBs (less than 10 employees), where the penetration rate increased by 7%. This growth was fueled primarily by cloud leapers, indicating that micro SMBs have begun to embrace the value proposition of buying servers in the cloud. Among small and medium SMBs, moderate growth was driven both by cloud converters adding hosted servers to their existing in-house servers and by cloud leapers going straight to the cloud for their infrastructure solution. Figure 3. Hosted server penetration among French SMBs (2012) 10 75% 5 25% 11% 26% 51% 44% 38% 3 9% 19% 3% 16% 27% 26% Micro Small Medium Overall, 2 of French SMBs use hosted servers. Hosted Servers Both Hosted and In-house In-house Servers No Servers 5

8 Target the Opportunity Moving forward, Parallels sees ample room for continued growth in hosted infrastructure across all size segments of French SMBs. We estimate that this market will have a compound annual growth rate (CAGR) of at least 14% through 2015, becoming a 692M market by the end of that year. Following is a breakdown of the growth within each of the three cloud usage categories. Cloud converters could add 650,000 new hosted servers to the market over the next three years, and cloud leapers could add another 440,000. Cloud Converters A key opportunity in the French SMB market is the replacement of in-house servers with hosted servers, which could add as many as 650,000 new hosted servers to the market over the next three years, more than doubling the current market size. This opportunity is especially strong among SMBs without dedicated IT staff or IT consultants the do-it-yourselfers. For these SMBs, hosted servers have the advantage of not requiring maintenance effort or technical expertise. Micro SMBs, which mostly fall into the do-it-yourself IT category, represent an especially significant opportunity, as they encompass over 9 of French SMBs and have yet to adopt hosted infrastructure on a large scale. As Figure 3 shows, 3 of these companies currently use in-house servers. Of those, our research indicates that an impressive 55% either definitely plan to switch to hosted servers in the next three years or are considering doing so. Small SMBs, the second largest group of do-it-yourselfers, also represent a good opportunity, with 38% currently using in-house servers and 46% of those either definitely planning to switch to hosted servers in the next three years or considering doing so. To succeed in moving these SMBs to the cloud, service providers should emphasize the business benefits of their hosted server offerings. Cloud Leapers New adopters of IT infrastructure also represent a strong opportunity among French SMBs. These SMBs do not currently use servers, but, as they decide to add them, will go directly to the cloud rather than taking the intermediate step of buying in-house servers. Of these new adopters, micro SMBs represent the best opportunity. A substantial 51% of micro SMBs currently are not using servers of any kind, and 25% of those report that they either definitely plan to add a hosted server in the next three years or are considering doing so. This opportunity alone could add up to 440,000 new hosted servers. Raising awareness of the benefits of hosted infrastructure will play a key role in driving growth in the cloud leaper segment. Cloud Expanders The market also has room for upselling SMBs that are already using hosted infrastructure, driven by SMBs looking both to expand their use of hosted servers and to purchase more value-added services, such as control panels, backup, and security services. Given the current economic climate, many SMBs with hosted infrastructure reported they are not planning to increase their spending in the near term. Still, the strong interest they express in many categories of add-on hosted infrastructure services will help contribute to growth in this opportunity segment over the long term (see discussion of add-ons under Offer the Right Services, below, for more details). Across all size groups, only medium SMBs currently report plans to increase spending, with 14% 6

9 planning to spend more on hosted infrastructure in the next three years. Nevertheless, service providers should still focus on building out robust offerings with multiple add-on opportunities, as upselling will become an increasingly important way to grow as the French hosted infrastructure market matures. Offer the Right Services In tailoring hosted infrastructure offerings to SMBs, service providers need both to include the features and add-ons that are most important to SMBs and to help them overcome any concerns they have about adopting the service. Following are some of the approaches that our research shows will be most successful in encouraging French SMBs to adopt hosted infrastructure. Stay Price-Competitive, Driving Revenue Growth Through Add-Ons As in 2011, French SMBs remain cost-conscious in their hosted infrastructure spending. Our 2012 research shows that price is still the leading reason to keep servers in-house, as shown in Figure 4, and it has even grown in importance, with 51% of SMBs now citing price as a concern (up from 36% in 2011). Educating SMBs on the true cost of owning an in-house server, while also offering them lower-priced hosted infrastructure options, will help encourage adoption. But even though basic hosted infrastructure pricing needs to stay pricecompetitive, service providers can still generate higher revenues by offering add-on services that will make hosted servers more secure and increase their usefulness to SMBs. French SMBs are already using a range of add-on services and applications for their hosted infrastructure, with server backup, security (including antivirus and antispam), and SQL databases among the most popular (see Figure 5). To expand SMB use of hosted infrastructure, service providers need to keep basic hosted server prices low and increase revenue by offering add-on services and applications that are useful to SMBs. Figure 4. French SMBs reasons to keep servers in-house (2012) % % 2 18% 1 1 Price Security or privacy concerns Specific Specific application(s) application(s) needs to be not supported in-house / other by any tech. concerns provider Bandwidth / connectivity issues 9% Not recommended by my IT personnel / consultant Micro Small Medium Overall SMBs 7

