Profit from the cloud TM 2012 Parallels SMB Cloud Insights TM for India India
Table of Contents Executive Summary...1 Definitions...2 Key Findings in the Cloud...3 Hosted Infrastructure...6 Web Presence... 10 Hosted Communication and Collaboration... 12 Hosted Premium Email... 12 Hosted PBX... 14 Business Applications... 17 Conclusion...20
Executive Summary The Indian cloud services market for small and medium businesses (SMBs) continues to grow and as it does, it s changing the way Indian SMBs consume IT. Through cloud services, Indian SMBs are gaining enterprise-level computing power, applications, and services at prices they can afford. Last year, our research indicated that the Indian SMB market was one of the fastest growing emerging markets for cloud services, and our 2012 research continues to bear that out. Although India s current Internet infrastructure limits its market size, as that infrastructure improves, our research shows that Indian SMBs will rapidly expand their use of cloud services, to the point where India becomes one of the largest cloud services markets in the world. Having initially interviewed 400 Indian SMBs of different sizes and industries in 2011 about their cloud service consumption, plans, and attitudes, Parallels has refreshed this research for 2012, conducting 400 new interviews aimed at determining what changes have taken place in the intervening months. Our research addressed SMBs cloud service use and attitudes both in general and with respect to four specifi c service categories: hosted infrastructure, web presence services, hosted communication and collaboration, and online business applications (a category also known as software-as-a-service, or SaaS). By combining the results of these interviews with our in-depth industry expertise, we have created a comprehensive view of the Indian SMB market for cloud services in 2012, including an understanding of how the space has grown and evolved over the past year. This paper summarizes our fi ndings, with a focus on providing practical insights and identifying targeted opportunities that will help service providers drive growth in the Indian SMB cloud market in 2012 and beyond. In the spring of 2012, Parallels calculated the Indian SMB market across all categories of cloud services to be 11.9B ($216M USD). As shown in Figure 1, hosted infrastructure contributes 5.6B ($102M USD) to this market, web presence services contribute 1.9B ($34M USD), hosted communication and collaboration (consisting of hosted premium email and hosted PBX) adds 0.8B ($14M USD), and business applications account for the remaining 3.6B ($66M USD). Parallels predicts the Indian SMB market will grow by a 45% compound annual growth rate (CAGR) over the next three years, reaching 36.9B ($664M USD) in 2015. This growth will be driven both by new adopters of cloud services and by current users adding more applications and functionality to their existing cloud services. Because of this high growth rate, service providers who become familiar with the various SMB audiences in India, target the appropriate opportunity segments, and educate their customers successfully will have ample opportunity to expand in the Indian SMB market. 1
Figure 1. SMB cloud services market size in India (2012) 3.6B ($66M) 11.9B ($216M) 5.6B ($102M) 1.9B ($34M) 0.8B ($14M) Hosted Infrastructure Web Presence Services Hosted Communication & Collaboration Business Applications Total Definitions This research is focused on the cloud services that matter most to SMBs: hosted infrastructure, web presence services, hosted communication and collaboration, and a general category we refer to as business applications. We define each of these cloud service categories as follows: Hosted infrastructure (also known as infrastructureas-a-service). This category includes dedicated servers, virtual private servers (VPS), managed hosting, and utility (or elastic) computing. In 2012, we expanded this category to include add-on applications and services for hosted infrastructure, such as control panels, development platforms, LAMP stack (Linux, Apache, MySQL, PHP), security, server backup, and SQL databases. Web presence. This category includes third-party web hosting, blogging services, domain registration, SSL and ecommerce addons, and site-building tools. In 2012, we expanded this category to include web server backup, content delivery networks (CDN), content management, mobile optimization tools, search engine optimization (SEO), and web server security and health monitoring. Hosted communication and collaboration. This category consists of business-class email services, including email security, email archiving, and mobility; and hosted phone services, including hosted PBX. Business applications. This category includes ten major types of software applications that can be accessed online: file sharing, instant collaboration, online accounting, online backup and storage, online CRM, payroll and HR, phone conferencing, enterprise resource planning (ERP), support and help desk, and web conferencing. For each of these cloud service areas, Parallels captured SMBs current use, attitudes, future plans, and market size. 2
