Parallels SMB Cloud Insights TM Brazil
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. The Overall Brazil Cloud Market Continues Growth 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 (Linux, Apache, MySQL, PHP), 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. R$2.2B ($1.1B) 2013 R$4B ($1.7B) 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 around 2.7M such SMB establishments in Brazil today. Segments include: micro (1-9 employees), small (10-49 employees) and medium (50-249 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. The cloud leaper category also includes startups that choose cloud services over traditional in-house IT as they start their business. 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 considered an enterprise level solution. But SMBs are also beginning to take advantage of them as a scalable and flexible solution. Unified Communications, previously called Communication and Collaboration, now includes collaboration applications. The Brazilian SMB cloud market had a remarkable year of growth in 2013, expanding to R$4B BRL ($1.7B USD). The largest contributor to this market size is Infrastructure-as-a-Service at R$1.4B BRL ($576M USD). Web presence and web applications add R$578M BRL ($245M USD). Unified communications brings in R$782M BRL ($332M USD), and business applications nearly matched IaaS, by adding the remaining R$1.3B BRL ($547M USD). 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. 1
INFRASTRUCTURE-AS-A-SERVICE (IaaS) IaaS Grew To R$1.4B in 2013 R$775M ($372M) 2013 Cloud Server Market Size: R$190M ($79M) R$1.4B ($576M) laas Grew by 51% Infrastructure-as-a-Service is currently the largest market in Brazil. In 2013, many SMBs without servers opted for hosted server solutions, causing 51% growth in IaaS use from last year. Of note, most of these were medium sized businesses. This year the IaaS market size includes cloud server use by SMBs, which adds an additional R$190M BRL ($79M USD) to the infrastructure market. Over 10% of SMBs are now taking advantage of this scalable solution. Top Concerns About Hosted Servers Decreased Slightly 6% 9% 1% 4% Most Popular Uses for Hosted Servers are the Same as 2013 1 2 3 52% 35% Web Server Database Applications Many SMBs Would Pay $10 more per Month for High Availability or Unlimited Storage 30% 28% High Availabity 30% of SMBs would pay $10/mo more for high availability Usage 22% 23% $5 $10 Top Hosted Server Add-ons 23% Accounting Unlimited Storage 28% of SMBs would pay $10/mo more for unlimited storage 40% 36% 35% Price Security In-House Apps IT Personnel Doesn t Recommend Control Panel Database Add-ons Security While price and security remain top barriers to SMBs switching their in-house servers to hosted servers, overall fewer SMBs reported concerns about switching than last year. As such, service providers should focus on marketing their hosted infrastructure offerings by addressing these concerns, specifically educating SMBs about the cost and security benefits of hosted solutions. 2017 68% 63% 55% Server Backup Security Database Add-ons 2 3
WEB PRESENCE IaaS Opportunity Through 2017 28% 3 Year CAGR Web Presence Market Grew to R$564k in R$421M ($202M) 2013 R$578M ($245M) 71% 70% 66% Cloud Leapers New Adoption Cloud Expanders Increase Spending Cloud Converters Switch From In-House Expanding by 37% in 2013, the Brazilian web presence market is still experiencing solid growth. Reaching R$578M BRL ($245M USD) in, much of the growth came from cloud leapers, adding their first website as one hosted by a service provider. 30% of the growth involved converters, switching from self-hosted websites. Although IaaS has had slower growth among fully mature markets, Brazil is still a maturing cloud market and IaaS is continuing to grow rapidly. The increasing adoption of cloud servers among SMBs furthers the potential. Moving forward, each segment presents excellent opportunities, as more than 60% of leapers, converters, and expanders show interest in adding hosted infrastructure by 2017. R$2.8B ($1.2B) 50% Of SMBs Buy Web Apps Bundled With Website Purchase Security, Backup, SEO, Expected to Remain Highest Demanded Web Apps Through 2017 25% 23% 20% Backup Security SSL Certs/SEO 50% 45% 40% 2017 Security Backup SEO 4 5
