Odin 2015 SMB Cloud InsightsTM CANADA
Categories and Definitions SMB Defined We define SMBs also known as small and medium enterprises (SMEs) as companies with one to 250 employees. There are around 1.1 million SMBs in Canada today. SMB categories include micro (1-9 employees), small (10-49 employees), and medium (50-250 employees). Cloud Opportunities Cloud leapers: SMBs that are not currently using an in-house IT solution (no servers, web servers, or PBX systems) and are likely to move straight to the cloud, i.e., leaping over in-house IT solutions. Cloud converters: SMBs with in-house solutions but moving or planning to move to hosted services. For example, an SMB with in-house servers who is planning to switch to hosted servers when they next upgrade their infrastructure. Cloud Services Defined This research focuses on the cloud services that matter most to SMBs: IaaS, web presence and web applications, unified communications, and other general business applications. Infrastructure-as-a-service (IaaS): Cloud servers, dedicated servers, virtual private servers (VPS), fully managed hosting, as well as add-on applications and services for hosted infrastructure such as control panels, development platforms, LAMP stack, security, and server backup. Web presence and web applications: Third-party web hosting, domain registration, and web applications including web server backup, content delivery networks (CDN), content management systems (CMS), Ecommerce, site health monitoring, mobile optimization tools, search engine optimization (SEO), site-building tools, SSL, web server backup, and web server security. Unified communications: Business-class email services including email security, and email archiving, along with mobility and hosted business voice services such as hosted PBX. Includes communication and collaboration applications such as web and phone conferencing, instant collaboration, and mobile device management (MDM). Business applications (also known as software-as-a-service or SaaS): The major types of software applications that can be accessed online such as file sharing, online accounting, online backup and storage, online customer relationship management (CRM), payroll and human resources (HR), support and help desk, and virtual desktop (VDI).
Canada s Overall SMB Cloud Services Market $2.9B 2015 ($2.6B USD) Odin SMB Cloud Insights has entered its fifth year of research into the consumption of cloud services by small and medium businesses (SMBs). Globally and locally, we are finding that SMBs from a variety of sectors are moving their business functions into the cloud. Tools and solutions previously reserved for enterprise-level organizations are being implemented in smaller firms as developers create services specifically for the SMB market. Our research is intended to help cloud service providers take advantage of the trends outlined in this report in order to meet the evolving needs of their SMB customers. Odin estimates the 2015 Canadian SMB cloud service market to be $2.9B ($2.6B USD) in 2015. Infrastructure-as-a-service (IaaS) is the largest category within the cloud service space at $1.2B ($1B USD). Web presence is $467M ($413M USD) and unified communications which includes hosted email, business voice services, and collaboration applications is valued at $728M ($644M USD). Business applications, often referred to as software-as-a-service (SaaS), sits at $544M ($481M USD). This report dives deeper into each of these categories, explores how SMBs are consuming cloud services, and how service providers can take advantage of the trends within this market. 1
INFRASTRUCTURE-AS-A-SERVICE (IaaS) IaaS Accounts for 40% of the Canadian Cloud Service Market 40% 16% 25% 19% $1.2B ($1B USD) $467M ($413M USD) $728M ($644M USD) $544M ($481M USD) IaaS Web presence Unified communications Business applications $2.9B ($2.6B USD) The Canadian IaaS market reached $1.2B ($1B USD) in 2015. As we have seen in other mature markets around the globe, many Canadian SMBs have already moved into some form of hosted infrastructure as businesses shift away from in-house infrastructure. VPS is the most popular form of hosted infrastructure due to its affordability for SMBs; however, cloud servers are growing in popularity. VPS Used More Heavily than Cloud or Physical Servers 35% Physical servers 61% Virtual private servers 22% Cloud servers 49% of SMBs interviewed use more than one type of hosted server 2
