PRACTICAL GUIDANCE FOR Grow Profit as a Full-Service Provider Parallels SMB Cloud Insights TM. for Germany

Transcription

1 PRACTICAL GUIDANCE FOR 2011 Grow Profit as a Full-Service Provider Parallels SMB Cloud Insights TM for Germany

2 Table of Contents Executive Summary...1 Key Findings in the Cloud...3 Growth Opportunities Overview...3 Hosted Infrastructure...5 Web Presence...6 Hosted Communication and Collaboration...8 Hosted Hosted PBX...9 Other Online Applications Conclusion... 12

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 IT landscape in Germany in 2011, we see SMBs participating in the Cloud opportunity to varying degrees ranging from leasing a single server, to sophisticated customer relationship management systems, to complex financial packages. During the first half of 2011, Parallels interviewed 400 German SMBs of different sizes and industries about their Cloud service consumption, future plans, and attitudes both in general and with respect to specific online applications such as hosted communication and collaboration. Using a combination of the results of these interviews and our extensive knowledge about the Cloud services space, we have created a comprehensive view of the German SMB market in 2011 for Cloud Services. This paper is a summary of this research, distilled to provide practical insights on how to drive growth in the German SMB Cloud market. Parallels estimates the German SMB Cloud services market in 2011 to be 770M, including hosted infrastructure and Web presence. Hosted communication and collaboration and other hosted applications were not included, as our research in these two segments was around adoption rates only. As shown in Figure 1, the hosted infrastructure market contributes 460M to this market, and Web presence contributes 310M. Micro businesses (1-9 employees) account for nearly 65% of this spending and 84% of the total market size. As we will discuss later in this paper, the micro business segment is still underpenetrated in many Cloud service areas, indicating a significant opportunity to grow this segment particularly with respect to hosted infrastructure and Web presence. Other online applications have also reached a good rate of adoption in Germany, with up to 56% of SMBs paying for at least one online application. Overall, we believe that targeting marketing messages to specific SMB audiences, as well as continuing to upsell the current customer base by expanding Cloud offerings, is the best way for service providers to propel growth in the German SMB market. Figure 1. SMB Cloud services market size in Germany 310M 770M 460M Hosted Infrastructure Web Presence Total 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 applications. We define each of these sub-segments of the Cloud services market as follows: Hosted infrastructure (also known as infrastructure-asa-service). This category includes dedicated servers, virtual private servers (VPS), managed hosting, and utility or elastic computing. Web presence. This category includes third-party 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 and hosted PBX services, including security, archiving, mobility, and phone services via voice-over-ip (VoIP). Other online applications (also known as software-as-aservice, or SaaS). This category covers nine major classifications of software applications that can be accessed online content management, archiving solutions, file sharing, online accounting, online backup and storage, online CRM, payroll and HR, phone conferencing, and Web conferencing. For each of these Cloud service areas, Parallels captured SMBs current use, attitudes, and future plans. For the hosted infrastructure and Web presence markets, we also calculated market size. In future versions of this research, we plan to add spending and market size details for all Cloud service segments. As for our definition of small and medium businesses (SMBs) also known as small and medium enterprises, or SMEs we follow the practice of the European Commission on Enterprise and Industry, defining SMBs as companies with 1 to 250 employees. Sub-categories within the SMB segment include: Micro SMBs (companies with 1-9 employees) Small SMBs (companies with employees) Medium SMBs (companies with employees). Our research does not include businesses in Germany that have no employees (sole proprietor only), but this group of small businesses should still be considered a good market for Cloud services in Germany as it has many of the same characteristics and IT needs of a micro SMB. 2

