2015 SMB Cloud InsightsTM CHINA
DEFINITIONS 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 (previously not researched in our last study of China) Dedicated servers Virtual private servers (VPS) Managed hosting Add-on applications and services for hosted infrastructure: Control panels Development platforms LAMP stack Security Server backup Web presence and web applications: Third-party web hosting Domain registration Web applications: Content delivery networks (CDN) Content management systems (CMS) E-commerce Health monitoring Mobile optimization tools Search engine optimization (SEO) Site-building tools SSL Web server backup Web server security Unified communications: Communication and collaboration applications: Web and phone conferencing Instant collaboration Mobile device management (MDM) Business-class email services: Email security and archiving Business voice services: Mobility and hosted phone services such as hosted PBX General business applications: Major software applications accessible online: File sharing Online accounting Online backup and storage Online customer relationship management (CRM) Payroll and HR Support and help desk Virtual desktop (VDI) SMBs Defined We define SMBs also known as small and medium enterprises (SMEs) as companies with one to 250 employees. There are more than four million SMBs in China 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 intermediate 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. d1
Overall SMB Cloud Services Market in China 46.7B CNY ($7.5B USD) 2015 Odin SMB Cloud Insights has entered its fifth year of research into the consumption of cloud services by small and medium businesses (SMBs). We are returning to China to update our findings from 2013 and look for new trends. In this study, we interviewed more than 400 IT decision makers and found that SMBs from a variety of sectors are moving 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 discussed in this report to meet the evolving needs of their SMB customers. New to this year s research is an exploration of the SMB s journey of researching, purchasing, and using cloud services. This data will help service providers build successful relationships with their customers. 16.6B CNY 4.0B CNY 11.8B CNY 14.3B CNY Infrastructure-asa-service Web presence Unified communications Business applications 2
INFRASTRUCTURE-AS-A-SERVICE (IaaS) IaaS usage in China has seen strong growth since Odin researched the country in 2013. The proportion of SMBs using IaaS increased nearly 10 percentage points while the proportion of SMBs using in-house servers decreased by 6 percentage points. This indicates that SMBs are increasingly finding value in hosted infrastructure and many have already switched from using in-house servers. Server Usage 20% 16% 14% 25% 2013 2015 In-house Hosted Buying IaaS Top Barriers to Hosted Infrastructure 1 2 3 57% 21% 14% Security or privacy concerns Technical challenges Price 3
IaaS Research Methods Business industry news 59% Web searching for key words Discuss with a trusted advisor Discuss with local IT resource (VAR) From existing service providers 58% 47% 21% 18% Note: 69% of SMBs use more than one method to research IaaS. Top Factors in Choosing Service 28% Ease of management 27% Security or privacy concerns 22% 20% 3% Existing relationship Ability to expand or contract quickly Price 4
Using IaaS Top Workloads in Production 74% 68% 68% 71% 71% 69% 37% 61% 56% 36% 60% 44% 13% 41% 41% Database applications Content management system Data mining/ analytics E-commerce systems Payroll, HR, and benefit management 12% 44% 38% Customer relationship management (CRM) 8% 27% 26% Accounting/ financials Micro Small Medium Top Hosted Server Add-ons 22% 30% 47% 12% 15% 35% 7% 14% 35% 5% 17% 39% 1% 2% 6% Security Control panel Development platform Server backup LAMP stack 2013 2015 2018 5
Customer Experience 84% of SMBs have a positive opinion of their hosted service provider Areas for Improvement 1 2 3 4 5 30% 29% 21% 16% 4% Security vulnerabilities Performance (speed, availability) Support experience Usability Self-service administration 27% of 35% of SMBs would pay an additional 150 CNY per month for high availability SMBs would pay an additional 150 CNY per month for unlimited storage How SMBs are Resolving Issues Escalating with the vendor Exploring alternative options Moving in-house 59% 29% 12% 6