As for our definition of SMBs also known as small and medium enterprises, or SMEs we follow other research and academic organizations in defining them as companies with 1 to 250 employees. There are around 3.4M such SMBs in India today. Subcategories within the SMB segment include: Micro SMBs (companies with 1-9 employees) Small SMBs (companies with 10-49 employees) Medium SMBs (companies with 50-250 employees) Key Findings in the Cloud Our research showed that the Indian cloud market grew over 38% during the course of 2011. We expect similar growth among all areas of cloud services over the next three years, with large numbers of SMBs moving to cloud services for the first time. As more of India s population gains access to the Internet, we will see Indian SMBs continuing both to choose the cloud for a major part of their IT and to expand their spending on cloud services. Some key drivers of growth for the upcoming years include: Large willingness to move to the cloud for IT. Our research found that, as was the case last year, Indian SMBs not yet using the cloud have an impressive willingness to adopt cloud services in the near future. Across most areas of cloud services, 7 or more of those not currently using a hosted service are considering adding it in the next three years. Significantly, we found that, in general, SMBs of all sizes are equally interested in adopting cloud services, pointing to huge opportunity for service providers serving the Indian SMB market. Current SMB customers increased spending on cloud services. In general, in 2012 we found a large percentage of current cloud users are planning to increase their spending on the cloud over the next three years a trend that holds true across all areas of cloud services. This trend creates an opportunity for service providers to offer add-on applications and upsell their current customer base to higher service levels. Together with new adoption, this increase in spending will grow the market significantly in the near future. India s expanding Internet infrastructure. As in 2011, India s Internet and broadband penetration remains extremely low, limiting the number of SMBs that can access cloud services. According to the World Bank, India s Internet penetration is currently at 1 meaning that the vast majority of Indian consumers are not finding SMBs through their web presence. By 2015, however, Internet penetration will have more than doubled to 23%, meaning that at least twice as many Indian SMBs will be online and able to consume IT through the cloud. It also means that at least twice as many Indian consumers will be expecting to find their local businesses online. This growth in Internet infrastructure alone will create a huge opportunity in the Indian SMB cloud market. Due to Indian SMBs great interest in moving to the cloud, current customers plans to increase spending on cloud services, and the country s expanding Internet infrastructure, we expect a growth rate of nearly 4 over the next three years. 3
Parallels also found that different sizes and categories of SMBs have different needs and plans for their cloud service use. Therefore, for service providers to grow their cloud business, it is essential for them both to know their SMB audiences and to offer each audience the right services. Target the right IT decision maker with the right marketing messages: for SMBs with no IT staff, stress business benefits; for SMBs that hire IT consultants or have dedicated IT staff, stress technical benefits. Know Who the IT Decision Makers Are As we explained in our 2011 research, knowing who makes the IT decisions is critical both for selecting the right products and for marketing them successfully to SMBs. As Figure 2 illustrates, we found that the Indian SMB market consists of three separate decision-making groups: SMBs with no IT staff ( do-it-yourselfers ). For these SMBs, the business owner or a senior member of the company handles all IT purchasing decisions, as well as installation and maintenance of IT solutions. These decision makers need to know how a cloud service will benefi t their business and their bottom line. They also need solutions whose user interface is simple enough to not require detailed IT expertise. To market successfully to this group, focus on the business benefi ts of cloud services, while minimizing technical complexity. SMBs that hire IT consultants. IT consultants want to know about the technical specifi cations of the cloud service, its confi guration and management, best practices, and other technical advice. Having a white-label reseller offering designed for IT consultants one that gives them the opportunity to resell cloud services to the SMB end customer without having to manage the infrastructure themselves will help reach this target audience, as will sales and marketing strategies that target the broader IT channel, including distributors. SMBs with a dedicated IT staff. For these SMBs, IT personnel are the primary audience. In India, a much greater percentage of SMBs have dedicated IT staff than in most other countries that Parallels has researched, likely driven by a large, well-educated, and inexpensive labor force. This IT audience, then, is especially important to service providers looking to grow in the Indian SMB market. While SMBs with a dedicated IT staff need to know the business benefi ts so they can pass them on to senior management, they themselves are much more concerned with the technical aspects of the solution and whether or not it fi ts the needs of their company. Clear, detailed documentation about technical specifi cations, strong support, and cutting-edge technical features will be the key selling points for this audience. 4
Figure 2. IT staff reported by different sizes of Indian SMBs (2012) 10 75% 2% 49% 19% 29% 5 9% 57% 61% 25% 4 Micro SMBs 14% 1 Small SMBs 3% 7% Medium SMBs No dedicated IT Staff IT Consultants Dedicated IT Staff I don t know Target Each Opportunity with the Right Services To help service providers target their marketing efforts, we have identifi ed three major groups of SMBs that represent cloud service growth opportunities: Cloud leapers. This category represents a signifi cant portion of Indian SMBs. It consists of SMBs that currently are not using an in-house IT solution (e.g., they have no servers, no web server, or no PBX system) and are likely to move straight to the cloud, leaping over the typical intermediate step of purchasing inhouse IT. These companies might have rudimentary IT equipment, such as external hard drives for storage or Excel workbooks for accounting, but they don t have the level of in-house infrastructure or software used by the cloud converters (see below). The cloud leaper category also includes startups that choose cloud services over traditional in-house IT as they start their business. 