5 Key Findings in the Cloud While Germany s Cloud services market is well established, our research shows that its SMB market still has plenty of room to grow particularly in targeted segments. As Cloud services continue to come down in price and get marketed directly to SMBs, we expect to see significant replacement of in-house IT services with hosted services, especially among micro and small businesses. Ample opportunity also exists for service providers to upsell their existing customers both within their current service areas and by adding new services. Growth Opportunities Overview As shown in Figure 2, Parallels has identified two major approaches that will help service providers take best advantage of the growth opportunities for Cloud services in the German SMB market. 1. Focus on the needs of specific audiences to drive new customer adoption. Our research shows that service providers should look at the SMB market as two separate audiences: The micro SMB market is still underpenetrated in their use of most Cloud services. Micro SMBs. Micro SMBs represent a particularly strong opportunity for service providers. Fewer than 30% of micro SMBs report having any dedicated IT staff; for these businesses, hosted services represent a less complex, more cost-effective solution than in-house IT. Furthermore, compared to the SMB market as a whole, the micro SMB market is still underpenetrated in most Cloud services. Service providers can encourage adoption of Cloud services by targeting their marketing to these smaller SMBs and tailoring their packages accordingly. In particular, their marketing messages need to speak the language of these small business owners, focusing on the business benefits and simplicity of Cloud services. Simple, intuitive user interfaces will also help improve micro SMB experiences and hide the underlying complexity of the solutions. Small and medium SMBs. Service providers can also find growth opportunity among small and medium businesses, particularly for more sophisticated IT offerings. For these businesses, the marketing target becomes the IT staff. 60% of small SMBs and 86% of medium SMBs have at least one dedicated IT employee, who will be the IT influencer or decision-maker for all Cloud service purchases. Providing clear, detailed information about the technical specifications of Cloud offerings, their differentiating features, and their business value will be key in selling to this group. For small and medium SMBs, target their IT staff and provide clear, detailed technical information about specs and differentiating features. 3

6 Figure 2. IT staff reported by sub-segments of German SMB market 100% 75% 2% 30% 6% 2% 3% 60% 50% 25% 0% 86% 63% 11% 27% 3% 8% Micro SMBs Small SMBs Medium SMBs No dedicated IT staff IT consultants Dedicated IT staff I don t know As the German Cloud services market continues to mature, upselling existing customers will become an increasingly important way for service providers to grow their business. 2. Upsell existing customers with value-added tools and new services. As the German Cloud services market continues to mature, upselling existing customers will become an increasingly important means of increasing revenue. Service providers can do this both by augmenting their core offerings with new value-added tools or services (e.g., a Facebook plug-in for customers who use your Web hosting service) and by adding emerging Cloud services to expand beyond your current core offerings. These added Cloud service offerings could include hosted communication and collaboration services such as hosted and hosted PBX as well as other online applications, including content management, archiving solutions, and file sharing. Since Parallels sees the Cloud service market in Germany trending toward service providers becoming full-spectrum providers, the latter step would put you in the forefront of this trend. The following sections examine each of the Cloud service sub-segments in more detail and point out key opportunities we ve uncovered within each sub-segment particularly for the different audiences (micro, small, and medium). 4

7 Hosted Infrastructure Hosted infrastructure in Germany is a relatively mature market, with 21% of SMBs reporting using hosted servers (see Figure 3). Parallels estimates the total SMB hosted server market at 460M, with approximately hosted servers in use. The majority of these are physical servers, but VPS market has traction as well, with 8% of SMBs reporting their use. Figure 3. Hosted server penetration in German SMBs 100% 15% 4% 75% 50% 25% 0% 55% 46% 50% 24% 27% 16% 1% 26% 19% 16% Micro SMBs Small SMBs Medium SMBs Overall, 21% of German SMBs report using a hosted server Hosted servers Both hosted and in-house In-house servers No servers Despite the maturity of the market, Parallels sees some room for growth, particularly in the micro and small SMB segments. Approximately 34% of these companies are still using in-house servers (see Figure 4 for their reasons). Although these SMBs might not realize it, hosted servers represent an easier option when compared to the time and effort required to maintain in-house servers. Our research found that, of the SMBs in this size segment who currently have in-house servers, 48% either definitely plan to add or are thinking about adding hosted servers in the next three years. Parallels, therefore, estimates an opportunity to add up to new hosted servers over the next three years. To succeed in this market, however, service providers must differentiate themselves. Price is particularly important to German SMBs, with 56% of these businesses ranking price as the top reason to keep servers in-house. Educating SMBs on the true cost of owning an in-house server should help win these SMBs business. Additionally, offering lower-priced hosted infrastructure options will help encourage SMB adoption of these services. Service providers should push VPS offerings as a particularly good option for price-sensitive SMBs, as they would get all the security and isolation benefits of a dedicated server but at a fraction of the monthly cost. The micro and small SMB segments represent the best opportunity for growth in the hosted infrastructure space. Keeping price low and educating SMBs about the true costs of owning in-house servers will help speed adoption. 5

