2014 Parallels SMB Cloud Insights TM United States
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 2014, 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. Unified Communications: Business-class email services, including email security, email archiving, along with mobility and hosted phone services, including hosted PBX. As of 2014, 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 1000 employees. There are around 7.6M such SMB establishments in the US today. SMB segments include: micro (1-19 employees), small (20-99 employees) and medium (100-999 employees) Cloud Opportunity Type The Overall US Cloud Market Continues Growth $18.9B $24B 2013 2014 Parallels SMB Cloud Insights has entered its fourth consecutive year of research into the cloud service consumption of SMBs. In 2014, 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 solution. However, we now see that 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 US SMB cloud market reached $24B at the end of 2013. Infrastructure-as-a-Service makes the largest portion of the market, comprising $8.4B. Web presence increased to $3.6B. Unified communications adds up $4.8B, and business applications accounts for the remaining $7.1B. 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. 1
INFRASTRUCTURE-AS-A-SERVICE (IaaS) IaaS Market Growth $6.5B 2013 $8.4B laas Grew by 12% 2014 Hosted Servers are Mainly Used for Same Purposes as Last Year 1 2 3 51% 37% Web Server Database Applications 32% Accounting Cloud Server Market Size: $1.2B Infrastructure-as-a-Service, the largest portion of the US SMB cloud market, reached $8.4B in 2014. Much of the growth in the past year is due to micro and small cloud leapers, moving right to hosted options. Use of cloud servers has been added to this figure, as SMBs are beginning to seek the benefits of flexible, scalable server solutions. Of the US SMBs with hosted servers, nearly 20% of them are using cloud servers. SMBs are willing to pay more for High Availability or Unlimited Storage 28% 27% High Availabity 2014 Usage Unlimited Storage Concerns About Hosted Servers Increased in 2013 28% of SMBs would pay $5/mo more for high availability 27% of SMBs would pay $10/mo more for unlimited storage 56% 39% 20% 11% $5 $10 Top Hosted Server Add-ons Price Security In-House Apps IT Personnel Doesn t Recommend Concerns about switching from in-house to hosted servers increased overall, namely price and security/privacy concerns. Many SMBs do not think converting to IaaS will be cost effective. Service providers should address these concerns when working with SMBs who are exploring hosted solutions for when their servers need replacing. Server Backup Security SMBs still consider server backup and security the top two priorities in their selection of hosted server add-ons. 2 3
WEB PRESENCE Highest Future Interest for Developer Focused Add-ons Web Presence and Web Applications 49% LAMP Stack projected for higher demand in 2017 IaaS Opportunity Through 2017 55% of SMBs without servers are planning to leap to IaaS 11% 3 Year CAGR $3.1B 2013 $3.6B CAGR 17% 2014 The US SMB web presence market has been growing more slowly due to market saturation. Even so, it increased in 2013 to $3.6B. Micro and medium cloud leapers, along with a few cloud converters, contributed to this growth in third party hosted websites. Cloud expanders of all sizes have also contributed, as this year we saw a notable increase in the use of web applications. 55% 46% 33% 20% Increase in Overall Web App Use Since 2013 Cloud Leapers New Adoption Cloud Converters Switch From In-House Cloud Expanders Increase Spending While the SMB IaaS market has begun to level off in the US, it is still projected for steady growth. By 2017, this market is expected to reach about $11.6B. The main area of opportunity is the 55% of SMBs without servers, who are considering going right to hosted solutions. However, 46% are SMBs considering switching from in-house to hosted servers, and 33% of current users want to increase spending. $11.6B Highest In Demand Web Applications Security SEO SSL 4 5
WEB PRESENCE Top Forms of Social Media Use in 2014 44% Facebook 30% 21% LinkedIn SMBs are Starting to Use More Third Parties to Design and Manage their Websites 42% 25% Web Designer Twitter Sitebuilder SMBs are using more web applications, but where are they buying them? 51% of SMBs Parallels interviewed said they get their web applications bundled in with their website purchase. Fewer SMBs buy web applications after the fact or separately. Service providers should take advantage of this and offer web applications as a bundle with initial website purchase. Mobile Optimized Websites are Growing in Popularity and Many SMBs Still Need One 38% No Optimization Needed 21% Mobile Optimized 41% PC Only Optimzed 57% 23% Web Hoster 3rd Party Web Presence Opportunity in 2017 5% 3 Year CAGR Designed By Managed By 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. 36% 32% 22% Cloud Expanders Cloud Leapers New Adoption Cloud Converters Switch From In-House Increase Spending 51% Of SMBs Buy Web Apps Bundled with Website Purchase Continuing slow but steady growth, the US SMB web presence market is projected to be at about $4.1B by 2017. The main areas of opportunity here will be the 32% of SMBs converting from self-hosted to third party hosted websites, as well as the 36% of cloud leapers who add websites for the first time. Long term opportunity lies in cloud expanders, increasing their use of web apps. $4.1B 6 7