10 Figure 5. French SMBs use of add-on services and applications for hosted infrastructure (2012) % 33% % 11% 9% 3% Server backup Security (inc. antivirus and/or antispam) SQL database Control panel LAMP stack Development platform Micro Small Medium Overall SMBs Over the next three years, all categories of infrastructure add-on services will experience some growth, with growth in security add-ons being especially strong. Over the next three years, all categories of add-on services will continue to be in demand. For example, 53% of SMBs that currently don t have security for their hosted infrastructure and 51% of those that don t have server backup plan to add it. In fact, across all categories of add-ons, at least 25% of SMBs or more are considering adding one or more services in the next three years. By promoting these add-on services to SMBs when they purchase hosted infrastructure, service providers can increase the value of their transactions while still keeping basic hosted server prices low. Service providers should also push add-on services among their existing customer base, as upselling existing customers will become an increasingly important way for service providers to grow their hosted infrastructure business in upcoming years. Reassure About Security Over the past year, concerns about security have decreased somewhat among French SMBs, with 29% of SMBs that have in-house servers now saying that security or privacy concerns are a top reason to keep servers in-house as compared with 35% in However, this concern is still an issue among nearly one in three SMBs. The fact that security is also the top hosted infrastructure add-on listed as a future purchase further reflects this concern. Based on these facts, we have two recommendations: Continue to educate SMBs about the security of hosted infrastructure, reassuring them that hosted infrastructure is generally at least as secure as in-house servers, if not more so. Provide them with add-on applications that will enable them to keep their data backed up and secure. Web Presence French SMBs use of websites expanded in 2011, shrinking the gap that had previously existed between their use of web presence services and that of the rest of the developed world. By early 2012, as shown in Figure 6, 58% of French SMBs had a website, and 57% of those were using a service provider to host it. French SMBs overall spending on web presence services grew by 15% in 2011, to a current market size 8

11 of 347M. This growth took place in all opportunity segments cloud converters, cloud leapers, and cloud expanders. As for the three size segments, all three grew in their use of third party web hosting, but their growth came from different opportunity segments. Micro SMBs use of third-party web hosting, which grew by 3, was driven primarily by cloud leapers, with 11% more micro SMBs reporting that they had a website than was the case in Cloud converters, which contributed some growth to the micro segment, were responsible for nearly all of the 13% growth that took place in the small SMB segment. The largest growth of all, however, was among medium SMBs, where third-party web hosting grew by an impressive 115%. This growth was driven both by the 2 of medium SMBs that converted from in-house web servers and by another 1 that added websites for the first time, going straight to web hosting. French SMBs expanded their use of web presence services in the last year, with 58% now having a website, and 57% of those using a service provider to host it. Figure 6. Use of web presence services among French SMBs (2012) % 17% 25% 13% 21% 1 44% 32% 36% 6 % Micro Small Medium Overall, 58% of SMBs have a website, and 57% of these are third-party hosted. Third-party hosted Self-hosted Don t know Target the Opportunity Looking forward, Parallels expects the current growth rate in web presence services to stay steady or increase slightly over the next several years, especially as cloud leapers in the micro SMB segment add websites. Opportunities also exist for upselling existing customers the cloud expanders. Our research indicates that, for the next three years, the overall French SMB web presence market will grow up to 19% year-overyear, reaching 582M in Following is a breakdown of the growth within each of the three cloud usage categories. Cloud Converters Currently, 1 of micro SMBs and 21% of small SMBs in France have self-hosted websites an expensive and technically complex solution compared with the inexpensive stand-alone web hosting plans that are readily available. In fact, 45% and 71%, respectively, of these micro and small SMBs say they either are already planning to switch to third-party web hosting plans in the next three years or are considering doing so. This opportunity could add 132,000 hosted websites to the current market. Our research indicates that, over the next three years, the overall French SMB web presence market will grow up to 19% year-over-year, reaching 582M and adding over 700,000 new websites by