IaaS Opportunities through 2018 Likelihood of Entering the Cloud Market 48% 50% Cloud leapers (New adoption) Cloud converters (Switch from in-house) IaaS Opportunities through 2018 25% CAGR 487M 706M 16.6B CNY $2.7B USD 32.6B CNY $5.3B USD 2015 2018 Over the next three years, the Chinese IaaS market will grow at a CAGR of 25% to reach 32.6B CNY. Due to strong government regulations, IaaS service providers have not grown as quickly as other markets, but the playing field is rapidly changing as more IaaS service providers overcome regulatory burdens. Key concerns of SMBs entering this market are security and data privacy, and service providers who answer these concerns will take advantage of this market s strong growth. 7
WEB PRESENCE Since 2013, the proportion of SMBs with websites has increased 13 percentage points and has driven the market to reach 4.0B CNY ($653M USD). This strong growth has been a result of decreasing prices and increased ease of web development. Businesses are less price-conscious and they place greater value on the customer relationship and support. The value of the B2B relationship is also indicated in the SMB s preferred purchase method. While 75% of micro businesses purchase online, 50% of small and medium firms purchase by phone or in person. SMBs with a Company Website 25% 38% 2013 2015 Website Hosting Location 29% of websites are hosted in-house 27% Of in-house plan to add a third-party hosted website in three years 71% of websites are hosted by a third-party 8
Buying a Website Key Factors in Choosing a Web Hoster 81% Customer experience/ support 56% Price 35% 34% 25% Existing relationship Security Brand recognition Preferred Purchase Method 1% Micro 75% 24% Small 49% 22% 29% Medium 49% 30% 21% Online Over the phone Face-to-face (in office) 9
Website Service Provider Web hoster Telco Pure cloud provider Local IT resource (VAR) 79% 13% 7% 1% Website Add-ons and Management Top Website Add-ons 23% 35% 58% 26% 34% 61% 30% 31% 61% 16% 25% 57% 12% 21% 53% Backup E-commerce capabilities SEO Mobile optimization SSL 5% 17% 43% 16% 14% 45% 13% 13% 44% 14% 8% 13% Content delivery network Content management Security and health monitoring Site-building tools 2013 2015 2018 93% of SMBs manage their website in-house 10 10
Customer Experience 79% of SMBs have a positive opinion of their web hoster Top Areas for Improvement Security vulnerabilities Performance (speed, availability) Support experience Usability Self-service administration 78% 54% 51% 34% 8% How SMBs are Resolving Issues Escalating with the vendor Exploring alternative options Moving in-house 55% 41% 4% 11
Web Presence Opportunities through 2018 Likelihood of Entering the Cloud Market 24% 27% Cloud leapers (New adoption) Cloud converters (Switch from in-house) Web Presence Opportunities through 2018 18% CAGR 4.0B CNY $653M USD 6.5B CNY $1,045M USD 2015 2018 By 2018, the web presence market will have grown at a CAGR of 18% to reach 6.5B CNY ($1,045M USD). New customers will come from SMBs without websites and from SMBs with in-house hosted websites. To attract these new customers, service providers should offer strong support to build long-term relationships. Current customers typically have a positive opinion of their web hoster, but they would like to see improvements in security and performance. Service providers will reduce churn if they listen to these concerns. 12
UNIFIED COMMUNICATIONS Chinese SMBs are becoming increasingly integrated into the global economy and their employees rely on communication services to stay connected. Hosted email and business voice services are now used by many firms and will continue to see adoption in coming years. Security is a top concern for SMBs, so service providers must invest in strong data security and privacy. In addition to email and voice services, SMBs are also buying collaboration applications for internal and external communications. Email 3% 13% 20% 18% 14% 7% 66% 59% Hosted by a service provider Free service Hosted on an in-house server No email 2013 2015 Price vs. Brand 44% 26% 30% of SMBs value price over brand of SMBs value brand over price of SMBs value brand and price equally 13
Top Purchase Triggers for Premium Hosted Email 1 2 3 4 5 40% 21% 19% 16% 4% Security Shared calendar Calendar alerts/ notifications Archiving Outlook integration 43% of premium hosted email is bundled with a website 57% of premium hosted email is purchased separately 89% of SMBs have a positive opinion of their hosted email provider 14
Top Areas for Improvement of Premium Hosted Email Security vulnerabilities Performance (speed, availability) Support experience Usability Self-service administration 42% 27% 22% 7% 2% Hosted Business Voice Services 72% 20% 8% of SMBs do not have business voice services of SMBs have in-house business voice services of SMBs have hosted business voice services Top Barriers to Hosted Business Voice Services 35% 30% 26% 9% Lack of knowledge about hosted business voice services 15 Security and privacy concerns Price Technical concerns
