Table of Contents Executive Summary...1...2 Key Findings in the Cloud...2 Growth Opportunities Overview...3 Hosted Infrastructure...4 Web Presence...6 Hosted Communication and Collaboration...9 Hosted E-mail...9 Hosted PBX... 10 Other Online Applications... 12 Conclusion... 13
Executive Summary Cloud computing has given small and medium businesses (SMBs) access to computing power, applications, and services that were formerly available only to large enterprises. Looking at the Spanish SMB market in 2011, Parallels sees a market whose use of Cloud services is becoming more established, with substantial growth opportunity in the upcoming years. In early 2011, Parallels spoke to 400 Spanish SMBs across all industry services, their attitudes towards Cloud services, and their future plans. Based both on the insights gained from these interviews and on our deep knowledge of the Cloud services market, Parallels has created a comprehensive view of the current SMB market in Spain for those Cloud services that are most useful to SMBs hosted infrastructure, Web presence, hosted communication and collaboration, and other online applications. This paper is a summary of that research, aimed at providing service providers with practical insights into how to succeed in the Spanish SMB Cloud services market. Parallels estimates the 2011 Spanish SMB market for the major traditional hosted services hosted infrastructure and Web presence services at 344 million, as illustrated in Figure 1. Of this spending, hosted infrastructure has the largest share, with 189 million, and Web presence has the remaining 155 million. (Note that this market sizing excludes the Cloud services categories of hosted communication and collaboration and other online applications, as our research in those two segments focused on adoption rates only.) Figure 1. SMB Cloud services market size in Spain 155M 344M 189M Hosted Infrastructure Web Presence Total Spanish SMBs represent a healthy Cloud services market, although the country s Internet infrastructure is still developing. According to the World Bank, Spain s Internet penetration is 61% far behind that of many Parallels believes this high growth rate of Internet penetration will continue into the near future, creating many opportunities particularly in the Cloud services market. We expect to see Cloud services growth to occur in three areas: New adopters that move straight to the Cloud for example, an SMB that currently has no server or website moving straight to a hosted server or service-provider-managed website. This trend will be particularly true for hosted infrastructure and Web presence services. SMBs that replace their in-house solutions with hosted services. Upselling of existing customers to new and expanded Cloud offerings. 1
Definitions This research is focused on the Cloud segments that matter most to SMBs: hosted infrastructure, Web presence, hosted communication and collaboration, and a general category we refer to as other online services market as follows: Hosted infrastructure (also known as infrastructure-as-aservice). This category includes dedicated servers, virtual private servers (VPS), managed hosting, and utility or elastic computing. Web presence. This category includes Web hosting, blogging services, domain registration, SSL and e-commerce add-ons, and site-building tools. Hosted communication and collaboration. This category consists of business-class e-mail services, including e-mail security, e-mail archiving, and mobility; and phone services, including hosted PBX services and voice-over-ip (VoIP). Other online applications (also known as software-as-aservice, or SaaS). of software applications that can be accessed online content accounting, online backup and storage, online CRM, payroll and HR, phone conferencing, and Web conferencing. For each of these Cloud services, our research captured SMBs current use, their attitudes, and their future plans. For the hosted infrastructure and Web hosting markets, we also calculated spending and market size. In future versions of this research, we plan to add spending details and market sizing for all Cloud service segments. small and medium businesses (SMBs) also known as small and medium enterprises, or SMEs we follow the practice of the European Commission on Enterprise and Industry, companies with 1 to 250 employees. Sub-categories 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). Our research did not include the businesses in Spain that have no employees, but this group of small businesses should still be considered good target for service providers within the Spanish Cloud services space. We believe this group would look quite similar to micro SMBs in terms of their IT needs. Key Findings in the Cloud Our research shows that the Cloud services market among Spanish SMBs has many strong growth opportunities, particularly among SMBs with fewer than 50 employees. Currently, Spanish SMBs fall behind 2