Top Barriers to Hosted Infrastructure 53% 47% Price Security More than two-thirds of SMBs interviewed stated that price and security are their highest concerns about switching to hosted infrastructure. It is interesting to note that application support, bandwidth, and IT concerns significant barriers in other countries are not present among Canadian SMBs. As Moore s law dictates that bandwidth and application performance will inevitably improve, the imperative is on service providers to offer and promote secure hosting for their customers. Top Workloads for Hosted Servers 1 2 3 52% Web server 38% Accounting, financials 36% Database applications In addition to these workloads, medium-sized businesses heavily use their hosted servers for business intelligence and analytics. 3
SMBs Are Willing to Pay More for High Availability and Unlimited Storage High Availability Unlimited Storage 57% 55% SMBs would pay up to $5 more each month SMBs would pay up to 37% $10 more each month 39% Current and Projected Server Add-On Usage 70% 60% 50% 40% 30% 20% 10% 0% Security Server Backup Database Add-ons Control Panel Development Platform LAMP Stack 2015 2018 When it comes to using hosted servers, 75% of SMBs purchase at least one add-on for their hosted server. Over the next three years, security and backup will remain the most popular as SMBs increase their consumption of all types of server add-ons. 44% of SMBs with selfmanaged servers want to upgrade to fully managed within three years 28% of SMBs with hosted servers reported using fully-managed servers 19% of SMBs without hosted servers are considering going fully managed within three years 4
SMBs are growing their reliance on service providers to manage their hosted infrastructure. This allows SMBs to focus on running their businesses while providing an opportunity for service providers to increase their revenue. IaaS Opportunity through 2018 21% 38% 25% Cloud leapers (New adoption) Cloud converters (Switch from in-house) Cloud expanders (Increase spending) IaaS 10% CAGR $1.2B ($1B USD) $1.6B ($1.4B USD) 2015 2018 By 2018, the IaaS market will be $1.6B ($1.4B USD). Adoption of cloud servers will drive growth from cloud leapers and converters in the market but movement towards fully managed servers will be the main driver of growth in the long term. Service providers can best position themselves by having a comprehensive suite of IaaS offerings, the right add-ons, and high-touch management service options. 5
WEB PRESENCE Web Presence Accounts for 16% of the Canadian Cloud Service Market 40% 16% 25% 19% $1.2B ($1B USD) $467M ($413M USD) $728M ($644M USD) $544M ($481M USD) IaaS Web presence Unified communications Business applications $2.9B ($2.6B USD) The web presence market is $467M ($413M USD) in 2015. As previously noted, Canada is a mature market and most Canadian SMBs have websites for their businesses with 79% hosted by a third party. This market will see growth as SMBs build add-ons into their websites and hire professional management. The SMB s path to successful web presence requires many steps and provides significant opportunity for service providers. When SMBs need to design their websites, small businesses rely much more heavily on third-party designers than micro and medium businesses. Although some website design still happens in-house, almost all websites are hosted by third parties. The management of these websites is commonly done by in-house IT staff, but 21% of SMBs would like to move towards fully-managed websites in the near future. These common paths are outlined in the graphic below. 6
Web Design 48% 52% 71% 29% 59% 41% Micro (1-19 employees) Small (20-99 employees) Medium (100-299 employees) Third-party web designer In-house design Third-party Hosted Web Hosting Self hosted 21% Mobile Optimization of Website DIsplays on mobile without optimization Mobile optimized 79% 29% Only displays properly on a computer 47% 23% Website Applications Website Management 1 2 3 70% 19% 11% SEO Security E-commerce In-house Web designer Web hoster One in five SMBs are planning to switch to external website magagement within 3 years. 46% 20% 19% 14% Purchased from web hoster at time of website purchase Purchased directly from application developer Other third-party Purchased from web hoster after purchasing website Moving forward, service providers will best position themselves in the market by offering a range of web presence design, hosting, and management options. 7
Top Social Media 41% 36% 23% Facebook LinkedIn Local Directories Web Presence Opportunity through 2018: 38% 59% 18% Cloud leapers (New adoption) Cloud converters (Switch from in-house) Cloud expanders (Increase spending) 8
Web Presence 13% CAGR $467M ($413M USD) $679M ($601M USD) 2015 2018 Growing at a 13% CAGR, the web presence market will grow to $679M ($601M USD) by 2018. Due to the limited opportunities in commodity web hosting, service providers who can offer pathways from website design to daily management of websites will be at the forefront of this expanding market. 9