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, which are already using some form of cloud services, represent an opportunity for upselling to new and expanded cloud offerings. SMB size is also an important factor, as it s likely to infl uence both which cloud usage category a business falls into and who its IT decision makers are. For instance, micro SMBs are most likely to be cloud leapers and do-it-yourselfers, with no dedicated IT staff. Size also infl uences what kinds of services SMBs are most likely to buy. Knowing the opportunity for each type of cloud service in each SMB size category will help service providers target their marketing and sales efforts to reach the right audiences. Growth opportunities exist among cloud leapers (SMBs going straight to the cloud); cloud converters (SMBs moving from in-house solutions to the cloud); and cloud expanders (SMBs expanding their current use of cloud services). 5
The following sections examine Indian SMBs use of each of the four categories of cloud services in more detail, describing their current use of these services, how they choose which services to purchase (or not to purchase), and what their future plans for spending are. Throughout these sections, we look at each market sub-segment (micro, small, and medium) as it relates to the above three target SMB audiences (do-ityourselfers, IT consultants, and dedicated IT staff) and SMB opportunity segments (cloud leapers, cloud converters, and cloud expanders). In each case, we detail the opportunities, how best to target them, and with which services. Hosted Infrastructure The hosted infrastructure market in India has grown by 32% over the past year, with most of the growth occurring in the cloud leaper segment. The hosted infrastructure market in India has grown by a healthy 32% since our 2011 research, reaching a current value of 5.6B ($102M USD) and we project further growth for the near future. As Figure 3 illustrates, 5% of all Indian SMBs now use hosted servers, including both basic hosted infrastructure services (such as dedicated servers and virtual private servers) and add-on services (such as security and server backup). Over the past year, nearly all the growth in hosted infrastructure has come from cloud leapers SMBs that did not previously have servers and are purchasing them for the fi rst time in the cloud. In fact, Indian SMBs buying their fi rst server were two times more likely to choose a hosted server than an in-house server. And with 9 of Indian SMBs still not using servers of any type, the cloud leaper group continues to represent a signifi cant opportunity moving forward one that we expect to drive much of the growth of the hosted infrastructure market in the near term. Target the Opportunity Moving forward, Parallels predicts continued substantial growth in hosted infrastructure across all size segments of Indian SMBs especially as more SMBs gain access to the Internet. We estimate that this market will have a CAGR of at least 42% through 2015, becoming a 16.2B ($292M USD) market by the end of that year. Following is a breakdown of the expected growth within each of the three cloud usage categories. Cloud Leapers New adopters of IT infrastructure represent the largest near-term opportunity among Indian SMBs. These SMBs do not currently use servers, but, as they decide to add them, will go directly to the cloud rather than taking the intermediate step of buying in-house servers. Of these new adopters, SMBs of all sizes represent a strong opportunity. In the near term, however, small and medium SMBs are likely to be the fi rst movers to the cloud. Some 9 of small and medium SMBs currently are not using servers of any kind, and a staggering 78% of those report that they either defi nitely plan to add a hosted server in the next three years or are considering doing so. Together, these opportunities could add an additional 900,000 new hosted servers to the market. 6
Figure 3. Hosted server penetration among Indian SMBs (2012) 10 75% 5 25% 89% 89% 93% 5% 5% 4% 1% 2% 3% 5% 4% Micro SMBs Small SMBs Medium SMBs Overall, 5% of Indian SMBs now use hosted servers. Hosted Servers Both Hosted and In-house In-house Servers No Servers Raising awareness of the technical benefi ts of hosted infrastructure will play a key role in driving growth in the cloud leaper segment particularly among small and medium SMBs, which are likely to have dedicated IT staff making the purchase decisions. Cloud Converters The cloud converter opportunity is more modest, but still should not be overlooked. Indian SMBs replacing in-house servers with hosted servers could add 120,000 new hosted servers to the market over the next three years. This opportunity is especially strong among SMBs without dedicated IT staff or IT consultants the do-it-yourselfers. For these SMBs, hosted servers have the advantage of not requiring maintenance effort or technical expertise. The micro SMB category, which encompasses nearly 9 of Indian SMBs and has many businesses in the do-it-yourself IT category, represents a particularly signifi cant opportunity. Although, as shown in Figure 3, only 4% of micro SMBs have in-house servers, our research indicates that 74% of those either defi nitely plan to switch to hosted servers in the next three years or are considering doing so. Small and medium SMBs will also continue to convert to hosted servers, with 72% and 62%, respectively, reporting that they are considering doing so over the next three years. To succeed in moving micro SMBs to the cloud, service providers should emphasize the business benefi ts of their hosted server offerings, while small and medium SMBs will likely respond better to messages that focus on the technical benefi ts. We estimate that the hosted infrastructure market in India will have a CAGR of at least 42%, becoming a 16.2B ($292M USD) market by the end of 2015. Cloud leapers could add 900,000 new hosted servers, and cloud converters could add another 120,000. Cloud Expanders The market also has room for upselling the 5% of Indian SMBs that are already using hosted infrastructure. Many of these are looking both to expand their use of hosted servers and to purchase more value-added services, such as security services, control panels, and backup. Overall, 46% of Indian SMBs currently using hosted infrastructure plan to spend more on it in the next three years. 7