SMBs in other European countries including Germany, France, and the UK in their adoption of nearly every Cloud service. As Spain s IT market matures, and as targeted marketing broadens its SMBs new adopters (i.e., SMBs that currently do not use a particular type of solution going straight to the Cloud for it), as well as SMBs replacing their in-house IT solutions with hosted services. These trends will bring Spanish SMBs to a usage level that is closer to that of other developed European countries. Growth Opportunities Overview providers take best advantage of the growth opportunities for Cloud services in the Spanish SMB market. 1. audiences to drive new customer adoption. As illustrated in Figure 2, our research shows that service providers should look at the Spanish SMB market as three separate audiences. Spanish SMB market 10 1% 4% 2% % 4 5 7% 75 % 95 % 25% 52% 6% 15% Micro SMBs Small SMBs Medium SMBs No dedicated IT Staff IT Consultants Dedicated IT Staff I don t know Micro and small SMBs with no dedicated IT staff represent a particularly strong opportunity for service providers. Some 52% of micro SMBs and 15% of small SMBs in Spain report having no dedicated IT staff. For these SMBs, hosted services present a less complex, more cost-effective solution than in-house IT. Furthermore, compared to the SMB market as a whole, the micro and small SMB market is still underpenetrated with respect to most Cloud services, and therefore represents the greatest growth opportunities. Service providers can encourage adoption of Cloud services by targeting their marketing to these smaller SMBs and tailoring their packages accordingly. In particular, their marketing messages need to speak the language of these of Cloud services. Easy-to-use, intuitive user interfaces will also help improve these SMBs experiences and hide the underlying complexity of the solutions. For SMBs marketing messages should emphasize business minimize technical complexity. Service providers can also particularly for more sophisticated IT offerings. With 4 of 3
businesses having at least one dedicated IT employee, this group decision-maker for all Cloud service purchases. Providing clear, offerings, their differentiating features, and the business value will be key in selling to this group. For SMBs that have IT consultants or messages should emphasize technical details. As the Spanish Cloud services upselling existing customers will become an increasingly important means of increasing revenues. SMBs with IT consultants. SMBs with IT consultants are also a target audience; however, due to the relatively small group of of small SMBs), this audience does not represent as strong an opportunity as the other two audiences. Service providers who do market to these SMBs should consider the IT consultant(s) these businesses hire as their primary audience and focus their a white-label, reseller offering in place that gives IT consultants the opportunity to resell hosted and Cloud services to their SMB end customers without having to manage the infrastructure themselves. In addition, service providers may want to develop sales and marketing strategies that target the broader IT channel, including distributors, as this is fertile ground for reaching IT consultants. 2. Upsell existing customers with value-added tools and new services. As the Spanish Cloud services market becomes more mature, upselling existing customers will become an increasingly important means of increasing service providers revenues. Service providers can do this both by augmenting their core offerings with new value-added tools or services (e.g., a Facebook plug-in for customers that use Web hosting services) and by adding emerging Cloud services, such as other online applications, to expand beyond their current core offerings. In particular, Parallels found large upsell opportunities in Web presence and hosted e-mail, and large cross-sell opportunities in the category of other online applications (SaaS). The following sections examine Spanish SMBs use of each of the four sub-segments of Cloud services in more detail, covering their current use of the service, their attitudes toward it, and their future plans for spending, as well as key opportunities and messaging for different target audiences. Hosted Infrastructure Parallels estimates the total SMB hosted server market in Spain at 189 million, with approximately 225.000 hosted servers in use. With only 6% of SMBs currently reporting using hosted servers (see Figure 3), we see this as a growing market. Since Spain s IT market and Internet infrastructure is still developing, it s not surprising that its use of hosted servers lags behind that of other developed European countries, such as Germany and the UK, each of which has a hosted server penetration rate near 2. As Spain s IT market continues to mature and catch up to that of other developed European countries, Parallels believes the Spanish SMB hosted infrastructure market will grow as well, creating strong opportunities for service providers. 4
