Parallels SMB Cloud Insights TM Australia
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 as of, due to their increasing use among SMBs. Web Presence and Web Applications: Third-party web hosting, domain registration, SSL and ecommerce 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. Overall Growth of the Australian SMB Cloud Market Parallels SMB Cloud Insights has entered its fourth consecutive year of research into the cloud service consumption of SMBs. In, Parallels has updated its research by redefining some of the categories examined. Infrastructure-as-a-Service now includes the use of cloud servers by SMBs, which wasn t previously measured due to cloud servers being an enterprise level option. But SMBs are also beginning to take advantage of them as a scalable and flexible solution. Unified Communications, previously called Communication and Collaboration, is now an aggregate category which includes Hosted Email, Hosted PBX, and collaboration applications. Unified Communications: Business-class email services, including email security, email archiving, along with mobility and hosted phone services, including hosted PBX. As of, 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 CRM, payroll and 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 over 800,000 such SMB establishments in Australia today. SMB segments include: micro (1-9 employees), small (10-49 employees) and medium (50-250 employees). A$1.3B 2013 ($1.2B) A$1.7B * ($1.6B) 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. The Australian SMB cloud market as a whole experienced substantial growth to A$1.67 billion ($1.57B) by mid-. Infrastructure-asa-service makes up the largest portion of the market, at A$561M ($527M). Web presence increased to A$333M ($313M). Unified Communications makes up A$331M ($311M), catching up to Web Presence. Business Applications account for the remaining A$439M ($412M), with the second largest share of the market. * market size includes cloud servers, 2013 market does not. 1
INFRASTRUCTURE-AS-A-SERVICE (IaaS) IaaS Market Growth A$343M 2013 ($322M) A$561M laas Grew by 37% ($527M) Hosted Servers are Mainly Used for Same Purposes as Last Year 1 2 3 49% Web Server, CMS, Ecommerce 37% Database Applications 34% Accounting, Financials Cloud Server Market Size: A$92M ($86M) As a core service, in 2013 we saw IaaS beginning to slow in growth in mature markets, due to market saturation. However, this year we see much stronger growth than expected last year in Australia. There are a few factors at play which contribute to this surge of market growth. Firstly, SMBs have entered the cloud server space, and use of cloud servers as a scalable solution is increasing. In, cloud servers comprised A$92M ($86M), or 16% of the IaaS space for Australian SMBs. Secondly, SMBs reported buying more add-ons for their hosted servers in than in 2013, which we ll look at in this section. Thirdly, use of fully managed servers is on the rise. Managed services bring in more revenue for service providers, and are gaining ground among SMBs. The hosted infrastructure market continues to offer fresh solutions to meet the changing needs of SMBs, allowing it to sustain growth even as a core service. SMBs are Willing to Pay More for High Availability or Unlimited Storage 28% High Availability Availabity 28% of SMBs would pay $5/mo more for high availability Usage 30% Unlimited Storage 30% of SMBs would pay $10/mo more for unlimited storage $5 $10 Barriers to Adoption 41% 34% Price 41% of in-house users say price is their main concern about switching to hosted servers, 34% say security is their main concern. Backup,, and Database Add-ons Projected for Highest Growth in Demand SMBs are buying more add-on services with their hosted servers, particularly security and database add-ons, which increased by more than 10%. Looking forward, we see further jumps in usage of addons. (Figures to the right are 2017 projections) 47% 40% 31% 79% 72% 51% Server Backup Database add-ons Server Backup Database add-ons 2 2017 3
WEB PRESENCE SMBs Have Started Using Managed Servers Web Presence and Web Applications 40% 31% 46% SMBs with hosted servers reported using fully managed servers SMBs with self-managed servers who want to upgrade to fully managed SMBs without hosted servers who would consider going fully managed A$275M 2013 ($259M) A$333M ($313M 21% Growth IaaS Opportunity Through 2017 50% of in-house users plan to convert to IaaS by 2017 15% 3 Year CAGR The Australian SMB Web Presence market grew 21% to A$333M AUD ($313M USD) in. Growth here came from micro and small cloud leapers and cloud converters. These are businesses with fewer than 50 employees adding their first third-party hosted websites or switching from self-hosted websites. Growth among medium businesses came entirely from cloud converters. Additionally, we asked SMBs if they were using managed web hosting. Managed web hosting provides greater revenue per customer than commodity hosting, and SMBs are beginning to use more managed services. Most Demanded Web Applications 38% 50% 7% Cloud Leapers New Adoption Cloud Converters Switch From In-House Cloud Expanders Increase Spending In the next few years, we see a lot of growth coming from cloud converters. In-house servers require in-house IT expertise and resources which can detract from the SMB focusing on business. 50% of cloud converters said they want to switch to hosted servers, which will improve this situation. Cloud leapers also show great interest in adoption adding hosted servers as their first servers. These will be good customers to target as the IaaS market continues to evolve with new high-touch solutions. A$862M in 2017 ($811M) SEO SSL 4 5