Offer the Right Services Two keys for successfully marketing hosted infrastructure services to Indian SMBs are to offer education and support to help them overcome any concerns they may have, and to offer add-on services that will provide additional security for them a step that will also increase service providers revenues. Increase Adoption Through Education and Support Over the past year, Indian SMBs have learned more about how to select service providers for their hosted infrastructure needs. They currently rank their top purchase criteria as an informative website, good presales support, and strong technical characteristics. In contrast, in 2011 they ranked all criteria similarly, indicating that they were unsure about how to buy hosted servers. Two keys for successfully marketing hosted infrastructure services to Indian SMBs are to address their concerns through education and support and to offer addon services that enhance security. With so many Indian SMBs currently using no servers at all, it s important for service providers to educate them about the benefi ts of hosted servers as they enter the server market. In accordance with Indian SMBs stated purchase criteria, service providers wanting to reach these buyers should focus on building good presales support and an informative website, while also emphasizing the technical benefi ts of their offerings. Concerns about security also remain high among Indian SMBs. As Figure 4 shows, 39% of those that have in-house servers say that security or privacy concerns are a top reason to keep servers in-house. Additionally, with 52% of SMBs indicating interest in purchasing security applications over the next three years, security will be a top add-on for hosted infrastructure. Based on these security concerns, it s important both to educate SMBs about the security of hosted infrastructure, reassuring them that it is as secure as in-house servers, if not more so; and to offer add-on applications that will enable them to keep their data backed up and secure. Drive Revenue Growth Through Add-Ons Offering add-on applications not only may motivate more SMBs to move to the cloud, but also can increase service providers revenues. Indian SMBs are already using a range of add-on services and applications for their hosted infrastructure, with server backup, SQL database, and control panel add-ons among the most popular, as shown in Figure 5. Figure 4. Indian SMBs reasons to keep servers in-house (2012) 8 6 4 47% 39% 2 25% 22% 21% 1 Price Security or privacy concerns Bandwidth / connectivity issues Specifi c application(s) not supported by any provider Specifi c application(s) needs to be in-house / other tech. concerns Not recommended by my IT personnel / consultant Micro SMBs Small SMBs Medium SMBs Overall SMBs 8
Figure 5. Indian SMBs current use of add-on services and applications for hosted infrastructure (2012) 8 6 49% 4 46% 43% 39% 23% 2 9% Server backup SQL database (like Microsoft SQL server) Control panel (like Plesk or cpanel) Security (inc. antivirus, and/or antispam) LAMP stack (Linux, Apache, MySQL, PHP) Development platform (like Ruby) Micro SMBs Small SMBs Medium SMBs Overall SMBs By promoting these add-on services to SMBs when they purchase hosted infrastructure, service providers can increase the value of their transactions while still keeping basic hosted server prices low. Service providers should also push add-on services to their existing customer base especially since, as mentioned above, 46% of SMBs currently using hosted infrastructure plan to spend more on it in the next three years. Web Presence From 2011 to 2012, the Indian web presence market grew by a substantial 61%, reaching a current market size of 1.9B ($34M USD). This growth was driven primarily by SMBs entering the web presence market for the fi rst time, plus SMBs switching from in-house web servers to web hosting although upselling existing web presence customers with additional web applications has also been an important source of market growth. Some 6% of Indian SMBs now have a company website, and 5 of these are third-party hosted, as shown in Figure 6. Because of the low penetration rate for web presence, there is still plenty of room for service providers to attract new web hosting customers. In fact, Parallels expects explosive growth in this space as India s Internet infrastructure improves. Focusing on new entrants to the market the cloud leapers is the best way to grow revenue in this developing market space. 9
Figure 6. Use of web presence services among Indian SMBs (2012) Overall, 6% of SMBs have a website, and 5 of these are third-party hosted. 