UNIFIED COMMUNICATIONS Unified Communications Accounts for 25% of the Canadian Cloud Service Market 40% 16% 25% 19% $1.2B ($1B USD) $467M ($413M USD) $728M ($644M USD) $544M ($481M USD) IaaS Web presence Unified communications Business applications $2.9B ($2.6B USD) The Canadian unified communications market, which includes hosted business voice services (PBX), hosted email, and collaboration applications, reached $728M ($644M USD) in 2015. Most SMBs use some form of business voice services and email - and many of them pay for premium communication services. This section explains why some Canadian SMBs prefer premium communication tools while others hold back from purchasing these services. Communication Devices Used by Canadian SMBs 76% 75% 42% 23% 13% Landline Smartphone Tablet IP Phone Softphone 62% of SMBs use business voice services 10
Most SMBs Keep Their Business Voice Services In-House In-house Hosted 22% 78% Top Concerns about Hosted Business Voice Services Price Unaware of Hosted PBX Security 11
Top Purchase Triggers for Hosted Business Voice Services 30% 20% 10% 0% Micro Small Medium Good price point Office location is changing Major change to business Hosted Business Voice Features that Increase Productivity and Customer Satisfaction 33% 30% 21% 16% Mobile connectivity Instant messaging Auto attendant Auto call distribution While most Canadian SMBs have business voice services, only 22% use a hosted solution. Those SMBs that have adopted hosted PBX report a direct boost in productivity and customer satisfaction. 12
Business Email Varieties 48% 36% 13% 3% Hosted by a service provider Free service In-house server Do not use email Advantages of Paid Business Email over a Free Service Security Archiving Shared calendar Outlook integration Calendar alerts/ notification Other 84% 30% 26% 24% 23% 7% Businesses that have not adopted hosted PBX would likely become customers if offered an enticing price point. However, security and lack of awareness remain significant barriers to the adoption of hosted business voice services. 13
Top Purchase Triggers for Premium Hosted Email Good price point Company adds more emploeeys Increased need for security Ninety-seven percent of Canadian SMBs use email for their business, but only half use email hosted by a service provider. Similar to hosted business voice services, the largest barrier to premium hosted email is price. Interestingly, SMBs who use premium hosted email report the greatest value is the additional security it offers. Service providers should continue working towards offering low-cost solutions but focus their sales and marketing messages around the security benefits SMBs receive with these services. Unified Communications Opportunity through 2018 16% 26% 40% 27% 3% 18% Cloud leapers (New adoption) Cloud convertes (Switch from in-house) Cloud expanders (Increase spending) Hosted PBX Email 14
Communication and Collaboration Applications 3% 29% 47% 19% 37% 19% Instant collaboration Web conferencing Mobile device management 2015 2018 Unified Communications 6% CAGR $728M ($644M USD) $868M ($768M USD) 2015 2018 The unified communications market will grow at a CAGR of 6% reaching $868M ($768M USD) by 2018. The market for hosted communications services is reaching saturation, with many SMBs already using some form of communication service. However, the remaining SMBs without hosted business voice services indicate that they would like to add these services in the near future. As such, services providers can best position themselves to capture this growth by providing transparent pricing and highlighting security features that offer an advantage over any in-house solutions. The greatest amount of growth within unified communications will come from collaboration applications (instant collaboration, mobile device management, and web conferencing). This sub-category will grow at an impressive 26% CAGR over the next three years. 15
BUSINESS APPLICATIONS Business Applications Account for 19% of the Canadian Cloud Service Market 40% 16% 25% 19% $1.2B ($1B USD) $467M ($413M USD) $728M ($644M USD) $544M ($481M USD) IaaS Web presence Unified communications Business applications $2.9B ($2.6B USD) The diverse group of online applications used by Canadian SMBs, which we call business applications, reached a total value of $544M ($481M USD) in 2015. File sharing, accounting, and back-up are the most commonly used applications and will remain highly popular over the next three years. The demand for all hosted applications is growing as this market will see a 21% CAGR through 2018. 38% 56% File sharring 30% 47% Online accounting 20% 39% 20% 30% Online back-up Payroll and HR 9% VDI 19% 8% 18% Support/help desk 6% 15% Online CRM 2015 2018 16
