SMB Cloud InsightsTM

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1 2015 SMB Cloud InsightsTM TURKEY

2 DEFINITIONS Cloud Services Categories This research is focused on the cloud services that matter most to SMBs: IaaS, Web Presence and Web Applications, Unified Communications, and a general category we refer to as Business Applications. Infrastructure-as-a-service (IaaS): Dedicated servers, virtual private servers (VPS), managed hosting, as well as add-on applications and services for hosted infrastructure, such as control panels, development platforms, LAMP stack, security, server backup, and database add-ons. Includes cloud servers, due to their increasing use among SMBs. Web Presence and Web Applications: Third-party web hosting, domain registration, SSL and e-commerce add-ons, site-building tools, high-opportunity web applications web server backup, content delivery networks (CDN), content management, mobile optimization tools, search engine optimization (SEO), and web server security and health monitoring. Unified Communications: Business-class services, including security, archiving, along with mobility and hosted business voice services. Includes communication and collaboration applications, such as web and phone conferencing, instant collaboration, and mobile device management (MDM). Business Applications: The major types of software applications that can be accessed online file sharing, online accounting, online backup and storage, online customer relationship management (CRM), payroll and human resources (HR), support and help desk, and virtual desktop (VDI). SMB Definition and Segmentation We define SMBs also known as small and medium enterprises (SMEs) as companies with 1 to 250 employees. There are around 2.4M such SMB establishments in Turkey today. SMB segments include: micro (1-9 employees), small (10-49 employees) and medium ( employees) Cloud Opportunity Type Cloud leapers: This category consists of SMBs that currently are not using an in-house IT solution (no servers, no web server, or no PBX system) and are likely to move straight to the cloud, leaping over the intermediate in-house IT solutions. 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 expanders: These SMBs, who are already using some form of cloud services, represent an opportunity for upselling to new and expanded cloud offerings. For example, an SMB who is using web hosting would be acting as a cloud expander when they purchase mobile optimization to complement their website.

3 The Overall US Cloud Market Continues Growth 2.9B 2015 ($1.3B USD) Odin SMB Cloud Insights has entered its fifth year of research into the consumption of cloud services by small and medium businesses (SMBs). Our research aims to help cloud service providers meet the needs of their SMB customers. This year, Odin asked new questions and drove deeper insights than any prior research. Globally and locally, we are finding that SMBs from a variety of sectors are finding it advantageous to move business functions into the cloud. Hosted services previously reserved for enterprise-level firms are trickling into smaller firms and developers are creating services specifically for the SMB market. Service providers can take advantage of these trends by harnessing the insights produced within this report. This is Odin s first year researching the Turkish SMB cloud services market. As of 2015, we estimate the SMB cloud service market to be 2.9B ($1.3B USD). The Turkish infrastructure-as-a-service (IaaS) market is the largest category in the SMB cloud service space and is valued at 1,052M ($464M USD). Web presence and unified communication markets are valued at 445M ($196M USD) and 617M ($272M USD), respectively. Business applications, sometimes referred to as software-as-a-service (SaaS), has a market value of 794M ($350M USD). This report dives into each of these markets, breaks down how SMBs are using these services, and explains how service providers can leverage this information. 1

4 INFRASTRUCTURE-AS-A-SERVICE (IaaS) IaaS Accounts for 36% of the Cloud Services Market in % 15% 21% 28% IaaS Web presence Unified communications Business apps 1,052M ($464M USD) 2.9B ($1.3B USD) The Turkish IaaS market reached an estimated 1,052M ($464M USD) in the last quarter of The market is still maturing and demand for IaaS among Turkish SMBs is growing. The VPS is the most popular form of IaaS because SMBs prefer the flexibility and value that a VPS offers over a physical and cloud server. As this market emerges, SMBs are also consuming many full-featured add-ons and managed services rather than relying on in-house development of add-ons and server management. We will dive into these trends below. VPS Used More Heavily Than Cloud or Physical Servers 45% 61% 22% Physical servers VPS Cloud servers Note: 32% of SMBs interviewed use more than one type of server 2