12 Cloud Leapers Much opportunity exists to convince French SMBs of all sizes without websites to go straight to the cloud to build their web presence. Our research shows that, of French SMBs without websites, 54% of micro, 6 of small, and 48% of medium SMBs either plan to add a hosted website in the next three years or are considering doing so an opportunity that could add 585,000 new web hosting plans to the market. Cloud Expanders The largest long-term web presence opportunity among French SMBs lies in upselling existing customers, all of whom could benefit from add-on applications to boost their web presence and enhance the performance and security of their website. Some 12% of micro SMBs and 21% of small SMBs that are currently using a standalone web hosting plan intend to increase their spending over the next three years. By offering value-added tools and services to all SMB web presence customers, service providers can significantly increase average revenue per user (ARPU). Offer the Right Services Following are some of the approaches that our research shows will be most successful in growing web presence services in France. Given French SMBs price concerns, we expect that web hosting could become a loss leader in the near future, with profits coming from web application addons that secure and enhance web presence. Drive Profitability Through Add-On Services In 2012, price increased from being French SMBs fourth-ranked purchase criterion for web hosting plans to a first-place tie with technical characteristics (see Figure 7). This trend reflects the overall increase in price sensitivity that Parallels research found in the French SMB market this year. These price concerns, combined with the lean margins that already exist in web hosting plans, lead us to believe that in the near future, web hosting could become a loss leader, used to drive sales in other areas of cloud services. Accordingly, the best opportunity for profitability in web presence services will come from offering the web application add-ons that SMBs are increasingly demanding. Expanding offerings in the web applications shown in Figure 8 and discussed below will help service providers keep their web hosting business profitable. Offer Applications and Services That SMBs Want Service providers should focus on the following areas when choosing web presence add-ons: Web applications. New in our 2012 research, Parallels asked French SMBs about a wide range of web applications that can be used to secure and enhance their web presence (see Figure 8). Overall, as with other cloud services, French SMBs lag behind other developed countries in their use of web applications. However, they reported strong interest in adding nearly every category of web applications over the next three years, so we expect strong growth in this space. Our findings indicate that the top current applications are content management, used by 17%; SSL certificates, used by 15%; and search engine optimization, used by 14%. Looking at the top applications SMBs plan to add, 43% of SMBs without search engine optimization plan to add it (a number that climbs to 62% among medium SMBs); 42% plan to add website backup; and 35% plan to add a CDN. In each case, 10

13 the percentage of SMBs planning to add the application is highest among small and medium SMBs, pointing to a strong opportunity among these groups in the near term. Figure 7. Key web presence purchase criteria for French SMBs, ranked on scale of 0 to 10 (2012) Price Tech characteristics Clear, informative Website Presales support Recommendations known Well brand Online research Local provider Micro Small Medium Overall SMBs Figure 8. Web application use among French SMBs (2012) % 15% 1 14% 13% 12% 9% Content SSL management certificates Search engine optimization Ecommerce Security capabilities and health monitoring Backup 3% 2% Mobile Content optimization delivery network - CDN Micro Small Medium Overall SMBs Social media. So far, French SMBs have not taken to social media at the same rate as SMBs in many other countries. However, given that SMBs worldwide are increasingly using social media to boost their web presence, we believe that those in France will follow suit over the next several years. For French SMBs that do use social media, Facebook pages continue to be the leading form of online presence, as shown in Figure 9. In fact, their use has grown since 2011: 35% of French SMBs now have a business Facebook page, up from 3 last year. Local directories and blogs follow in popularity, with 15% of SMBs reporting use of 11