Figure 3. Hosted server penetration in French SMBs 10 % 5 25% 55 % 75% 31% 2 2 % 29% 7% 9% 24% 24% 21% Micro SMBs Small SMBs Medium SMBs Spanish SMBs report using a hosted server. Hosted Servers Both Hosted and In-house In-house Servers No Servers The main opportunity in this market lies in the new adoption of hosted infrastructure by SMBs that currently don t use servers a category of micro SMBs don t use servers, and, of those, 55% are considering adoption in the next three years. Likewise, 55% of small SMBs don t servers in the next three years or might plan to do so. Parallels estimates that this opportunity could more than triple the current market size. Another strong opportunity in the SMB hosted infrastructure market is the replacement of in-house servers with hosted servers by micro and small SMBs without dedicated IT staff. Hosted servers do not require time, effort, or technical expertise, making them a good choice for SMBs in this category. The best opportunity for marketing hosted servers is the micro SMB audience, a group that mostly has no IT staff. Currently, of the 2 of these SMBs that use in-house servers, 5 are considering switching to hosted servers in the next three years. Small SMBs also three years or thinking about doing so. Taken together, these groups could add 300.000 hosted servers to the market. Targeting new adoption of hosted infrastructure among SMBs who do not currently use servers could more than triple the current market size in the next 3 years. In order to capture growth in this market, service providers need to focus on educating the Spanish SMB market about the business and research found that many SMBs still have misconceptions about hosted servers. For example, the leading reason for SMBs not wanting to switch supported by hosted servers, with 42% reporting this as a concern (Figure 4). Education will help SMBs realize that hosted servers work exactly the same as in-house servers when it comes to application storage and performance. Likewise, when Spanish SMBs rank their key purchase criteria for hosted infrastructure, they ranked multiple criteria similarly (Figure 5), indicating that they are unsure about how to differentiate between the various service providers and their offerings. Service providers who focus on educating SMBs and in this market. Parallels research also showed price as a major factor delaying the adoption of hosted infrastructure in Spain (see Figure 4), with 4 of SMBs that have in-house servers citing price as the main barrier Price is a major factor delaying adoption of hosted making VPS ideal solution. 5
preventing them from moving to hosted servers. These price concerns make the Spanish SMB market an ideal place for VPS offerings, as this server at a fraction of the cost. Education about the true cost of owning an in-house server will further assist in the adoption of VPS. Figure 4. Reasons that Spanish SMBs keep servers in-house % 6 5 4 3 2 42% 4 29% 1 application(s) not supported by any provider Price application(s) needs to be in-house / other tech. Concerns 9% % Bandwidth / connectivity issues Not recommended by my IT personnel / consultant Security or privacy concerns Micro SMBs Small SMBs Medium SMBs Overall SMBs infrastructure purchase criteria 10.0 6.8 6.5 6.1 5.0 2.5 0.0 Tech Characteristics Pre-sales support Price Clear, Informative Website Recommendations Online research Well known brand Local provider Micro SMBs Small SMBs Medium SMBs Overall SMBs Web Presence Parallels estimates the current Spanish SMB market for Web presence at 155 million, a number that Parallels believes will grow rapidly in the upcoming years. As shown in Figure 6, only 4 of Spanish SMBs European countries, including Germany and the UK. This lack of current website adoption is a good indicator that Web presence is likely to experience high adoption rates in coming years. As Spain s Internet use grows, we expect to see Spanish SMBs expand their Web presence and begin to catch up to the adoption rates of SMBs in other developed growth, as nearly 5 of Spanish SMBs that do have websites are already using third-party Web presence services. 6