WEB PRESENCE Top Forms of Social Media Use in 41% 34% 16% SMBs are using more web applications, but where are they buying them? About 40% of SMBs purchase web applications from their hoster at the time of the initial website purchase. About 25% buy from third parties. This demonstrates that SMBs are more likely to bundle their web apps at the initial purchase, rather than purchase separately through the developer or after the fact with their hoster. This is common across many markets. Mobile Optimized Websites Have Become a Standard and Many SMBs Still Need One Facebook LinkedIn Twitter 11% Don t know Outsourcing Web Design and Management Has Become More Popular 26% Mobile Optimized SMB websites 34% No Optimization Needed 32% of SMBs designed their website in-house 17% of SMBs used site builders 60% of SMBs used a web designer 29% PC Only Optimzed 31% said their websites are managed by their web hoster or web designer 24% who manage in-house said they d like to switch to 3rd party management Web Presence Opportunity in 2017 A$388M ($364M) 5% 3 Year CAGR While micro SMBs are increasing their use of sitebuilders to design their websites, small and medium businesses are increasingly using web designers. Additionally, nearly a quarter of SMBs use a third party to manage their websites. 35% 50% Cloud Leapers New Adoption Cloud Converters Switch from In-House 21% Cloud Expanders Increase Spending SMBs who buy web apps bundled with website purchase SMBs who buy web apps from a third-party provider 40% 24% Growth in Web Presence is slowing due to market saturation, but there is still opportunity across all SMB sizes. Both medium cloud leapers and converters are highly inclined to add/switch to third-party hosted websites, and over 70% of small converters are considering switching to third party hosted websites. 21% of SMBs already using third-party hosted websites will augment their web presence with additional spending, managed web hosting or web applications. This is where we predict the long term growth for Web Presence will be in managed services and web applications which evolve to meet the needs of SMBs. 6 7
UNIFIED COMMUNICATIONS (UC) Unified Communications Market Growth A$331M ($311M) What Features are Most Useful to SMBs in Hosted PBX Systems? 50% Growth Unified Communications now includes business class email, hosted PBX, and collaborations applications (instant collaboration, web/phone conferencing, and mobile device management). Growing 50% from 2013, this market reached A$331M AUD ($311M) in. Some of the growth came from micro and medium businesses moving from free hosted email or free ISP email to paid hosted email. Most of the growth has come from an increase in usage of collaboration apps particularly by cloud expanders, adding users for instant collaboration and web conferencing. Historically the smallest cloud service category across all markets and regions, Unified Communications in Australia is now catching up to Web Presence in market size. At what point would SMBs choose to switch from free email to paid business email? A$220M 2013 ($202M) 18% Increased 17% Good Price Point What Features Caused SMBs to Choose Paid Business Email Over a Free Email Provider? Changes in Concerns about Hosted PBX since 2013 50% 40% 30% 20% 10% 0 Price Unaware of PBX Call Control 2013 In House Apps What are Major Purchase Triggers for Hosted PBX? Voicemail For Each Line Technical 37% 41% Old PBX Unreliable Good Price Calendar Alerts Shared Calendar Archiving Outlook Integration 8 9
BUSINESS APPLICATIONS SMBs who have already acquired in-house phone systems, however, would consider moving to hosted PBX if the price point and timing were right. Many SMBs consider hosted PBX when their in-house system equipment becomes old or breaks. 25% of SMBs would convert from in-house PBX if there was a major business change, relocation, or strong growth. Making sure SMBs are aware of hosted PBX and understand its benefits, as well as offering low cost options, can capture more of the cloud converter and cloud leaper markets. Collaboration Applications Represent a Strong Part of the UC Market Business Applications A$335 ($309M) 2013 A$439 ($413M) 23% Growth 10 32% 17% 3% Instant Collaboration Unified Communications Through 2017 33% 32% 17% 17% Cloud Converters Hosted Email Cloud Leapers Hosted PBX Web and Phone Conference 22% The Unified Communications market is projected to grow 36% year over year through 2017, reaching A$846M AUD ($795M USD). Some of the growth potential comes from Cloud Leapers and Cloud Converters in hosted email and hosted PBX. Over 30% SMBs are looking to add paid hosted email as their first solution, or switch from in-house email to hosted email in the next three years. 34% of SMBs without phone systems, or with in-house PBX systems, are considering moving to hosted solutions as well. Growth in each collaboration application will happen mainly through new adoption combined with some SMBs upgrading or adding users. 4% Mobile Device Management New Users 21% Mobile Device Management Web/Phone Conferencing 25% 9% 9% 36% 3 Year CAGR Instant Collaboration Increased Spending A$818 ($769M) 2017 Market Size The Australian Business Applications market grew 23% to A$439M AUD ($413M USD) in. Much of this growth is from an overall increase in use of online applications from 73% to 79%. Payroll and HR applications are used by more small and medium SMBs this year. Online accounting and VDI have increased in adoption among medium business. SMBs also reported an increase in users for most applications. The top used applications in include file sharing, online accounting, and online backup and storage. Top Applications Remain Consistent Over Time 2013 File Sharing Online Accounting Online Backup/Storage Expected Use of Top Applications in the Next Three Years 62% File Sharing 46% Online Accounting 43% Online Backup/ Storage 26% Payroll and HR 11