14 these forms of social media. Service providers can capitalize on these trends by enhancing their standalone web hosting offerings with tools that give SMBs the ability to create Facebook pages and other forms of social media and cross-link them to their own websites. Figure 9. Use of social media among French SMBs (2012) % % 15% 1 8% 8% 5% 1% Facebook page Local directories Blog LinkedIn company profile Twitter Youtube page Rating sites The market for hosted communication and collaboration services has nearly doubled since 2011, and we expect it to continue to grow by at least 4 a year for the next few years. Overall hosted use (including free and paid) grew by 45% over the last year, and hosted premium use grew by 66%. Micro Small Medium Overall SMBs Hosted Communication and Collaboration As in our 2011 research, we focused our hosted communication and collaboration research on two areas: hosted premium business and hosted PBX. The overall market for these two services in France is small, but growing fast. At a current size of 48M, this market has nearly doubled since Although just 6% of SMBs currently pay for hosted premium and just 7% purchase hosted PBX, over the next few years we expect these two cloud services to be among the highest growth areas, with at least 4 growth year-over-year. Hosted Premium Business Hosted premium includes added features such as team collaboration, shared calendars, archiving, mobility, and security. Compared with the overall market which includes free accounts through ISPs or providers like Google; in-house servers; and free hosted the hosted premium market is relatively small, but growing rapidly. The market composition has shifted quite a bit in the past year. A large number of SMBs that previously had no have entered the market, including both free and paid forms. Currently, 92% of French SMBs have some form of , up 12% from last year s 8, driving growth across all types of . Hosted use, however, experienced the fastest growth rate 45% reaching an overall penetration rate of 38% for free and paid hosted combined. This growth was fueled primarily by micro SMBs shifting from provided 12

15 by an ISP or other free provider to free hosted , and by medium SMBs shifting from hosted on in-house servers to hosted premium in the cloud. In addition, some small and medium SMBs upgraded from free hosted to hosted premium to take advantage of the collaboration, security, and mobility features offered in premium accounts. Although the total use of hosted premium is still small, with only 6% of SMBs paying for it, these shifts nevertheless led to an impressive growth rate of 66% over the past year. Target the Opportunity We expect many of the past year s trends in the market to continue, driving huge growth in this space. Following is a breakdown of the growth within each of the three cloud usage categories. Cloud Converters Encouraging SMBs of all sizes who are currently using in-house servers to convert to hosted premium could result in significant growth in this market. As shown in Figure 10, 13% of micro, 31% of small, and 42% of medium SMBs currently use in-house servers an expensive and complicated solution for small companies, particularly those without dedicated IT staff. Our research found that, of these SMBs, 24% of micro, 35% of small, and 66% of medium SMBs either definitely plan to switch from in-house servers to paid hosted in the next three years or are thinking of doing so. This opportunity could add up to 1.2M paid hosted mailboxes to the market. Cloud converters could add up to 1.2M paid hosted mailboxes by 2015 and cloud expanders could add 1.9M more. Figure 10. Distribution of different types of accounts among French SMBs (2012) 10 8% 3% 3% % 31% 42% 41% 28% 16% 38 % 38% 39% Micro Small Medium Overall, 6% of SMBs are paying for hosted premium . Hosted service provider ISP or Free provider In-house server No Cloud Expanders The best opportunity for growth in hosted premium is among the cloud expanders. We consider SMBs that upgrade from free hosted to hosted premium to be cloud expanders, even though their current use of the cloud service is free. Parallels believes the best cloud expander opportunity lies in upselling SMBs using free hosted a group that represents 84% of the SMBs currently using hosted to hosted premium . Such an upsell should be easy, particularly for the small and medium SMB segments, since these SMBs can benefit both from the service s team collaboration aspects and from its pay-per-seat pricing model. Furthermore, 43% 13