Figure 6. Website and Web presence penetration among Spanish SMBs 10 % 5 25% 9% 7% 3 24% 24% 27% 37% 11% Micro SMBs Small SMBs Medium SMBs Spanish SMBs report having a website. 3rd-party hosted Self-hosted Don t Know Our research reinforces our belief that a large, untapped website market exists in Spain. The greatest opportunity lies among the 6 of SMBs who do not currently have a website. These SMBs especially in the micro segment report a high willingness to adopt third-party Web hosting. Of the micro SMBs that currently have no website, 69% either or might plan to do so. This interest represents an opportunity of up to 1M new Web hosting plans over the next three years. Parallels also sees good opportunity among SMBs who currently self-host their websites. For SMBs without dedicated IT staff, self-hosting a website can be a complicated and time-consuming task. With the low cost of third-party Web hosting, convincing these SMBs to switch from their in-house Web servers should be an easy sell. Among micro SMBs, 24% currently self-host their website and next three years or might plan to do so. In the small SMB segment, switch to a service provider in the next three years or might plan to do so. Encouraging these two segments to make the switch could add an additional 500.000 third-party hosted websites to the market in the next three years. Micro SMBs that currently have no website could add up to 1M new Web hosting plans in the near term. Micro and small SMBs that currently selfhost could add another 500.000. In addition to opportunities among new adopters of hosted websites, SMBs currently using a service-provider-hosted website. About 1 of these SMBs already plan to increase their Web presence spending in the next three years, but Parallels believes service providers can upsell even more SMBs by offering ways for them to both expand their Web presence and integrate the expanded presence with their core website. Our research shows that the top upsell opportunities to capture this planned increase in spending are: Website design tools. Some 48% of Spanish SMBs with a website currently design it in-house. For micro SMBs without technical expertise, designing a complex website in-house is challenging, and hiring a web agency is costly. Providing website design tools will help these SMBs create more sophisticated websites in-house without a big expenditure in design services. The top upsell opportunities in Web presence are website design tools and social media tools. 7
Social media. Facebook and Twitter are currently the second and third leading forms of Web presence in Spain (local directories media tools become a threat to Web presence, Parallels believes there is an opportunity to capitalize on this trend. For instance, service providers can enhance their Web presence offerings with the ability to create Facebook pages and cross-link them to companies own websites. The recent integration of Parallels Web Presence Builder with Facebook will allow SMBs to do just that. 4 3 34% 2 1 25% 2 15% 11% 1 9% 6% Local directories Twitter Facebook page E-commerce capabilities Blog Youtube page LinkedIn company Market place store Rating sites Micro SMBs Small SMBs Medium SMBs Overall SMBs In order to successfully sell Web presence offerings to Spanish SMBs, service providers should focus their marketing on three main areas: price, technical characteristics, and a clear, informative website. While offering competitively priced Web presence packages remains important, SMBs rank companies with leading technical characteristics and strong Web presence as nearly equally important (see Figure 8). Figure 8. Spanish SMBs ranking of Web presence purchase criteria 10.0 8.2 8.0 6.9 6.8 5.9 5.4 5.0 2.5 0.0 Price Tech characteristics Clear, informative Website Pre-sales support Recommendations Online research Well known brand Local Provider Micro SMBs Small SMBs Medium SMBs Overall SMBs 8
Hosted Communication and Collaboration In the area of hosted communication and collaboration, Parallels focused its research on two areas: premium business e-mail and hosted PBX. The overall market in Spain is somewhat small for these two services, with of SMBs currently paying for premium hosted e-mail and 4% using hosted PBX services. Within both of these markets, Spanish SMBs expand their use of Cloud services. Hosted E-mail When looking at the total composition of the Spanish SMB e-mail market, we see that free forms of e-mail dominate the landscape (see Figure 9), with 28% using free provider accounts and 3 using free hosted e-mail through their Web presence provider. With many free 10 28% 24% 24% 8% 18% 29% 5 29% 14% 12% 25% 44% 35% 35% Micro SMBs