12% 9% 6% 3% 1% 2% 1% 3% Micro SMBs Small SMBs Medium SMBs 1% 4% 3% 4% 5% Third-party hosted Self-hosted Don t Know We expect the Indian web presence market to grow by 46% year-over-year, reaching 5.9B ($105M USD) in 2015. Cloud leapers could add over one million new web hosting plans in the next three years; cloud converters could add another 100,000. Target the Opportunity Looking forward, Parallels expects the growth in web presence services to remain high over the next several years, especially as the cloud leapers move straight to third-party hosting. Strong opportunities also exist for converting SMBs with in-house webservers and upselling existing customers. Our research indicates that, for the next three years, the Indian SMB web presence market will grow by 46% year-over-year, reaching 5.9B ($105M USD) in 2015. Following is a breakdown of the expected growth within each of the cloud usage categories. Cloud Leapers The largest web presence opportunity among Indian SMBs lies in adding new customers as they enter the market. With over 9 of Indian SMBs still lacking a website, our research shows that 54% of those in the micro category and 71% in the small and medium category either defi nitely plan to add a hosted website in the next three years or are considering doing so. For service providers who are able to target these SMBs successfully, these potential cloud leapers represent a great growth opportunity one that could add over one million new web hosting plans to the market. Cloud Converters Currently, 2% of micro SMBs and 3% of small SMBs in India have self-hosted websites an expensive and technically complex solution for smaller businesses, compared with the inexpensive standalone web hosting plans that are readily available. In fact, more than 8 of the micro and small SMBs with self-hosted websites say they either are defi nitely planning to switch to third-party web hosting plans in the next three years or are considering doing so. Interestingly, medium SMBs also have a strong interest in converting from in-house web 10
servers to web hosting: of the 4% that have self-hosted websites, 79% are considering moving their websites to the cloud. Taken together, these cloud converters could add up to 100,000 hosted websites to the current market. Cloud Expanders Upselling existing customers presents another good opportunity, as all customers could benefi t from add-on applications to boost their web presence and enhance their website s performance and security. Of the 3% of Indian SMBs currently using a standalone web hosting plan, some 41% intend to increase their spending over the next three years. By offering value-added tools and services to these current SMB web presence customers, service providers can signifi cantly increase their average revenue per user (ARPU). Offer the Right Services In expanding their web presence offerings, service providers should focus on the following types of add-ons: Web applications. New in the 2012 research, Parallels asked Indian SMBs about a wide range of web applications that can secure and enhance their web presence (see Figure 7). Our fi ndings indicate that the top current applications are search engine optimization, used by 46% of SMBs with websites; security and health monitoring, used by 33%; and ecommerce capabilities, also used by 33%. Asked which web presence applications they re planning to add over the next three years, SMBs listed the same top three applications: search engine optimization (54%), security and health monitoring (41%), and ecommerce capabilities (39%). Among medium SMBs, backup also shows strong growth potential, with 45% defi nitely planning to add it in the next three years. Service providers can further grow their revenues with web presence add-ons especially those related to SEO, security, ecommerce, backup, and social media. Figure 7. Web application use among Indian SMBs with websites (2012) 6 46% 4 33% 33% 2 23% 13% 13% 12% 12% Search engine optimization Security and health monitoring Ecommerce capabilities Backup Mobile optimization Content delivery network - CDN SSL certifi cates Content management Micro SMBs Small SMBs Medium SMBs Overall SMBs 11
Social media. Over the past year, Indian SMBs use of social media boomed (see Figure 8). In fact, their use of the top four social media tools (Facebook, Twitter, YouTube, and LinkedIn) matches or exceeds their use of websites. Facebook business pages are the most popular form of social media, with 1 of SMBs now having a Facebook page. In addition, 5% of SMBs are now on Twitter, YouTube, and LinkedIn. All four of these media have experienced growth rates of well over 10 since last year. Service providers can capitalize on the growing popularity of social media by enhancing their standalone web hosting offerings with tools that let SMBs create Facebook pages, Twitter feeds, and other forms of social media and cross-link them to their own websites. Figure 8. Use of social media among Indian SMBs (2012) 12% 9% 1 6% 3% 5% 5% 5% 4% 3% 1% Facebook page Twitter Youtube page LinkedIn company profi le Local directories Blog Rating Sites Micro SMBs Small SMBs Medium SMBs Overall SMBs Indian SMBs use of hosted communication and collaboration services is still small, but growing fast. In fact, with a projected 61% year-over-year growth rate, we expect it to be among the highest cloud services growth areas. Hosted Communication and Collaboration As in 2011, we focused our hosted communication and collaboration research on two areas: hosted premium email and hosted PBX. The overall market for these services in India is smaller than the hosted infrastructure and web presence markets, but it is growing fast, having reached 0.8B ($14M USD) in 2012. Currently, just 1% of SMBs pay for hosted premium email or hosted PBX, but over the next few years, we expect these two cloud services to be among the highest growth areas for Indian SMBs, growing 61% year-over-year. Hosted Premium Email Hosted premium email includes added features such as team collaboration, shared calendars, email archiving, mobility, and security. Compared with the overall email market which includes free accounts through ISPs or providers like Google, in-house email servers, and free hosted email this market is small, but growing rapidly. Overall email use grew moderately over the past year, with 11% of Indian SMBs now using an email account (free or paid). Within the hosted premium email market, penetration rates among Indian SMBs grew by over 15, although this growth is still measured against a very small base of users. The majority of the growth came from SMBs that were either upgrading from free hosted email to hosted premium email or moving from an in-house email server to hosted premium email. 12