16 of micro SMBs, 4 of small SMBs and 69% of medium SMBs in the cloud expander segment say they either definitely plan to add hosted premium in the next three years or are considering doing so an opportunity that could add 1.9M paid hosted mailboxes to the market. Offer the Right Services Following are two key approaches that our research shows will be most successful in encouraging French SMBs to adopt hosted premium . In marketing hosted premium , service providers should offer both valueoriented and brand-name services and target their offerings and messaging to each size segment. Hosted PBX usage nearly doubled over the past year, with 7% of French SMBs now using this service and its growth will continue to outpace that of most other cloud services over the next three years. Offer Both Value-Oriented and Brand-Name Services Over the past year, service brand increased in importance, moving up to the top-ranked purchase criterion for hosted premium . But when SMBs are asked if price or a trusted brand name, such as Microsoft Exchange, is more important, brand and price both vie for the top position. Among micro SMBs, 69% favor price over brand, while 54% of small and 62% of medium SMBs rate brand as more important. In light of these mixed ratings, service providers will want to have a value-oriented premium option, such as Open Xchange, along with a big-brand-name premium offering, to capture the substantial growth that will occur across all size segments. Target SMB Size Segments Appropriately Just as micro SMBs have different opinions from small and medium SMBs about the relative importance of price versus brand, they also have different needs when it comes to hosted premium . Most micro SMBs are do-it-yourselfers and make their IT decisions based on the business benefits of the solution. Accordingly, when marketing to this size segment, service providers should emphasize the aspects that have the most impact on increasing productivity and collaboration. Small and medium SMBs also care about team collaboration tools, but their more technical IT decision makers are interested in security, backup, and archiving features, as well. Accordingly, service providers should focus on tailoring their offerings to each SMB size segment and reaching out to them with clear, targeted messaging. Hosted PBX The hosted PBX market in France remains small but has grown tremendously over the past year, with 7% of French SMBs now using the service a near doubling of last year s rate. We expect its growth to continue to outpace that of most other cloud services over the next three years, making it a service that providers will definitely want to offer. Figure 11 shows the current distribution of different kinds of office phone systems among French SMBs, with hosted PBX showing 92% growth over Most of this growth came from cloud leapers and cloud converters in the micro SMB segment. Micro SMBs generally can t afford in-house PBX systems and even if they can, they will have trouble installing and maintaining them without dedicated IT staff, as PBX server installation is extremely complex. Hosted PBX appeals to these micro SMBs because it gives them enterprise-level phone systems at a reasonable monthly rate, without the hassle of installation and maintenance. We expect to see an even greater percentage of micro SMBs move to hosted PBX in the years to come, as the service becomes more widely known. 14

17 For small and medium SMBs, growth was also strong and came primarily from cloud converters switching from their in-house PBX systems to the cloud. This trend, too, will continue and will contribute to the rapid growth of the hosted PBX market. Figure 11. Office phone use by French SMBs in 2012 (excludes mobile lines) 10 4% 1% 3% % 47% 72% 45% 42% 17% 7% 1 15% Micro Small Medium Overall, 7% of French SMBs are using hosted PBX. Hosted/virtual PBX In-house PBX Regular phone lines No phone lines Target the Opportunity As mentioned, opportunities in hosted PBX could be substantial for service providers that integrate hosted PBX into their offerings and educate French SMBs about the service s business benefits. Because of the current small base of hosted PBX users, the primary opportunities will be among cloud converters and cloud leapers, rather than cloud expanders. Cloud Converters One of the easiest targets for service providers looking to step into the hosted PBX market is SMBs that currently use in-house PBX systems. With 17% of micro, 42% of small, and 45% of medium SMBs currently using in-house PBX systems, all sizes of SMBs represent good opportunities. Furthermore, of SMBs currently using in-house PBX systems, 52% of micro, 38% of small, and 51% of medium SMBs are already considering adopting hosted PBX over the next three years. This opportunity for replacing in-house PBX systems could add over half a million hosted PBX lines to the market. Cloud Leapers Micro and small SMBs that currently do not have in-house PBX systems will continue to be one of the largest areas of hosted PBX growth in France. Of the 76% of micro SMBs that do not currently have a PBX system of any kind, 26% either plan to add hosted PBX in the next three years or are considering doing so. In the small SMB segment, 49% don t currently have PBX, and 3 of those might add hosted PBX in the next three years. Taken together, micro and small cloud leapers could add as many as 2M hosted PBX lines to the market. Cloud converters could add more than half a million hosted PBX lines to the market in the next three years, and cloud leapers could add another two million lines. 15