More Than Half of Application Sales Were Captured Without a Free Trial Purchased without a free trial Purchased after free trial expired Purchased to access more features 57% 32% 11% We are noticing a trend across mature markets showing a movement away from trial purchasing toward outright purchasing, and Canada aligns to this trend. Offering free trials still adds value, but service providers should be aware of this trend as they develop go-to-market plans for business applications. Top Sources for Finding Online Applications Word-ofmouth Online research Online reviews Business Application Opportunity in 2018 13% Avarage new use 8% Average increase in spending 17
BUYING CLOUD SERVICES Business Applications 21% CAGR $544M ($481M USD) $961M ($850M USD) 2015 2018 Over the next three years, business applications will be the fastest growing sector of the Canadian SMB cloud service market. Expanding at a CAGR of 21%, this sector is projected to nearly double, reaching $961M ($850M USD) by 2018. With free trials losing popularity in mature markets, service providers should focus on providing best-inbreed applications to SMBs who know exactly what they want. Number of Service Providers When considering the purchasing patterns of Canadian SMBs, it is important to note that the vast majority of SMBs use only one or two service providers for all of their cloud services. This means that it is critical for the service provider to capture the SMB s business at the initial transaction. 50% of SMBs Use Only One Service Provider 50% 40% 30% 20% 10% 0% 1 2 3 4 5 6 Number of Service Providers 18
The SMB s reliance on a small number of service providers indicates that there is value in bundling additional services in with core offerings. However, as noted in the below graphic, feedback on bundling is mixed. SMBs see the main benefit of bundling as the ability to take advantage of discounts. If a bundle causes the SMB to pay for services it does not need, or think it is paying for something it does not need, then bundling will backfire. As such, service providers should develop smart, best-of-breed bundles which provide a strong value proposition and a clear cost advantage to SMBs. Bundled Services Decision Process Of SMBs prefer to purchase their cloud services in a bundle 53% 47% Of SMBs prefer to purchase their cloud services separately Discounts on services is the highest rated reason to purchase cloud services in bundles Only paying for services used is the highest rated reason to purchase cloud services separately How do SMBs Contact Their Service Providers? 41% 37% 17% 5% Over the phone Email support Online chat Regular in-person visits 19
TOTAL MARKET OPPORTUNITY 12% CAGR $2.9B ($2.6B USD) 2015 $4.1B ($3.6B USD) 2018 3-Year CAGR: $1,177M $1,549M $467M $679M $728M $767M IaaS Web presence Unified communications $544M Business applications 10% 13% 6% 21% $961M 2015 2018 Canadian SMBs are finding real value in moving business functions into the cloud. Across all categories, many SMBs are significant consumers of cloud services and many plan to scale these functions in coming years. Odin estimates that Canadian cloud services market will reach $4.1B ($3.6B USD) by 2018, growing at an overall CAGR of 12%. There are clear avenues of growth in each category and service providers who are able to meet the complex and evolving demands of SMBs should be well positioned to benefit from this growth. 20
Learn More Please contact SMB@odin.com with any further questions. Odin is committed to helping our partners understand the best opportunities in the SMB cloud market. This report covers only a portion of the extensive data included in Odin SMB Cloud Insights research. About Odin Odin provides the software that powers the cloud ecosystem, from small and local hosters to some of the world s largest telecommunication companies. By partnering with Odin, service providers gain access to industry expertise, a catalog of the most indemand cloud applications, and the most comprehensive selection of software including web server management, server virtualization, provisioning, and billing automation. With offices in 15 countries, Odin supports more than 10,000 service providers in delivering applications and cloud services to more than 10 million SMBs. For more information, visit http://odin.com, follow us on Twitter, or like us on Facebook. 2015 Parallels IP Holdings GmbH. All rights reserved. Odin and Odin logo are 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. 21
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