Target the Opportunity We expect many of the past year s trends in the email market to continue. We see medium SMBs, in particular, driving huge growth in this space, although use by micro and small SMBs will increase, as well. Cloud Leapers Encouraging small and medium SMBs that currently don t use email to move directly to hosted premium email could result in signifi cant growth. Both size groups can benefi t from the service s team collaboration aspects and pay-per-seat pricing model. As shown in Figure 9, 88% of both small and medium SMBs currently do not use email at all. However, our research shows that as these SMBs enter the email market, they are willing to add hosted premium email: 75% of small SMBs and 48% of medium SMBs without email say they either defi nitely plan to add hosted premium email in the next three years or are considering doing so. Taken together, these SMBs could add an additional 8.2M hosted premium mailboxes to the market in the near term. Figure 9. Distribution of different types of email accounts among Indian SMBs (2012) 10 Cloud leapers could add an additional 8.2 M hosted premium mailboxes over the next three years; cloud converters could add another 380,000; and cloud expanders (moving from free to paid hosted email) could add another 430,000. 75% 5 25% 89% 88% 88% Overall, 1% of 1% 2% 3% 6% 5% 3% 4% 5% 6% Micro SMBs Small SMBs Medium SMBs SMBs are paying for hosted premium email. Hosted service provider ISP or Free email provider In-house server No Email Cloud Converters Some 1% of micro, 2% of small, and 3% of medium SMBs in India currently use in-house email servers an expensive and complicated solution for small companies, particularly those without dedicated IT staff. Our research found that over 5 of these SMBs in all size segments either defi nitely plan to switch from in-house servers to hosted premium email in the next three years or are thinking of doing so. This opportunity could add up to 380,000 hosted premium mailboxes to the market. 13
Cloud Expanders Cloud expanders represent another signifi cant growth opportunity for hosted premium email. (We consider SMBs that upgrade from free hosted email to hosted premium email to be cloud expanders, even though their current use of the cloud service is free.) Parallels believes the best cloud expander opportunity lies in upselling small and medium SMBs that are currently using free hosted email to hosted premium email. This group represents approximately 3% of the small and medium SMBs currently using hosted email. Such an upsell should be easy, since, as mentioned earlier, these SMBs can benefi t both from the service s team collaboration aspects and from its pay-per-seat pricing model. With 86% of small SMBs and 78% of medium SMBs in the cloud expander segment saying they either defi nitely plan to add hosted premium email in the next three years or are considering doing so, this segment could add 430,000 hosted premium mailboxes to the market. Offer the Right Services Following are the two marketing approaches that our research shows will be most successful in encouraging Indian SMBs to adopt hosted premium email. Offer Brand-Name Email Services When SMBs are asked whether price or a trusted email brand name is more important, 57% overall ranked brand over price. Breaking these results down by size segment, we fi nd that, among micro SMBs, 54% say brand wins out over price, while among small and medium SMBs, nearly 8 rate brand as being more important. While service providers should still strive to be price-competitive, they should also market big-brand-name offerings, such as Microsoft Exchange, Google Apps, or VMware Zimbra, to capture the substantial growth that will occur across all size segments. Emphasize Technical Benefits of Hosted Premium Email As mentioned earlier, Indian SMBs are much more likely to have dedicated IT staff than the SMBs of other more developed countries, where tech-savvy labor is more expensive. As a result, the decision makers for purchasing hosted premium email are usually a technical audience, interested in the specifi cations of the hosted premium email solution and whether it will fi ll the same needs as an in-house email system. Not surprisingly, Indian SMBs this year ranked the technical characteristics of a hosted email offering and the quality of presales support as their top two purchase criteria for hosted premium email. Accordingly, to maximize the opportunity in this space, service providers should give their marketing messages a technical focus and provide strong support throughout the sales process. Hosted PBX The hosted PBX market is still tiny in India, with only 1% of Indian SMBs currently using this service. Nevertheless, this number is over 5 greater than it was last year. We still see two of the main barriers to adoption being a lack of awareness of the service (true across all sizes of SMBs) and the absence of a strong local provider. In addition, as with the other cloud services, low Internet penetration further slows adoption. Despite these current barriers, however, Parallels believes that hosted PBX can achieve great success in the Indian SMB market over time, since Indian SMBs report strong interest in the service. 14