18 Educating SMBs about hosted PBX, keeping prices low, and understanding SMB purchase triggers will help service providers grow the use of this service. Offer the Right Services Because the hosted PBX market remains a new area for many service providers, Parallels has identified three major points that will help service providers successfully sell hosted PBX services. Educate SMBs about Hosted PBX Despite the rapid growth of hosted PBX, 19% of SMBs still haven t heard of the service (see Figure 12) about the same as in Another 24% cite technical concerns as their main reason for keeping PBX systems in-house. While this number has fallen significantly over last year s 4, it shows that many French SMBs still have misconceptions about the service, since hosted PBX is in fact likely to have fewer technical issues than an in-house PBX system. Consequently, Parallels sees education through targeted marketing campaigns as being key to spurring continued adoption of hosted PBX. Keep Price Low Price is still a leading concern among SMBs with in-house PBX systems, with 51% naming it as a top reason they haven t switched to hosted PBX (Figure 12). Price is also the leading key purchase criterion for SMBs buying hosted PBX, especially among micro SMBs. Service providers can help SMBs overcome these concerns and make the switch by offering small bundles and keeping prices low. Understand SMB Purchase Triggers An impressive 58% of French SMBs overall are considering adding hosted PBX over the next three years. Given this high level of interest in the service, it is critical for service providers to understand at what point SMBs will decide to make the purchase. Parallels asked SMBs without hosted PBX about what events would cause them to move forward with the purchase. The leading two answers overall were related to office facilities: 27% would add hosted PBX when adding a new office location, and another 18% would add it if their office location was changing (see Figure 13). In the case of just medium SMBs, a great value or price point and expiration of an equipment lease are also strong triggers (17% and 14%, respectively). Understanding these triggers can help service providers determine the highest value SMB targets for instance, those registering new business addresses or whose PBX leases are expiring. Figure 13 shows a full breakdown of SMB purchase triggers, both overall and by SMB size segment. 16

19 Figure 12. French SMBs reasons not to switch to hosted PBX (2012) % % 19% 1 2% 2% 2% 1% Price Technical concerns Do not know about hosted/virtual PBX Security and privacy concerns We are planning to switch Not recommended by my IT personnel / consultant Already paid for an in-house PBX Micro Small Medium Overall SMBs Figure 13. French SMBs purchase trigger points for hosted PBX (2012) % 2 18% 17% 1 14% 12% 7% 5% Add new locations Office location is changing Great value/ price point Equipment lease is expiring Major change to business Old equipment is broken or flaky Business has explosive growth Micro Small Medium Overall SMBs Business Applications After hosted communication and collaboration, business applications are the next highest growth area in the French SMB cloud services market. With a current market size of 383M, they are also one of the largest categories of current SMB cloud spending. Multiple analyst groups predict rapid adoption of online business applications over the next several years, and our research corroborates these forecasts. French SMBs have grown their use of online applications by nearly 2 since last year, with 58% now using some form of free or paid online applications. However, this number is still smaller than in other developed countries. In the US, for instance, 78% of SMBs use some type of online business application. As shown in Figure 14, the top business applications for French SMBs overall are currently phone conferencing (currently used by 21%), file sharing (used by 16%), and online backup and storage (used by 13%). 17

20 Figure 14. Use of paid and free online business applications by French SMBs (2012) 3 2 8% 1 8% 3% 13% Phone conferencing 8% 1 File sharing Online backup and storage 1 2% 4% 3% Instant collaboration 5% Support / help desk Online accounting 1% 6% 5% 2% 1% 1% Web conferencing ERP / resource planning Online CRM Payroll and HR Paid Free Target the Opportunity The market for online business applications among French SMBs is expected to grow to 704M by 2015, with a 22% year-overyear growth rate. With 58% of French SMBs already using some type of SaaS application, the majority of SaaS growth will come from upselling existing customers. Parallels calculates that the 2015 market size for business applications among French SMBs will be 704M, with a 22% year-over-year growth rate. As with other cloud services, growth will take place among all types of cloud users: cloud converters switching from their inhouse software to the cloud; cloud leapers that have never used the particular application in-house and are trying it for the first time as a SaaS application; and cloud expanders that are increasing their use of SaaS applications, whether by upgrading their current application plans, adding more seats, or expanding their SaaS use into additional application categories. Although we found that, overall, 22% of SMBs who currently don t use online applications are considering entering the business applications market in the next three years, our research focused primarily on cloud expanders. That s because, with 58% of SMBs already using some type of SaaS application, the majority of SaaS growth will increasingly come from upselling existing cloud customers. French SMBs that are currently using cloud services are both shifting more of their software use to the cloud and upgrading free applications to premium paid accounts. As Figure 15 shows, the fastest growing applications over the next three years will be phone conferencing (with 14% planning to add it), file sharing (with 1 planning to add it), and online accounting (with 8% planning to add it). 18