Top Features that Improve Customer Satisfaction 1 Instant messaging 2 Integration with employee s mobile devices Top Features that Improve Productivity 1 2 Smartphone client Voice over WiFi 87% of SMBs are satisfied with their hosted business voice services provider Top Areas for Improvement 1 2 3 33% 30% 28% Security vulnerabilities Performance (speed, availability) Support experience 16
How SMBs are Resolving Issues Exploring alternative options Moving in-house Escalating with the vendor Cancelling the service 42% 33% 24% 1% Collaboration Applications 13% 36% 9% 29% 8% 15% Web conferencing Instant collaboration Mobile device management 2015 2018 17
Likelihood of Entering the Cloud Market 39% 23% 47% 79% Cloud leapers (New adoptions) Cloud adopters (Switch from in-house) Email Business voice services Unified Communications Opportunities through 2018 17% CAGR 11.8B CNY 487M 706M $1.9B USD 18.7B CNY $3.0B USD 2015 2018 By 2018, the unified communications market will reach 18.7B CNY ($3.0B USD). There are significant opportunities across the market, but service providers should especially target SMBs with existing in-house communications. As their systems become outdated, these SMBs will look to upgrade to hosted off-site services. Service providers that offer strong security and high-quality customer service will capture these potential customers. 18
BUSINESS APPLICATIONS The Chinese business applications market reached 14.3B CNY ($2.3B USD) in 2015. This important market has been pushed forward by the SMB s need for flexible and scalable applications and services. Developers and service providers are quickly recognizing the opportunity in this market and are creating SMB-specific products. Key applications are file storage, file backup, and accounting software. Business Application Research Methods Tech or industry news Online research Trusted advisor Local IT resource Existing service provider 56% 41% 40% 20% 11% Most Important Factors in Choosing Business Applications 34% 33% 20% 13% Features and capabilities Business need Price Customer experience 19
Purchasing Trial Software 11% Purchased without a free trial 89% Purchased with a free trial Bundling 42% Purchased with bundle 58% Purchased separate from bundle Bundled with 1 2 3 Hosted website Broadband or internet provider Other applications 20
Top Business Applications through 2018 23% 47% 15% 36% 15% 29% 14% 25% 12% 31% 12% 26% 8% 26% Online backup File sharing Online accounting VDI Payroll and HR Online CRM Support and help desk 2015 2018 Business Application Opportunity through 2018 28% CAGR 14.3B CNY $2.3B USD 30.2B CNY $4.9B USD 2015 2018 21
The business applications market will grow at a CAGR of 28% to reach 30.2B CNY ($4.9B USD) by 2018. SMBs are more likely to value functionality and business need over price when choosing an application, so service providers must offer best-in-breed applications. Additionally, free trials will continue to be an important tool to gain SMB customers. Odin expects this market to offer significant opportunities to service providers who can bring quality services to SMBs. Overall Cloud Services Opportunity through 2018 32.7B CNY 30.2B CNY 25% CAGR 18.7B CNY 28% CAGR 17% CAGR 16.6B CNY 6.5B CNY 18% CAGR 11.8B CNY 14.3B CNY 4.0B CNY IaaS Web presence Unified communications Business applications 2015 2018 22
88.1B CNY ($14.1B USD) 2018 46.7B CNY ($7.5B USD) 2015 24% CAGR Cloud services in China have seen explosive growth since we researched the country in 2013. We are looking forward to seeing this trend continue in coming years as SMBs increasingly rely on the cloud. Traditionally hosted services (namely web hosting) are maturing while previously in-house services (like accounting and payroll) are moving to the cloud. The market is undoubtedly a challenge to service providers who face pressures from government regulations and their customers complex needs. Those who take advantage of the market trends discussed in this report will be able to benefit from the cloud services market s immense opportunity. 23
Learn More 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. Please contact SMB@odin.com with any further questions. About Odin Odin provides software that powers the cloud ecosystem, from small and local hosters to some of the world s largest telecommunications providers. By partnering with Odin, service providers gain access to industry expertise, a catalog of the most in-demand 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 www.odin.com, follow us on Twitter, or like us on Facebook. 2015 Parallels IP Holdings GmbH. All rights reserved. Odin and the 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. 24
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