Small SMBs Medium SMBs Hosted service provider ISP or Free e-mail provider In-house server No E-mail Spanish SMBs report using hosted e-mail paid. Despite the predominance of free e-mail use, our research showed that some Spanish SMBs are willing to pay for premium e-mail, especially when services such as team collaboration, shared calendars, e-mail archiving, mobility, and security are part of the offering. Parallels sees two major opportunities for service providers in premium paid e-mail: 1. Encourage adoption among micro and small SMBs currently using in-house e-mail servers. As shown in Figure 9, 8% of micro SMBs and 18% of small SMBs are currently using in-house e-mail servers an expensive and complicated solution for small companies, particularly those without dedicated IT staff. Our research found that 3 of micro SMBs and 65% of e-mail servers to paid, hosted e-mail in the next three years or are thinking of doing so. This opportunity could add up to 620.000 paid hosted mailboxes to the market. 9
The best hosted e-mail opportunities lie in (1) encouraging micro and small SMBs to move from in-house to hosted (2) upselling small and medium SMBs from free hosted e-mail to premium e-mail services. 2. Upsell small and medium SMBs using free hosted e-mail. in upselling small and medium SMBs currently using free hosted e-mail. Although 44% of small SMBs and 35% of medium SMBs in Spain already use hosted e-mail, only 1 and 14%, respectively, pay for premium services. Upselling these SMBs to premium team collaboration aspects of a premium hosted e-mail offering and from a pay-per-seat pricing model. Currently, 4 of small premium hosted e-mail in the next three years or are considering doing so steps that could add 600.000 paid hosted mailboxes to the market. To pursue this opportunity, service providers should market to the dedicated IT segment and make sure their marketing messages have a strong technical orientation. In general, SMBs ranked personal online research, pre-sales support, and price as their leading purchase criteria for hosted e-mail (see Figure 10). Therefore, to maximize adoption, service providers should focus on building a strong pre-sales experience through both Web presence and their support team, as well as offering low-cost plans. for hosted e-mail 10.0 6.8 6.5 5.0 4.6 2.5 0.0 Personal research Pre-sales support Price Tech characteristics Clear, Informative Website Well known brand Recommendation Local provider Micro SMBs Small SMBs Medium SMBs Overall SMBs Hosted PBX Replacing in-house PBX systems with hosted systems could add 1.1 million hosted PBX lines to the market. The current hosted PBX market is still small among Spanish SMBs, with just 4% penetration, but it has opportunity to grow. Because hosted PBX services are a relatively new offering across all SMB markets in Europe, strong marketing and education about the service will be crucial in driving adoption. Figure 11 shows the current usage of different types of PBX services among Spanish SMBs of different sizes. The best target for service providers looking to break into the hosted PBX market is SMBs that currently use in-house PBX systems particularly micro and small SMBs without dedicated IT staff. In these size groups, 19% and 4, respectively, are currently using in-house PBX systems; and 52% and 5, respectively, are considering adopting hosted PBX in the next three years. This opportunity for replacing inhouse PBX systems could add 1.1M hosted PBX lines to the market. 10
Figure 11. Use of PBX among Spanish SMBs 10 7% 1% % 5 25% 4 49% 7 5 4 19% 4% 8% 6% Micro SMBs Small SMBs Medium SMBs French SMBs report using a hosted PBX system Hosted/virtual PBX In-house PBX Regular phone lines No phone lines Because the hosted PBX market is a new area for many service research, that will help service providers successfully sell hosted PBX services to SMBs: 1. Keep the price low. Among SMBs with in-house PBX systems, price is a leading reason for not switching to hosted PBX, with an switched (see Figure 12). Price was also the leading key purchase criterion for current hosted PBX users (Figure 13). Offering small bundles and keeping prices low will help these SMBs overcome their concerns and make the switch, particularly when hosted PBX is compared to the total cost of ownership for in-house PBX, including maintenance and upgrades. 