21 Figure 15. Planned adoption of business applications by French SMBs 16% 12% 8% 14% 4% 1 8% 7% 6% Phone conferencing File sharing Online acounting Instant collaboration Online backup and storage Web conferencing 3% 2% 2% 2% 1% Support / help desk Payroll and HR ERP / resource planning Online CRM Offer the Right Services Offering the right services is especially important for the business applications category, as integrating endless numbers of SaaS applications into a service provider s current offerings can be an expensive and complex process. To help minimize this complexity and increase the profitability of delivering business applications, Parallels has two specific recommendations. Offer the Right Applications to each SMB Size Segment Since the top applications depend on the size of the SMB, service providers should focus on targeting their business application offerings to specific SMB size segments. Our research shows the top applications for each size segment over the next three years will be: Micro SMBs: Phone conferencing (13%), file sharing (1), and online accounting (7%). Small SMBs: File sharing (18%), phone conferencing (16%), online backup and storage (15%), and online accounting (15%). Medium SMBs: Phone conferencing (32%), support/help desk (2), and instant collaboration (18%). Consider Bundling Business Applications and Other Cloud Services In our 2012 research, we asked French SMBs whether they would like to buy cloud services as part of a discounted bundle of several cloud services. An impressive 52% said they were interested in purchasing bundled services. Selling bundled cloud services that target each size segment and focus on the top opportunities we ve identified for that size segment will help service providers increase ARPU while also giving SMBs the cloud services they want. Offering the right applications to each size segment and bundling business applications with other cloud services will be key to growing their adoption. Overall, the growth of the business applications category makes it a favorable space to pursue especially since becoming a full-service provider continues to be the trend in the cloud service market. 19

22 Conclusion The French SMB cloud services market grew by over 2 overall during 2011, reaching 1.24B, and our research indicates that it will grow to 2.1B by Accordingly, we see huge opportunities for service providers that are able to reach SMBs with the right services at the right price. The keys to growing cloud service adoption among French SMBs are to: Know the SMB audience, reaching out to each category of SMBs with the messages that resonate most with its IT decision makers. For the non-technical do-it-yourselfers (primarily micro and non-employer SMBs), service providers should focus on business benefits; for SMBs with IT consultants or dedicated IT staff (primarily small and medium SMBs), they should focus on the technical advantages of the cloud service. Target each opportunity appropriately. For SMBs that are currently using in-house IT services, service providers will want to focus on converting them to cloud versions of those services; for SMBs without in-house IT services, service providers will want to encourage them to leap directly to the cloud; and for SMBs that are already using cloud services, service providers will want to upsell them to expanded versions of those services. Service providers can also drive growth and revenue by increasing their offerings both by adding new value-added tools to their core cloud services and by expanding their core service base with emerging services, such as business applications, hosted PBX, and paid hosted . As French SMBs use of cloud services continues to catch up with that of the rest of the developed world and all types of cloud services become mainstream, service providers who know their SMB customers, target the opportunities, and market the services successfully will grow and prosper. 20

23 2012 Parallels IP Holdings GmbH. All rights reserved. The Parallels logo and Parallels are registered trademarks of Parallels IP Holdings GmbH. No part of this publication may be reproduced, photocopied, stored on a retrieval system, or transmitted without the express written consent of Parallels. About Parallels Parallels enables service providers to rapidly launch and efficiently deliver the most profitable cloud services by automating the delivery of the broadest set of solutions demanded by small businesses. Founded in 1999, Parallels is a fast-growing company with 850 employees in North America, Europe, and Asia. For more information, please visit 21

24 Global Headquarters 500 SW 39th Street, Suite 200 Renton, Washington USA main: Europe and North Africa Willy-Brandt-Platz Munich Germany main: HostingSales.eu@parallels.com APAC 3 Anson Road, #36-01 Springleaf Tower Singapore main: HostingSales.apac@parallels.com For more office locations