Global cloud services market grew to US$62bil in 2013, expected to hit US$125bil by 2016
White glove approach with SMB customers key to lower churn and upselling services
GLOBALLY, the cloud services market grew to US$62 billion in 2013, and is forecast to expand at a 26% compound annual growth rate (CAGR) to hit US$125 billion by 2016, according to a panel discussion at the Parallels Summit in New Orleans.
Ashar Baig, president, principal analyst and consultant at US-based Analyst Connection, said that the cloud market really took off in 2013, and with an expected CAGR of 37%-39%, it would take about two to two-and-a-half years for the market to double.
Still, the panel was asked what the key takeaway of the last year was, and how the industry is expected to move forward in the coming months.
Matthew Prince (pic), cofounder and chief executive officer of CloudFlare Inc, a content delivery network and distributed domain name server service provider, said that the taxonomy of what the cloud is “became clear to me,” especially over the past year.
In Prince’s view, there are three different tiers of cloud services, each possessing very different dynamics. It is important to view these services as what they were yesterday versus what they will be tomorrow, he said.
The first tier, at base level, is the store and compute tier, which has been traditionally dominated by players such as Hewlett-Packard or EMC, which are being disrupted by businesses such as Amazon Web Service.
The second tier is the application layer, where traditionally organisations would purchase entire suites of applications offered by vendors such as Microsoft, SAP or Oracle. There is now a shift toward unbundling, and the option of mixing and matching, Prince argued.
“We’re seeing more patchwork ‘verticalised’ solutions rather than large suites, from a collection of providers such as Google, Microsoft and Salesforce,” he said.
The last is the edge tier, which Prince said is moving in the opposite direction of the application tier, where after being unbundled for a long time with companies selecting specific solutions from vendors such as Riverbed and Juniper Networks, the industry is seeing the increasing bundling together of functionalities such as load balancing, security and DDoS (Distributed Denial of Service) monitoring.
“These functionalities are all now bundled together as services delivered by the edge, which we already do and Akamai is started to put together … Amazon as well.
“So I think that when talking about cloud trends and so forth, it is important to understand the different tiers as the market dynamics for each are different,” he added.
Eric Purcell (pic), senior director, Service Provider Channel Sales at Box, an online file sharing and cloud content management service, said what was most interesting was the increasing verticalisation of business solutions.
“How organisations are bringing applications together to address specific verticals has really started to ramp up,” he said.
The points raised during the panel discussion follows the release of the fourth edition of the Parallels SMB Cloud Insights report, which details the use of cloud services by small and medium businesses (SMBs).
Birger Steen, chief executive officer of Parallels, said the report continues to play a central role in providing actionable market intelligence to the company’s partner ecosystem.
“SMBs are becoming more sophisticated in their use of IT and are also demanding best-of-breed solutions,” he said.
Communication and Collaboration, which includes business class email and hosted private branch exchange (PBX) services, is significantly outpacing the overall market, growing at 37% CAGR from US$4.8 billion in 2012 to US$6.5 billion in 2013, and expected to reach US$20 billion by 2016.
The second fastest growing market is Infrastructure-as-a-Service (IaaS), topping US$42 billion by the end of 2016 with a 27% CAGR.
The report also found that in mature markets, SMBs use an average of five cloud services now, and this is expected to grow to nine services by 2016.
Steve Zimba (pic), president of Mural, a provider of customer onboarding for cloud and IT managed services, said that his company has seen activation rates increase by up to 250% with service providers that offer services migration and handholding throughout the process.
“The handholding or white glove approach translating to real revenues is significant, and speed to revenue is key. This is the biggest thing we’ve seen happen in the past year,” he said.
Zimba said that because of the activation process, there is greater uptake in customer satisfaction as many SMBs don’t have the internal IT skills and need the help.
“Service providers also started offerings new products to 80% of customers already buying their solutions, and are enjoying a close rate of 30%.
“By converting happy customers to buying additional products, you onboard new revenue very quickly,” he said, adding that now with not just two or three products but five to seven under one service provider, churn rates are reduced because it would be harder for customers to leave.
The trust thrust
The Parallels SMB Cloud Insights report also outlined the cloud services that have the most current and future appeal for SMBs across four key categories: IaaS; Web Presence and Web Applications; Hosted Communication and Collaboration; and Business Applications (or Software-as-a-Service).
Moving forward, to fully leverage the growing opportunities in the cloud market, Prince said that it ultimately boils down to trust in the cloud service provider.
He pointed to financial institutions as an example, where traffic needs to pass through the service provider for security monitoring but concerns have been raised over the need to decrypt the traffic, and the associated risks.
“We spent a lot of time unpacking that risk and found that at the core, for the enterprise the issue is the need to turn over SSL keys, not so much visibility into the network but letting the vendors have that control, which is a different risk profile for cloud as opposed to an on-premise solution.
“But that meant that there was also the opportunity to create technology to solve the problem without having customers turn over confidential information,” he said.
According to Prince, that is the challenge for providers, for no matter what you offer, there is a different risk profile of the customer using your services. The question then is how to re-engineer products to allow customers to make smart choices, without needing to entrust sensitive data to third parties.
“The provider that will win, is the one that can build trust systems and trust models for its customers effectively,” he said.
The Parallels SMB Cloud Insights report can be accessed here.
Gabey Goh reports from the Parallels Summit in New Orleans at the invitation of Parallels Inc.
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