The U.S. Small Business Administration Office of Advocacy defines a small business for research purposes as an independent business having fewer than 500 employees. Small businesses represent 99.9 percent of the 29.6 million businesses (including both employers and non-employers) in the United States. They generate more than half the nonfarm private U.S. GDP and create an incredible 64 percent net new jobs over the last 15 years. Significantly, they hire 40 percent of all high-tech workers. Although specific statistics may differ in Europe and Asia, the fact remains that small businesses represent a significant percentage of the economies abroad as well.
Industry pundits, bloggers, and the business media have long been predicting that the cloud adoption will be faster and deeper among the Small and Medium Enterprises (SME). The reasons for this seem obvious on the surface: SMEs are less tied down by historical investments in infrastructure, massive data files, and organizational obstacles to adoption. Conventional wisdom has it that the lack of access to capital and resources is driving these companies to the cloud. It’s time to question conventional wisdom and dig into to the specifics around the adoption behaviors and concerns of small and large companies.
In our “Leaders in the Cloud” research, we found that small companies were more likely to be watching and learning about the cloud than large companies (49 percent versus 38 percent), since smaller companies are not that well-versed or educated about the potential opportunities, benefits, and risks associated with cloud computing. Furthermore, we found that small companies were less likely than large companies to be implementing pilots and experimenting with the cloud (46 percent versus 62 percent). This result is also not that surprising considering that small companies tend to have a very small IT staff and therefore often lack the knowledge of the cloud.
Another interesting pattern emerges when you look at the really small companies with less than 100 employees. A recent survey by Spiceworks Inc. resulted in 1,500 global responses from their Voice of IT Market Research Program. In this survey, nearly half of the responses (47 percent) are from businesses with fewer than 20 employees, while 24 percent are from businesses with 100 or more employees. The data shows that 14 percent of SMBs are currently using cloud solutions and another 10 percent plan to deploy cloud services over the next six months. The smallest SMBs (companies with less than 20 employees), high-tech companies, and companies in emerging economies are on the leading edge of the adoption curve. Though the user base is smaller today, the adoption rate appears to be growing.
The latest research report from Saugatech on SaaS adoption indicates that “SMEs are much less likely than large enterprises to be using SaaS business solutions and are much more likely to still be learning about SaaS — and to not have SaaS plans in place.”
Does this all mean that cloud vendors should abandon their SME focus and should instead target larger enterprises? Not necessarily. The fact is that while adoption is growing in all customer segments, the specific answer for each cloud vendor depends on the type of cloud services they are offering.
Our research found that SMEs are twice as likely to move their core business-critical services to the cloud as large enterprises (25 percent versus 12 percent). A small percentage of SMBs in our survey has 80 percent of their businesses running in the cloud. So if you are a cloud vendor selling business-critical services (ERP, financial, accounting etc), you are likely to find a lot less resistance selling to the SMEs. However, in order reach that market segment, it’s critical to have a strong channel and partner strategy in place. See my article on “Winning Channel Strategies for the Cloud.”
On the other hand, large enterprises are more focused on private and hybrid clouds and point SaaS solutions around email, collaboration, and CRM. In a recent review of our research, Krishnan Subramanian, editor of CloudAve states:
“The survey shows that the significant use of SaaS is in the area of collaboration followed by CRM. This is a trend I have been observing in my talks with businesses from different parts of the world. In my opinion, cloud has the necessary DNA for collaboration.”
What I’m generally finding is that individual business units and departments in large enterprises are using cloud services in isolated pockets—mostly using private/hybrid cloud deployments — to solve specific and tactical problems (point solutions) and for the most part they are getting quick and successful results. (See my article, “Do You Need a Cloud Strategy?”)
Bottom line: There is a growth in cloud computing across the spectrum. Our survey indicated that a whopping 60 percent of respondents (equally in both small and large enterprises) have cloud initiatives underway. The real question for cloud vendors is where they can get the biggest return for their marketing and sales investment. Keep in mind that the average marketing/sales time and effort required to sell to a small business won’t be significantly less than compared to a large business. Given the potential of larger deal sizes in the mid- and large-tier market, I believe cloud vendors would be better off targeting the mid-market in the next two to three years.
Recap of “Leaders in the Cloud” Webinar We held a Webinar last week entitled “Leaders in the Cloud” where I presented findings from our research and from our discussions with technology leaders around questions of cloud adoption. We were joined on the call by Otavio Freire, CTO of OpenQ, a leading provider of compliance solutions for life sciences, and Ness Software Product Lab’s VP of Strategic Consulting, Neil Fox.
Here is a summary of my main points:
- Cloud adoption is catching up with the hype. For example, some SMBs have up to 80 percent of their services in the cloud.
- Business agility is a key driver for cloud adoption, not just cost savings.
- While many companies are focused on developing private clouds, a hybrid infrastructure (involving the integration of public and private cloud solutions) is poised for the greatest growth.
- TCO and “spikiness” are driving interest in cloud solutions.
- Finally, vendors need to take cultural obstacles into consideration when developing their cloud strategies. In part, this calls for long-term planning, because adoption will not happen overnight, as well as the need to include those business owners outside of IT proper when making one’s case during the sales process.
Hybrid clouds are where most companies will live in the foreseeable future. However, the available integration-enabling technologies and standard are relatively immature. A single pane of glass is what clients are looking for so they can work with both on-premise and the cloud; customers don’t want to deal with the complexity of additional protocols and additional layers of management.
A detailed recap of the Webinar and the Q&A session can be found in the Ness Blog.
Quotable Quotes on Cloud Computing I have spent countless hours in conversations with leading-edge enterprise CIOs and vendors who have shared in confidence a variety of perspectives on their cloud experience. Here is my selection of one of the choicest unedited quotes from these leaders on a range of hot topics in the cloud computing market. The individual and company name are confidential.
“We have concerns around regulatory, security, integration, lock-in, identity management issues, and more. A lot of that stuff isn’t ready for large enterprise adoption. What you see is people probing the boundaries and doing some experiments. This is not our company’s official view, but my view is that we are increasingly going to move our internal infrastructure to a cloudlike infrastructure — for example using an internal cloud and looking to the external cloud for “overflow” like disaster recovery. We will use lot of ‘cloud-like’ concepts and have a seamless interface to the external cloud. But I think that is a while off.” — Chief Architect, Fortune 500 Energy Company
“Infrastructure-as-a-Service (IaaS) is an enabler. However, we host our own infrastructure, we own our servers. We use co-location space with a couple of vendors where we have our data centers. We debate internally about going to IaaS. There are pros and cons. We lose some flexibility and we get tied to an IaaS vendor. If we were launching the company from scratch, we would probably go with an IaaS from a speed point of view. We have IP in there as well and hence, the hesitation. Another consideration: we have a huge portfolio and breadth of applications so that makes it very good for us to invest in our middleware and distributed file systems. If we were a single service company, then the landscape will look different. We would then want to spend as little as possible on the infrastructure side of things and spend more in building the application. As your user base increases — and therefore your need for servers for the long-term — the economics work out better if you do things yourself.” — Director of Product Management, software vendor
Kamesh Pemmaraju heads cloud research at Sand Hill Group and he helps companies — enterprises and technology vendors — accelerate their transition to the cloud. Follow him on twitter @kpemmaraju.