Figure 10 shows the current distribution of different kinds of offi ce phone systems among Indian SMBs. Most of the growth in hosted PBX over the past year appears to have come from micro and small SMBs converting from their in-house PBX systems to a hosted service. Figure 10. Office phone use by Indian SMBs in 2012 (excludes mobile lines) 10 75% 5 25% 12% 5% 3% 64% 59% 36% 58% 23% 34% 1% 2% 3% Micro SMBs Small SMBs Medium SMBs Overall, 1% of Indian SMBs are using hosted PBX. Hosted/virtual PBX In-house PBX Regular phone lines No phone lines Target the Opportunity Although hosted PBX is still emerging as a key cloud service in India, opportunities in this space could be substantial for service providers that integrate hosted PBX into their offerings and educate Indian SMBs about the offering s business benefi ts. Because the current base of hosted PBX users is still small, the primary opportunities will be among cloud converters and cloud leapers, rather than cloud expanders. Cloud Leapers Micro and small SMBs that currently do not have PBX systems have been one of the largest areas of hosted PBX growth in other countries, and they represent a good opportunity in India, as well. Of the 75% of micro and small SMBs that currently have no PBX system of any kind, over 6 either defi nitely plan to add hosted PBX in the next three years or are considering doing so. These micro and small cloud leapers could potentially add over 5M hosted PBX lines to the market. Cloud Converters One of the easiest targets for service providers looking to step into the hosted PBX market is SMBs that currently use in-house PBX systems. With 23% of micro, 34% of small, and 58% of medium SMBs currently using in-house PBX systems, opportunities exist in all size segments. Furthermore, over 75% of the SMBs currently using in-house PBX are already considering adopting hosted PBX over the next three years, potentially adding 6.5M hosted PBX lines to the market. Cloud leapers could add an additional 5M hosted PBX lines over the next three years, and cloud converters could add another 6.5M. Keys to driving adoption will be to educate SMBs about the service s benefits, keep price low, and establish a local presence. 15
Offer the Right Services Because the hosted PBX market is a new area for many service providers, Parallels has identifi ed three major marketing points that will help ensure success. Educate SMBs About Hosted PBX As shown in Figure 11, 22% of Indian SMBs still haven t heard of hosted PBX. Furthermore, when looking at SMBs other reasons for keeping PBX systems in-house, we see that 54% have security and privacy concerns and 34% have technical concerns. Although both these numbers have decreased since last year, they still indicate that many Indian SMBs have misconceptions about the service, since hosted PBX is no different from in-house PBX in these areas. Consequently, we see education through targeted marketing campaigns as being key to spurring continued SMB adoption of hosted PBX. Keep Price Low Although price concerns have dropped since 2011, price is still a leading issue for SMBs with in-house PBX systems, with 7 naming it as their reason for not switching to hosted PBX (Figure 11). Still, an impressive 32% say that a great value/price point would motivate them to switch (Figure 12). Consequently, offering small bundles and keeping prices low will be important in driving adoption of this service. Parallels also asked SMBs without hosted PBX what events would cause them to move forward with the purchase. As shown in Figure 12, the leading answers were if they added new locations (45%), had PBX equipment that was broken or fl aky (39%), or experienced a major change in to their business (35%). In the case of medium SMBs, another top reason is if hosted PBX were offered at a great value/price point (5). Understanding these triggers can help service providers determine the highest-value SMB targets to pursue in boosting new customer growth. Figure 11. Indian SMBs reasons not to switch to hosted PBX (2012) 8 7 6 54% 4 35% 34% 2 22% 16% 7% Price Security and privacy concerns Technical concerns Already paid for an in-house PBX Do not know about hosted/ virtual PBX Not recomemended by my IT personnel / consultant We are planning to switch Micro SMBs Small SMBs Medium SMBs Overall SMBs 16
Figure 12. Indian SMBs purchase trigger points for hosted PBX (2012) 6 45% 4 39% 35% 32% 29% 23% 22% 2 Add new locations Old equipment is broken or fl aky Major change to business Great value/ price point Business has explosive growth Offi ce location is changing Equipment lease is expiring Micro SMBs Small SMBs Medium SMBs Overall SMBs Go local While Indian SMBs do not rate having a local provider as being important for most cloud services, hosted PBX is one case where a local presence is important to them. In our 2012 research, Indian SMBs chose having a local provider as their most important purchase criterion, ranking it at 8.9 on a 10-point scale. Consequently, local service providers should push their advantage in this space, and service providers from outside the market should consider taking on a local partner. Support for major languages such as Hindi, Bengali, and Tamil, as well as selected local dialects, will position service providers to take advantage of the upcoming growth in the hosted PBX market. Business Applications Business applications represent one of the best areas of opportunity in the Indian SMB cloud services market. At 3.6B ($66M USD), they also represent one of the largest categories of current SMB cloud spending. Multiple analyst groups predict rapid adoption of online business applications over the next several years, and our research corroborates these forecasts. We found that 11% of Indian SMBs now use some form of free or paid online applications. The top applications, as shown in Figure 13, are instant collaboration, fi le sharing, online backup and storage, and payroll and HR software, with each of these categories used by about 3% of Indian SMBs. Although current penetration rates are low, we expect substantial growth in the use of online business applications as more Indian SMBs gain access to the Internet. 17