These top web applications are used by over a fifth of Brazilian SMBs. By 2017, usage is expected to double. So where do these SMBs buy their web apps from? According to the SMBs interviewed, 50% of them purchase web apps bundled with their website from their web hoster. Another 25% get them from a third party provider. This means that service providers have the best opportunity to cross-sell these apps to their SMB customers in a bundle with the initial website purchase. Top Forms of Social Media Use Among Brazilian SMBs 43% 19% 18% Mobile Optimized Websites are Growing in Popularity and Many SMBs Still Need One 28% No Optimization Needed 32% Mobile Optimized 34%* PC Only Optimzed *Best Opportunity Facebook Twitter LinkedIn Web Presence Opportunity in 2017 SMBs are Starting to Use More Third Parties to Design and Manage their Websites 17% 3 Year CAGR Designed By 59% 16% Web Designer 50% 30% Managed By Sitebuilder Many SMBs are using third parties to both design and manage their websites. This indicates a rise of managed web hosting, which enables SMBs to better focus on running their businesses. 99% 83% 49% Cloud Converters Switch From In-House Cloud Leapers New Adoption Web Hoster 3rd Party By 2017, the Brazilian web presence market is projected to be R$921M BRL ($390M USD), growing at a healthy 27% CAGR. The cloud converter opportunity is staggering, with nearly 99% of SMBs who self-host websites desiring to switch in the next few years. Additionally, Brazil still has 1.6M SMBs who don t have websites, so the cloud leaper opportunity is outstanding as well. Cloud Expanders Increase Spending R$921M ($390M) 6 7
UNIFIED COMMUNICATIONS (UC) Unified Communications Market Growth R$782M ($332M) R$263M ($111M) Hosted Email R$248M ($105M) Hosted PBX R$272M ($115M) Collaboration Apps What Features are Most Useful to SMBs in Hosted PBX Systems? R$368M ($153M) 2013 Unified Communication Formerly communication and collaboration, the unified communications market for Brazilian SMBs grew to R$782M BRL ($332M USD), more than doubling from its relatively small base last year. A good portion of the growth came from increased use of collaboration apps, such as instant collaboration and web/phone conferencing. There was also 54% increase in the percentage of paid hosted email users, most of which were small businesses. Hosted PBX grew mainly among medium businesses. At What Point Would SMBs Choose to Switch From Free Email to Paid Business Email? $782M Market Size 34% Need Increased Security 27% Need Professional Look and Feel What Features Caused SMBs to Choose Paid Business Email Over a Free Email Provider? 17% 24% 48% 54% 93% Most Barriers to Hosted PBX Adoption Have Increased since 2013 60% 50% 40% 30% 20% 10% 0 Ability to Track Billable Calls Price Security Seperate Phone Lines SMBs Concerned About Switching In House Apps 2013 Technical What are Major Purchase Triggers for Hosted PBX? One Mailbox for Messages Unaware of PBX 29% 73% Major Business Good Price Point Change Calendar Alerts Shared Calendar Archiving Outlook Integration Security 8 9
BUSINESS APPLICATIONS SMBs concerns about using hosted PBX services have actually risen since 2013. The main concerns -- price, technical, and security all increased significantly. However, the majority of SMBs with in-house PBX say they would be compelled to switch to hosted PBX if the price was appealing. Furthermore, 22% of SMBs still haven t even heard of hosted PBX. Therefore, service providers should focus their marketing messages around education, namely about the security and technical features of hosted PBX solutions, and offer low cost solutions that will meet the needs of the SMBs. Unified Communications Through 2017 Business Applications R$691M ($288M) 2013 R$1.3B ($547M) CAGR 32% 33% Average Increase in Overall Business Application Use 88% 50% 55% 50% 63% Another category which has grown tremendously among Brazilian SMBs is business applications. Topping R$1.3B BRL ($547M USD) in, this market has nearly caught up to IaaS. Overall use of business applications increased by 33% last year. SMBs reported more users for many of their applications, leading to increased spending which caused a great deal of the growth. Cloud Leapers Cloud Expanders Hosted Email Cloud Converters Cloud Leapers Cloud Converters Hosted PBX Top Applications Remain Consistent Over Time 51% 3 Year CAGR 25% Web/Phone Conferencing 34% 27% Instant Collaboration Mobile Device Management New User Opportunity 2013 File Sharing Online Backup/Storage Payroll Opportunities through 2017 in the UC market vary by service. For hosted email and hosted PBX, over 50% of cloud leapers indicated interest in going right to hosted versions, and 88% of in-house email users would like to switch to hosted premium email. For each of the collaboration apps, 25% or more of SMBs who don t have them would like to start using them within the next three years. The Brazilian SMB UC market is expected to reach R$2.8B BRL ($1.2B USD) by 2017. R$2.8B ($1.2B) Projected Use of Top Applications in the Next Three Years 65% 62% 44% 40% File Sharing Online Backup/ Storage Support Online Accounting 10 11