8 Figure 4. German SMBs reasons to keep servers in-house 75% 50% 25% 0% Price 56% Security and privacy concerns 45% Specific application(s) needs to be in-house/ other technical concerns 29% 18% Specific application(s) not supported by any service provider 9% Bandwidth / connectivity issues 3% Not recommended by my IT personnel / consultant Micro SMBs Small SMBs Medium SMBs Overall SMBs Web Presence It is no secret that the German Web presence market is crowded and competitive. As shown in Figure 5, approximately 85-95% of German SMBs have a website and, of these SMBs, 45% are already using a third-party provider for their Web presence. As such, Parallels sizes the current Web presence market at 310M. Figure 5. Web presence market penetration in German SMBs 100% Overall, 45% of German SMBs are using a third-party provider for web presence 75% 50% 25% 0% 18% 44% 54% 4% 6% 4% 49% 35% 35% Micro SMBs Small SMBs Medium SMBs 3rd-party hosted Self-hosted Don t know Currently, 11% of SMBs who use a stand-alone Web hosting plan intend to increase their spending in the next three years. This alone represents a good opportunity, but we feel that even more SMBs can be convinced to spend more on their Web presence, if service providers offer them the value-added tools and services they need to be successful. 6

9 The top upsell opportunities our research has identified are: Website design tools. Some 55% of SMBs currently design their websites in-house. For the smallest SMBs, this number is as high as 63%. Service providers who offer website design tools will help SMBs create more sophisticated websites in-house without a significant outlay of cash. Social media. Facebook is currently the second most popular form of Web presence in Germany, with 18% of SMBs using it (local directories are first). In the US, where Facebook has a longer history, this number is over 50%, and we believe that the German market will likely adopt a similar trend over the next few years. Rather than let Facebook become a threat to service providers, Parallels believes there is an opportunity to capitalize on this trend. Service providers can enhance their stand-alone Web hosting offerings by giving SMBs the ability to create Facebook pages and cross-link them to companies own websites. The recent integration of Parallels Web Presence Builder with Facebook will allow SMBs to do just that. E-commerce. In Germany, nearly 25% of medium businesses (those with employees) have e-commerce capabilities, while only 13% of micro and small businesses do. Adding a plan with easy to use e-commerce features will help you upsell micro and small businesses, who are underpenetrated in this space. In order to gain new Web presence customers, service providers will need to target segments that still need websites. As noted above, website use ranges from 85 to 95% among most SMB size segments, but is approximately 70% among micro SMBs. Our research shows that, among micro SMBs who don t currently have websites, 51% either definitely plan to add one or may add one in the next three years. With over 1.5M micro SMBs in Germany, this interest represents a sizable opportunity of up to new Web presence plans over the next three years. While our research did not focus on SMBs without employees, we expect a strong opportunity in this segment as well as their Web presence needs tend to be quite similar to micro SMBs. Service providers should upsell their existing customer base by providing tools to help SMBs enhance their Web presence, such as website design tools, social media integration, and e-commerce services. Targeting micro SMBs without websites could add up to new Web presence plans over the next three years. Finally, Parallels research showed that price alone is not the key differentiator when SMBs are considering a third-party Web presence provider (see Figure 6). Perception of the service provider, including technical characteristics and a clear and informative website, were equally important. Consequently, we expect service providers who position their company as cutting-edge, user-friendly, and competitively priced to win in this market. 7

10 Figure 6. Key Web presence purchase criteria for German SMBs (scale of 0 to 10) Tech characteristics Price Clear, informative website Online research Pre-sales support Recommendations Well-known brand Local provider Micro SMBs Small SMBs Medium SMBs Overall SMBs Hosted Communication and Collaboration Parallels focused its hosted communication and collaboration research on the premium business and the hosted PBX portion of the SMB market. The overall market in Germany is small for these two services, with just 5% of SMBs paying for premium hosted and less than 2% using hosted PBX services. Within these markets, Parallels identified small, targeted opportunities for some service providers. Hosted When looking at the composition of use in German SMBs, it s easy to understand why paid, hosted remains a very small market. As shown in Figure 7, free forms of dominate SMB use, with 33% using free provider accounts, such as GMX or Gmail, and 45% using free hosted through their Web presence provider. With robust free offerings readily available, convincing SMBs to pay, particularly micro SMBs, is very challenging. Figure 7. Distribution of different types of accounts in German SMBs 100% 75% 3% 11% 36% 4% 2% 36% 53% 50% 17% 8% 25% 50% 43% 37% 0% Micro SMBs Small SMBs Medium SMBs Hosted service provider ISP or free provider In-house server No 8