Parallels estimates the 2015 market size for business applications among Indian SMBs at 11.4B ($206M USD), with a 46% year-over-year growth rate. The fastest growing applications will be phone conferencing, online backup and storage, and instant collaboration. Target the Opportunity Parallels estimates the 2015 market size for business applications among Indian SMBs at 11.4B ($206M USD), with a 46% year-overyear growth rate. As with other cloud services, growth will take place among all types of cloud users: cloud leapers that have never used the particular application in-house; cloud converters switching from their in-house software to the cloud; and cloud expanders increasing their use of SaaS applications, whether by upgrading their current applications, adding more seats, or expanding their SaaS use into additional application categories. Of the SMBs that are currently not using any form of online business applications, a full 5 report they either defi nitely plan to add one or more in the next three years or are considering doing so. Additionally, for each application, an average of 24% of SMBs that are already using it plan to increase their spending on it over the next three years. Indian SMBs currently using cloud services are both shifting more software use to the cloud and upgrading free applications to premium paid accounts. As Figure 14 shows, the fastest growing applications over the next three years will be phone conferencing (with 43% planning to add it), online backup and storage (with 41% planning to add it), and instant collaboration (with 36% planning to add it). All other business applications will also see signifi cant growth, with over 17% of SMBs planning to add applications in each category. Figure 13. Use of paid and free online business applications by Indian SMBs (2012) 4% 3% 2% 1% 2.3% Instant collaboration 2% 1.6% 1.1% 1.1% 1.3% File sharing Online backup and storage 1% 1.7% Payroll and HR 1.3% 1.3% Phone conferencing 1.2%.7% Web conferencing.6% 1.3% Online accounting 1.1% Support / Help desk.5%.5% Online CRM Paid 1%.6%.7% ERP / resource planning Free 18
Figure 14. Planned adoption of business applications by Indian SMBs 5 4 3 2 43% 41% 36% 1 27% 26% 26% 22% 2 18% 17% Phone conferencing Online backup and storage Instant collaboration File sharing Online accounting Web conferencing Payroll and HR Online CRM ERP / resource planning Support / Help desk Offer the Right Services Offering the right services is especially important for the business applications category, as integrating endless numbers of SaaS applications into a service provider s current offerings can be an expensive and complex process. To help minimize this complexity and increase the profitability of delivering business applications, Parallels has two specific recommendations. Offer the Right Applications to each SMB Size Segment Since the top applications depend on the size of the SMB, service providers should target their business application offerings to specific SMB size segments. Our research shows the top applications currently used by each size segment are: Micro SMBs: : Instant collaboration (3.3%), file sharing (2.8%), and online backup and storage (2.4%) Small SMBs: Phone conferencing (5.2%), online backup and storage (5.1%), and file sharing (4.7%) Medium SMBs: Online backup and storage (6.7%), payroll and HR (6.5%), and phone conferencing (6.1%) Consider Bundling Business Applications and Other Cloud Services In our 2012 research, we asked Indian SMBs whether they would like to buy online business applications as part of a discounted bundle of several cloud services. An impressive 84% said they were interested. By selling bundled cloud services that target each size segment and focusing on the top opportunities for that segment, service providers will be able to increase their ARPU while also giving SMBs the cloud services they want. To profit from online business applications, service providers should offer the right applications to each size segment and consider bundling applications with other cloud services. Overall, the growth of the business applications category makes it a favorable space to pursue especially since becoming a full-service provider continues to be the trend in the cloud service market. 19
Conclusion The Indian SMB cloud services market grew over 38% during the past year, reaching a current 11.9B ($216M USD). Our research indicates that it will continue to grow rapidly, reaching 36.9B ($664M USD) by 2015. Accordingly, we see strong opportunities for service providers that are able to reach SMBs with the right services at the right price. The keys to growing cloud service adoption among Indian SMBs are to: Know the SMB audience, reaching out to each category of SMBs with the messages that resonate most with its IT decision makers. For the non-technical do-it-yourselfers (primarily micro SMBs), service providers should focus on business benefits; for SMBs with IT consultants or dedicated IT staff (primarily small and medium SMBs), they should focus on the technical advantages of the cloud service. Target each opportunity with the right services. For SMBs without in-house IT services, which is currently the majority of Indian SMBs, service providers should encourage them to leap directly to the cloud; for SMBs currently using in-house IT services, service providers should focus on converting them to cloud versions of those services; and for SMBs already using cloud services, service providers should upsell them to expanded versions of those services. Service providers can also drive growth and revenue by increasing their offerings, adding new value-added tools to their core cloud services, and expanding their core service base with emerging services, such as hosted premium email, hosted PBX, and business applications. As Internet access increases in India, more SMBs will enter the cloud services market, and all types of cloud services will become more established. Accordingly, service providers who know their SMB customers, target the best opportunities, market their services successfully, and take the time to educate potential customers about their services will grow and prosper. 20
2012 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, stored on a retrieval system, or transmitted without the express written consent of Parallels. 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 850 employees in North America, Europe, and Asia. For more information, please visit www.parallels.com/spp. 21
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