BUYING CLOUD SERVICES Where Do SMBs Buy Online Applications? To Bundle or Not to Bundle? 43% 14% 9% 8% 6% Prefer Purchasing Bundles as 60% Opposed to a of SMBs la Carte of SMBs 46% Say Ease of Billing is More Important than Discounts When Purchasing Bundles Application Website IT Consultant Web Hoster Online Retailer Telco/Mobile Provider Free Trial Important for Converting SMBs to Purchased Versions 56% Concern About 22% of SMBs Say Service Provider Choice is Their Main Buying in Bundles of SMBs Quote Cost Transparency as Their Main Barrier to Bundle Purchases 43% Purchased after free trial expired 16% Purchased after free trial to access more features 19% Purchased without free trial Business Applications Opportunity in 2017 Many SMBs prefer buying cloud services as bundles, but what about those who don t? This year Parallels asked SMBs who prefer to purchase services a la carte about why they prefer that over bundles, and discovered that when SMBs choose not to bundle, it is because they want choice in the service provider or brand and are concerned about lack of transparency in bundle pricing. SMBs are willing to pay more to get the exact service or brand they want. Service providers can still attract these SMBs with bundles, so long as they offer a variety of bundle options with services that cater to different SMB preferences and needs. File Sharing Online Storage Support Online Accounting Payroll Virtual Desktop Online CRM 29% 35% 31% 25% 41% 44% Current Use 28% Projected New Use in 2017 23% 3 Year CAGR 70% of SMBs Use Only One Service Provider 80% 60% 40% 20% With a CAGR of 23%, the business applications market will hit R$2.4B BRL ($1B USD) in 2017, playing a major part in the overall Brazilian SMB cloud market. All business apps are expected to increase in use, with many doubling in usage by 2017. As shown above, 59% of SMBs who pay for their apps first used a free trial, making it a very effective way to capture the market over the coming years. R$2.4B ($1B) 0% 71% of SMBs say 1 2 3 4 5 6 Number of Service Providers Better Cost Value is Top Benefit of Using One Service Provider 48% of SMBs say Unified Support is Also Important 12 13
OPPORTUNITIES How do SMBs Contact Their Service Providers? 51% 77% Of SMBs Contact their Service Provider Over the Phone Of SMBs Use Email to Communicate with their Service Provider The Brazil Cloud Services Market is Projected for 31% Growth Over the Next 3 Years R$4B ($1.7B) R$9B ($3.8B) 2017 The Brazilian SMB cloud market is forecasted to have a 31% CAGR, approaching R$9B BRL ($3.8B USD) by 2017. Each category of cloud services has a great outlook. Infrastructure-as-a-Service will undergo considerable growth, as Brazil is still a maturing market many SMBs are catching onto the benefits of hosted infrastructure. Web presence, while a much smaller market, will grow at a steady rate as SMBs continue adding websites and web applications. Unified Communications, with the Fastest Growth Rate, Will Likely Increase Four-fold; SMBs Consume More of these Services When their Businesses Flourish. Business applications will also remain a large contributor to the overall market, as SMBs use more applications to meet their needs and continue adding users. The potential across all opportunity segments is exceptional. Learn More This Parallels Market Outlook for report only covers a portion of the extensive data included in Parallels SMB Cloud Insights research. You can learn more by: Visiting Parallels PartnerNet. For Parallels Partners, register for Parallels PartnerNet and go to the SMB Knowledge Center for more SMB Cloud Insights data analysis and go-to-market materials. Find Parallels PartnerNet at www.parallelsnetwork.com. Attending an SMB Cloud Insights webinar. Register for our webinar series highlighting 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. Talking to 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 Parallels Business Consulting team. Get in touch at accelerate@parallels.com. 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 and profit from the cloud. 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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