11 However, Parallels sees opportunity among small SMBs (with employees). In this segment, 36% are currently using in-house servers an expensive and complicated solution for small companies. Premium hosted , which includes security, archiving, and mobility, is a good business choice for these companies, who can benefit both from the team collaboration aspects of a premium hosted offering and from a pay-per-seat pricing model. Parallels research found that 53% of small SMBs are either definitely planning to switch from in-house servers to paid, hosted in the next three years or are thinking of doing so. This opportunity adds up to 1 million new hosted mailboxes to the market. Hosted PBX The hosted PBX market is still tiny in Germany, averaging only 2% penetration among SMBs (see Figure 8). While hosted PBX is a great option for SMBs and is gaining traction in many areas of the world, significant regulatory barriers in the German telecom space might slow service providers ability to offer this service to SMBs. Small SMBs represent best market for premium hosted offerings; targeting this SMB segment could add up to 1 million new hosted mailboxes. Figure 8. PBX use by German SMBs 100% 75% 50% 25% 4% 66% 29% 2% 2% 36% 17% 62% 66% 0% 0% 5% 15% Micro SMBs Small SMBs Medium SMBs Hosted/virtual PBX In-house PBX Regular phone lines No phone lines 9

12 For many of the 40% of micro and small SMBs using an in-house PBX system, hosted PBX is a less complicated, more flexible option for office voice particularly when small, low-cost bundles are available. However, for those service providers able to navigate these regulatory waters, the hosted PBX market could have significant potential. As in the US, where hosted PBX is rapidly gaining adoption, German SMBs have a high penetration of in-house PBX systems. For many of the 40% of micro and small SMBs using an in-house PBX system, hosted PBX is a less complicated, more flexible option for office voice particularly when small, low-cost bundles are available. Currently, less than 5% of SMBs with in-house PBX plan to switch to hosted PBX over the next three years, but this is largely because few viable options exist. Lack of education is also a barrier: approximately 25% of German SMBs have never heard of hosted PBX services. Other Online Applications Other online applications represent one of the fastest growing areas of the German Cloud service market. Multiple analyst groups predict rapid adoption over the next several years, and our research corroborates these forecasts. Currently, up to 56% of German SMBs are using some form of free or paid online applications. As shown in Figure 9, the top online applications are phone conferencing, file sharing, and online backup, with 30%, 16% and 13% penetration among SMBs, respectively. Figure 9. Use of online applications by German SMBs Paid Free 30% 25% 20% 17% 15% 10% 5% 0% 13% Phone conferencing SMBs planning to purchase 9% 7% File sharing 4% 9% Online backup and storage 10% 1% Payroll and HR 3% 8% 6% 8% archiving solution 5% Content management 2% Online accounting 4% 4% Web conferencing 2% <1% Online CRM 9% 4% 7% 3% 9% 4% 5% 8% 4% 10

13 While a significant portion of online application use is still free, planned adoption of paid online applications is high. Nearly 10% of SMBs plan to add phone conferencing, archiving, Web conferencing, and/ or online backup and storage over the next three years. Furthermore, nearly all nine categories of online applications have some planned adoption among SMBs. The fast growth and high adoption rate of the online applications category make it a favorable space for service providers to pursue especially since becoming a full-service provider continues to be the trend in the Cloud service market. Nearly 10% of small businesses plan to add phone conferencing, archiving, Web conferencing, and/or online backup storage over the next three years. 11

14 Conclusion Parallels estimates the size of the current German Cloud services market for SMBs including hosted infrastructure and Web presence at 770M. Although the market overall is quite mature, our research shows that ample opportunity still exists within targeted segments of the market. The keys to growing Cloud service adoption especially among micro and small SMBs (1-49 employees) are to: Encourage substitution of in-house IT with Cloud services Target new entrants into the market Service Providers can also drive growth and revenue by increasing their offerings both by offering new value-added tools to their core Cloud services and by offering emerging Cloud services that expand their core service base, such as other online applications, hosted PBX, and hosted . For service providers, these new offerings will both encourage upsell from their existing customer base and help attract new customers. As all types of Cloud services become mainstream in the German SMB market, those service providers who successfully transform themselves into full-service providers for SMBs will end up on top 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. 12

15 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 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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