5 Top Barriers to Hosted Servers Vary by Firm Size 60% 50% 40% 30% 20% 10% 0 Price Security / privacy Needs to be in-house Micro Small Medium Our research has found that micro firms are extremely price sensitive when it comes to adopting new technology. As a result, the largest barrier holding them back from using hosted servers is price. Small and medium firms are less sensitive to price, but those that avoid hosted servers do so due to security concerns and a need to host in-house. Service providers can address these concerns by providing low cost solutions to micro firms and offering robust security packages for larger firms. Top Workloads for Hosted Servers % Web server 57% Database applications 30% Project management / file sharing 3

6 SMBs Are Willing to Pay More for High Availability and Unlimited Storage High Availabity 74% 50% SMBs would pay up to 5 more each month SMBs would pay up to 10 more each month Unlimited Storage 75% 48% Control Panels Will Remain the Top Server Add-on through Control panel SQL database Security Server backup 2018 Control panel Server backup SQL database Security Almost all SMBs interviewed indicated that they use at least one server add-on with their hosted server. The most commonly used add-on was a control panel, such as cpanel or Plesk. Other popular add-ons include SQL databases and security / anti-virus tools. Moving into 2018, control panels will remain the most popular addon and server backup will rise in popularity. Our research shows that SMBs will increase their usage of all types of add-ons over the next few years adding to growth in the IaaS market. 48% of SMBs with self-managed servers want to upgrade to fully managed within three years 38% 80% of SMBs with hosted servers reported using fully-managed servers of cloud leapers want to go fully managed within 3 years 4 High-touch, managed solutions are becoming more popular among SMBs. Many SMBs without hosted servers want to move directly to managed servers and those with in-house management of hosted servers want it to be outsourced. Service providers offering managed services will be able to increase their revenue while enabling SMBs to focus on their own businesses.

7 IaaS Opportunity through % Cloud leapers (New adoption) 75% Cloud converters (Switch from in-house) 14% Cloud expanders (Increase spending) 31% CAGR 1,052M ($464M USD) 2,353M ($1,036M USD) The Turkish IaaS market is poised for explosive growth. By 2018, the market will more than double its current size growing to 2,353M ($1,036M USD) at an annual growth rate of 31%. Service providers who are able to meet the needs of SMBs will be able to take advantage of this expansion. Customers in the micro segment can be won through competitive pricing while the larger segments will look to more robust security packages. Dedicated servers are losing popularity while the ease of VPS and the flexibility of cloud servers are gaining more traction. Service providers in Turkey will find success aiding cloud leapers and cloud converters grow their businesses by moving into the cloud. 5

8 WEB PRESENCE Web Presence Accounts for 15% of the Cloud Services Market in % 15% 21% 28% IaaS Web presence 445M ($196M USD) Unified communications 2.9B ($1.3B USD) Business apps The Turkish web presence market is estimated to sit at 445M ($196M USD). This market is comprised of the 870,000 Turkish SMBs which have a website for their business (38% of total). Managed websites are becoming increasingly popular as are website add-ons such as SEO and e-commerce capabilities. Below we will explore the SMB s pathway as it purchases and manages its business website. Many SMBs rely on in-house expertise for their website design and management. However, we expect this dependency on in-house resources to change over the next few years. 68% of SMBs with in-house hosting are considering moving to third-party hosting and 36% of firms with in-house management are considering moving to fully-managed websites. Services providers which position themselves as a one-stop shop for design, hosting, management, and website applications will be able to grow a SMBs move towards hosted and managed websites. Mobile Optimization of Website Site only displays properly on a computer Site displays on mobile without optimization Optimized for mobile devices 15% 27% 59% 6

9 Web Site Design 60% 40% 220 億 円 In-house Third-party web designer Thirdparty hosted 67% Website Hosting 33% Self hosted Top Website Applications SEO E-Commerce Website Add-on Purchase Location 39% Purchased from web hoster at time of website purchase 22% Purchased directly from application developer 21% Other third party Backup 75% In-house Website Management 17% Web designer 4% 4% Web hoster 36% of SMBs are considering moving to a fully managed website Family friend 18% Purchased from web hoster after purchasing website 7