BUYING CLOUD SERVICES Where Do You Buy Online Applications? To Bundle or Not to Bundle? 44% 15% 7% 7% 5% 16% Ease of Transaction 25% 27% 32% Discount Ability to Integrate Ease of Billing 12 Direct from ISV (22% other of respondants picked other ) Free Trial Important for Converting SMBs to Purchased Versions 27% Purchased after free trial expired IT Consultant Telco/Mobile Provider Business Applications Opportunity in 2017 16% Average new usage projected by 2017 for overall SMBs Online Retailer 14% Purchased after free trial to access more features 20% Medium SMBs will Small increase spending By 2017, the Business Applications market is estimated to reach A$621M AUD ($584M USD), growing by 12% year over year. New users appear to be the main area of growth moving forward, with an average of 16% of SMBs across all sizes indicating interest in adding more online applications a great market for free trials. As cloud expanders, 15% of small businesses and 29% of medium businesses plan to increase spending on their business applications. These are the businesses to target with additional seats. Web Hoster 39% Purchased without free trial 15% SMBs will increase spending 12% 3 Year CAGR A$621M ($584M) 56% of SMBs Prefer purchasing bundles as opposed to a la carte SMBs motivation for bundling 40% of SMBs Say service provider choice is their main concern about buying in bundles 31% of SMBs Quote cost transparency as their main barrier to bundle purchases Many SMBs prefer buying cloud services as bundles, but what about those who don t? This year Parallels asked SMBs who purchase services a la carte about why they prefer that to bundles, and discovered that SMBs like choice in which service providers/services they use, and cost transparency. SMBs are willing to pay for exactly what they want, and not what they don t want. Service providers can still attract these SMBs with bundles, so long as they offer several bundle options with services which cater to different SMB preferences and needs. 50% of SMBs Use Only One Service Provider 50% 40% 30% 20% 10% 0% over 50% of SMBs say 1 2 3 4 5 6 Number of Service Providers Better Cost Value and Unified Support are top benefits of using one service provider 13
OPPORTUNITIES How do SMBs Contact Their Service Providers? 70% Of SMBs use email to communicate with their service provider Of SMBs contact their service 64% provider over the phone The Australia Cloud Services Market is Projected for 17% Year over Year Growth through 2017 Learn More This report covers only a portion of the extensive data included in Parallels SMB Cloud Insights research. To learn more: Visit Parallels PartnerNet. For Parallels Partners, register for Parallels PartnerNet at www.parallelsnetwork.com. Register for a webinar. Register for upcoming webinars, or watch existing webinars which highlight Parallels research and teaching SMB marketing strategy, tips, and best practices to help grow your hosting business. Go to www.parallels.com/about/subscribe/ to sign up for webinar notifications. Talk to the Parallels Business Consulting team. Parallels Business Consulting delivers services designed to accelerate time-to-revenue by 20-35%, increase profits, and grow subscribers. We provide critical business thinking and best practices forged from hundreds of deployments, custom research by SMB Cloud Insights, and go-to-market workshops. Start a conversation with the Parallels Business Consulting team. Get in touch at accelerate@parallels.com. 17% CAGR A$1.7B ($1.6B) A$2.7B ($2.5B) 2017 Please contact SMB@parallels.com with any further questions. Parallels is committed to helping our partners understand the best opportunities in the SMB cloud market. The SMB cloud services market in Australia is projected to hit A$2.7B AUD ($2.5B USD) in 2017, with a 3-year CAGR of 17%. With a mature cloud market, the growth of traditional Web Presence is slowing, but can be sustained through managed web hosting and web applications. The Business Applications market will grow a bit faster, as SMB needs keep evolving and line-of-business applications evolve to meet those needs. Unified Communications will have the highest growth rate and will surpass Business Applications in market size by 2017, becoming the second largest part of the Australian SMB cloud market. Infrastructure-as-a-service is expected to maintain a healthy CAGR and continue to be the largest segment of the SMB cloud market. Each cloud service category offers growth potential, in particular areas. Focusing on managed services for IaaS and Web Presence, cloud server offerings targeted for SMBs, and the top applications mentioned will help service providers to capture a bigger piece of the growing demand. 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. 14 15
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