2. Educate SMBs about hosted PBX. As shown in Figure 12, 11% of SMBs have never heard of hosted PBX. For hosted PBX solutions to become widely recognized and mainstream, service providers need to focus on educating SMBs. 3. Build a strong brand. As shown in Figure 13, SMBs rank wellknown brand and personal recommendations nearly as high as price when selecting a service provider. Therefore, to sell hosted PBX successfully, service providers will need to pair education with strong branding to help their hosted PBX offerings stand out in the marketplace. In the U.S., where hosted PBX is somewhat more established, strong brands such as RingCentral and Phone.com lead the marketplace. Likewise, in Spain, we expect to see service providers with strong brands end up on top. Figure 12. Spanish SMBs concerns about hosted PBX systems 8 % To sell hosted emphasize build a strong brand. 6 42% 4 2 2 16% 11% 8% % Price Technical concerns We are planning to switch Security and privacy concerns Do not know about hosted/virtual PBX Not recomemended by my IT personnel / consultant Micro SMBs Small SMBs Medium SMBs Overall SMBs Already paid for an in-house PBX 11
criteria for hosted PBX 10.0 8.2 8.1 8.1 5.0 2.5 0.0 Price Well known brand Recommendation Personal research Tech characteristics Pre-sales support Clear, Informative Website Local provider Micro SMBs Small SMBs Medium SMBs Overall SMBs Other Online Applications Other online applications represent one of the fastest growing areas of the Spanish Cloud services market. Multiple analyst groups predict rapid adoption over the next several years, and our research corroborates these forecasts. Currently, over 5 of Spanish SMBs are already using some form of free or paid online applications. As shown in Figure 14, the top applications, with 4, 29% and 25% penetration, respectively. Figure 14. Current use of other online applications (both paid and free) among Spanish SMBs 4 3 14% 2 1 26% Phone conferencing File sharing 19% 1 22% Payroll and HR Online accounting 4% 17% 15% Online back-up and storage Content management E-mail archiving solution Web conferencing Paid Online CRM Free growth, particularly for SMBs that currently don t have in-house versions of these applications. Among users of existing online applications, the new applications most likely to be adopted over the next three years are content management (with 1 planning to purchase) and Web conferencing (with 8% planning to purchase). Strong opportunities also solutions, all of which have planned adoption rates of more than 5%. 6% 1 1 9% 1% 7% 12
Additional opportunities exist among Spanish SMBs that are currently using online applications. Although many of these SMBs report that they do not intend to pay more for most of their online applications, growth potential does exist in content management and Web conferencing, with 11% and 9% of current users, respectively, planning to increase their spending on these applications in the next three years. Consequently, service providers that add other online applications to their current service category in upcoming years. Conclusion For the major traditional hosted services hosted infrastructure and Web presence Parallels estimates the size of the current Spanish SMB market at 344 million. As the market develops further, catching up to markets in more developed countries, our research shows substantial opportunity for growth in adoption of Cloud services. The category of other online applications opportunity particularly for SMBs that currently don t have in-house versions of these applications. Parallels sees the market growth driven by two main areas, particularly among micro and small businesses (1-49 employees): 1. Adoption of Cloud services by SMBs that currently have no IT solution of that type (e.g., adoption of hosted servers by companies that currently have no servers) 2. Replacement of in-house IT solutions with hosted Cloud services Overall, Spanish SMBs demonstrate high interest in Cloud services, pointing to a healthy market for service providers. In order to sell successfully to this market, our research shows that service providers should differentiate between two key audiences SMBs with no IT resources and SMBs that have dedicated IT staff and focus on the SMB market as it continues to grow. About Parallels the broadest set of solutions demanded by small businesses. Founded in 1999, Parallels is a fast-growing company with 800 employees in North America, Europe, and Asia. For more information, please visit www.parallels.com/spp. Contact Info Emily Kruger, Customer Insights Manager Email : ekruger@parallels.com Eugenio Ferrante, Director of Customer Satisfaction & Knowledge Email : eferrante@parallels.com Twitter : @eugenioferrante 2011 Parallels Holdings Ltd. All rights reserved. The Parallels logo and Parallels are registered trademarks of Parallels Holdings Ltd. No part of this publication may be reproduced, photocopied or stored on a retrieval system or transmitted without the expressed written consent of Parallels. 13