10 Top Social Media Use in % 25% 15% Facebook LinkedIn Twitter Web Presence Opportunity through 2018: 68% 14% of SMBs with self-hosted websites are considering converting to 3rd party web hosting within three years of SMBs with hosted websites are planning to increase spending on web hosting over the next three years Web Presence 28% CAGR 445M ($196M USD) 927M ($408M USD) The web presence market is estimated to more than double in size by Growth in this market will come from businesses adding new websites and businesses moving away from in-house hosting. Despite the competitive marketplace for commodity hosting, there are value propositions to be made in every step of the web presence lifecycle. From website design and hosting to management and application sales, there is tremendous opportunity in this market. 8

11 UNIFIED COMMUNICATIONS Unified Communications Accounts for 21% of the Cloud Services Market in % 15% 21% 28% IaaS Web presence Unified communications Business apps 620M ($273M USD) 2.9B ($1.3B USD) The unified communications category, which includes hosted business voice services (PBX), hosted , and communication applications, holds an estimated value of 620M ($273M USD). 1 in 2 Turkish SMBs rely on smartphones and rank them as their most frequently used mode of communication. More complex communication tools including hosted business voice services are commonly adopted as firm size increases. In terms of , half of SMBs do not use business , but many indicated that they are interested in adding it within the next three years. This section describes the concerns and purchase triggers SMBs face when considering hosted business voice services and premium . It also identifies the value that current users find in these services. Communication Devices Used by Turkish SMBs 49% 45% 32% 15% 13% Smartphone Landline Tablet Softphone IP Phone 9

12 Business Voice Service Usage 60% 50% 40% 30% 20% 10% 0 28% Growth Micro Small Medium Most SMBs Keep Their Business Voice Services In-House 14% Hosted In-house 86% Top Concerns about Hosted Business Voice Services 10 50% 40% 30% 20% 10% 0 Price Unaware of business voice services Technical Micro Small Medium Security

13 Top Purchase Triggers for Hosted Business Voice Services Major change to business Good price point New office locations Business growth Value of Hosted Business Voice Services 50% 40% 30% 20% 10% 0 Instant message Mobile devices Increases customer satisfaction Auto attendant Increases productivity Auto call distribution Both As firm size increases, SMBs are more likely to use hosted business voice services but the vast majority prefer to keep their voice services in-house. Concerns about hosted solutions vary by business size. Micro and small businesses are price sensitive while medium businesses largest concern is security. Service providers should offer enticing value propositions to small firms and highlight the security of their systems to medium firms. 11

14 Business Location 30% 12% 9% 49% Hosted by a service provider Free service In-house server Do not use Advantages of Paid Business over a Free Service Security Archiving Outlook integration Calendar alerts and notifications 75% 46% 37% 30% Top Purchase Triggers for Premium Hosted Increased need for security Good price point 12

15 Half of Turkish SMBs use , but only a smaller proportion use a paid hosted service. More than any other attribute of paid hosted , SMBs value the security it offers. Service providers should educate SMBs on the importance of security and develop secure offerings. Unified Communications Opportunity through % 31% 26% 51% 10% 32% Web conferencing Instant collaboration Mobile device management Likelihood of Enter Cloud Market for 68% Switch from in-house 47% New adoption 23% Increase spending 29% of SMBs without hosted business voice services plan to add it within 3 years 13

16 Unified Communications 23% CAGR 620M ($272M USD) 1,137M ($500M USD) The unified communications market is estimated to grow at a rate of 23% year-over-year reaching 1,137M ($500M USD) in Significantly, Turkish SMBs place a high value on security for hosted voice services and hosted . This should be a focus of service providers marketing and product development plans. Collaboration applications such as WebEx, Skype, and AppTec clearly have value to SMBs as they are looking adopt these services in the near future. Within the unified communications market, the market for collaboration applications will grow at a CAGR of 23% over the next three years. 14