UNIFIED COMMUNICATIONS (UC) Unified Communications Market Growth $2.1B $1.3B $1.5B $1.3B $1B $1.4B What Features are Most Useful to SMBs in Hosted PBX Systems? 28% Growth 28% Growth $3.8B 2013 $4.8B 2014 Ability to Track Billable Calls Separate Phone Lines Hosted Email Hosted PBX Collaboration Apps Hosted communication and collaboration has previously been the smallest portion of the US SMB cloud market, consisting of business email and hosted PBX. This year Parallels expanded this category to include collaboration applications: instant collaboration, web and phone conferencing, and mobile device management. The inclusion of these applications makes unified communications a more substantial portion of the SMB cloud market, at $4.8B in 2014. At What Point Would SMBs Choose to Switch From Free Email to Paid Business Email? 31% Good Price Point 23% Increased Security What Features Caused SMBs to Choose Paid Business Email Over a Free Email Provider? Most Barriers to Hosted PBX Adoption Have Increased since 2013 60% 50% 40% 30% 20% 10% 0 Price Security In House Apps 2013 2014 Technical What are Major Purchase Triggers for Hosted PBX? Unaware of PBX 41% 66% Good Price Old PBX Unreliable Calendar Alerts Shared Calendar Archiving Outlook Integration Security 8 9
BUSINESS APPLICATIONS While price remains the largest barrier to adopting hosted PBX systems, security concerns and sunk costs for in-house systems have increased since 2013. There has been a notable decrease in the proportion of SMBs who are unaware of hosted PBX solutions. Service providers can target those SMBs with expiring or broken PBX systems, and educate them about the security benefits of hosted solutions, so these SMBs know they have a secure and cost effective solution when their equipment needs replacing. Collaboration Applications Represent a Strong Part of the UC Market Business Applications $5.4B 2013 $7.1B CAGR 32% 2014 17% Increase in Overall Business Application Use 40% 23% 2% Instant Collaboration Unified Communications Through 2017 36% 24% Cloud Expanders 40% Hosted Email 61% 21% Cloud Cloud Leapers Converters Hosted PBX Web and Phone Conference The areas of opportunity in the UC market through 2017 vary. For hosted premium email, cloud leapers and converters have the largest potential, but nearly a fifth of cloud expanders are also seeking to increase their spending. Hosted PBX has healthy potential among cloud converters again these are SMBs with expiring in-house systems who are interested in hosted options. As for collaboration apps, leapers show interest in each application, and many current users want to spend more on mobile device management by 2017. 7% 22% 84% Mobile Device Management New Users Mobile Device Management 24% 24% 16% Web/Phone Conferencing 32% 3 Year CAGR 11% Instant Collaboration Increased Spending $11.7B 2017 Market Size The US business applications market is still going strong, reaching $7.1B in 2014. Much of this growth is because of an overall 17% increase in the use of online applications - particularly among small and medium businesses. Many SMBs also reported an increase in users for various apps. As in 2013, the top applications include file sharing, online accounting, online backup and storage. Top Applications Remain Consistent Over Time 2013 2014 File Sharing Online Accounting Online Backup/Storage Expected Use of Top Applications in the Next Three Years 44% 41% 39% 35% File Sharing Online Backup/ Storage Online Accounting Payroll and HR 10 11
BUYING CLOUD SERVICES Where Do You Buy Online Applications? To Bundle or Not to Bundle? 47% 15% 7% 6% 1% Prefer Purchasing Bundles as 54% Opposed to a of SMBs la Carte of SMBs 50% Say Ease of Billing is More Important than Discounts When Purchasing Bundles Application Website Online Retailer Web Hoster IT Consultant Telco/Mobile Provider Free Trial Important for Converting SMBs to Purchased Versions 50% Concern About 37% of SMBs Say Service Provider Choice is Their Main Buying in Bundles of SMBs Quote Cost Transparency as Their Main Barrier to Bundle Purchases 11% Purchased after free trial to access more features 26% Purchased after free trial expired Business Applications Opportunity in 2017 23% 13% Avg New Use Avg Spending Increase The overall business applications market is estimated to be $11B by 2017. New users appear to be the main area of growth moving forward, with an average of 23% of SMBs indicating interest in adding more online applications. While 13% of SMBs said they were interested in spending more on their apps, Parallels finds that 37% of SMBs paying for online applications switched to a paid version after a free trial (see above). This will be a key strategy for capturing the market of free app users moving forward. 41% Purchased without free trial 16% 3 Year CAGR $11B 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 when SMBs choose not to bundle, it is because they want choice in the service provider or brand that they buy 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 several bundle options with services that cater to different SMB preferences and needs. 50% of SMBs Use Only One Service Provider 50% 40% 30% 20% 10% 0% 60% 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 12 13
OPPORTUNITIES How do SMBs Contact Their Service Providers? 71% 67% Of SMBs Contact their Service Provider Over the Phone Of SMBs Use Email to Communicate with their Service Provider The US Cloud Services Market is Projected for 17% Growth Over the Next 3 years $24B 2014 $38B 2017 Learn More This Parallels Market Outlook for 2014 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. The US SMB cloud services market is projected to be nearly $38B, with a CAGR of 17%. The US has a mature cloud market, and growth of core services like IaaS and web presence is slowing. The business applications market, however, will grow faster, as SMB needs change. Unified communications will have the highest growth and will likely surpass IaaS and business applications in 2017, becoming the largest part of the US SMB cloud market. This category will offer the biggest opportunity through the next few years, although each cloud service has potential among different opportunity segments. Overall, the US SMB cloud market enjoys a vibrant outlook. 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. 2014 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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