17 BUSINESS APPLICATIONS Business Applications Accounts for 28% of the Cloud Services Market in % 15% 21% 28% IaaS Web presence Unified communications 2.9B ($1.3B USD) Business apps 794M ($350M USD) The business applications market sits at an estimated 794M ($350M USD) in SMBs use a number of business applications but rely most heavily on file sharing and online backup. While other applications currently used at lower rates, SMBs have indicated that they are interested in using more applications in the near future. This section dives into how SMBs purchase their business applications and how service providers can promote sales. Present and 2018 Usage of Top Business Applications 26% 46% 25% 46% File sharing Online backup 12% 37% Support / help desk 14% 35% VDI 15% 32% Online accounting 12% 31% Payroll and HR 6% 24% Online CRM

18 78% of the Paid Business Application Market Was Captured by Offering a Free Trial Purchased after free trial expired Purchased to access more features Purchased without a free trial 55% 23% 22% Business Application Opportunity in % Average new use 21% Average increase in spending 16

19 Business Apps 28% CAGR 794M ($350M USD) 1,656M ($730M USD) The Turkish business applications market will see strong growth over the next three years reaching 1,656M ($730M USD) by Presently, web hosters take in over 50% of sales in this market but other sales channels have the potential to disrupt this paradigm. As the data shows, free trials are an effective tool in turning potential customers into sales. While all types of applications will see growth during the next three years, usage of support / help desk and online CRM is estimated to increase significantly. When developing a sales platform for business applications, service providers have the option to bundle applications with other services or leave services unbundled. The following section looks into SMBs preferences for bundled and unbundled services. 17

20 BUYING CLOUD SERVICES To Bundle or Not to Bundle? Of SMBs prefer to purchase their cloud services in a bundle 51% 49% Of SMBs prefer to purchase their cloud services separately Discounts on services is the highest rated reason to purchase cloud services in bundles Only paying for services used is the highest rated reason to purchase cloud services separately SMBs always try to maximize the value of their spending and avoid paying for unnecessary services. As a result, Turkish SMBs find value in both bundled and separately purchased services. SMBs find it advantageous to purchase in a bundle if it offers a significant discount. However, SMBs prefer the transparency of separately purchased services if the bundle incurs unnecessary costs. Most SMBs use only a few service providers for their business meaning that it is crucial for service providers maintain long-term relationships with their customers. Number of Service Providers Used by SMBs 50% 40% 30% 20% 10% 0% Number of Service Providers Micro Small Medium 18

21 How do SMBs Contact Their Service Providers? 36% 20% 35% 9% support Online chat Over the phone Regular in-person visits Total Market Opportunity 620M ($272M USD) 1,137M ($500M USD) 28% CAGR ,052M 2,353M 445M 927M 620M 1,137M 794M 1,656M IaaS Web presence Unified communications Business applications Turkish SMBs are running more efficiently and growing their companies by moving many business functions into the cloud. The market for cloud services will experience significant growth reaching an estimated 6.1B ($2.7B USD) by Service providers have the opportunity to profit from this explosive growth but must keep up with the complex and changing needs of SMBs as this cloud market matures. 19

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23 Learn More Please contact with any further questions. Odin is committed to helping our partners understand the best opportunities in the SMB cloud market. This report covers only a portion of the extensive data included in Odin SMB Cloud Insights research. About Odin Odin provides the software that powers the cloud ecosystem, from small and local hosters to some of the world s largest telecommunication companies. By partnering with Odin, service providers gain access to industry expertise, a catalog of the most indemand cloud applications, and the most comprehensive selection of software including web server management, server virtualization, provisioning, and billing automation. With offices in 15 countries, Odin supports more than 10,000 service providers in delivering applications and cloud services to more than 10 million SMBs. For more information, visit follow us on Twitter, or like us on Facebook Parallels IP Holdings GmbH. All rights reserved. Odin and the Odin logo are 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. 21

24 GLOBAL HEADQUARTERS 500 SW 39th Street, Suite 200 Renton, WA USA main: EMEA Willy-Brandt-Platz Munich Germany main: APAC 3 Anson Road, #36-01 Springleaf Tower Singapore main: For more office locations odin.com/contact

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