SMB Cloud InsightsTM

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SMB Cloud Insights

TM

2015

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DEFINITIONS

SMB Definition and Segmentation

We define SMBs – also known as small and medium enterprises (SMEs) – as companies with 1 to 250 employees. There are around 2.4M such SMB establishments in Turkey today. SMB segments include: micro (1-9 employees), small (10-49 employees) and medium (50-250 employees)

Cloud Opportunity Type

Cloud leapers: This category consists of SMBs that currently are not using an in-house IT solution (no servers, no web server, or no PBX system) and are likely to move straight to the cloud, “leaping over” the intermediate in-house IT solutions.

Cloud converters: These SMBs currently have in-house solutions but are either moving or planning to move to hosted services. For example, many SMBs that currently have in-house servers may switch to hosted servers when it comes time to upgrade their infrastructure.

Cloud expanders: These SMBs, who are already using some form of cloud services, represent an opportunity for upselling to new and expanded cloud offerings. For example, an SMB who is using web hosting would be acting as a cloud expander when they purchase mobile optimization to complement their website.

Cloud Services Categories

This research is focused on the cloud services that matter most to SMBs: IaaS, Web Presence and Web Applications, Unified Communications, and a general category we refer to as Business Applications.

Infrastructure-as-a-service (IaaS): Dedicated servers, virtual private servers (VPS), managed hosting, as well as add-on applications and services for hosted infrastructure, such as control panels, development platforms, LAMP stack, security, server backup, and database add-ons. Includes cloud servers, due to their increasing use among SMBs. Web Presence and Web Applications: Third-party web hosting, domain registration, SSL and e-commerce add-ons, site-building tools, high-opportunity web applications – web server backup, content delivery networks (CDN), content management, mobile optimization tools, search engine optimization (SEO), and web server security and health monitoring. Unified Communications: Business-class email services, including email security, email archiving, along with mobility and hosted business voice services. Includes communication and collaboration applications, such as web and phone conferencing, instant collaboration, and mobile device management (MDM).

Business Applications: The major types of software applications that can be accessed online – 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).

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Odin SMB Cloud Insights has entered its fifth year of research into the consumption of cloud services by small and medium businesses (SMBs). Our research aims to help cloud service providers meet the needs of their SMB customers. This year, Odin asked new questions and drove deeper insights than any prior research. Globally and locally, we are finding that SMBs from a variety of sectors are finding it advantageous to move business functions into the cloud. Hosted services previously reserved for enterprise-level firms are trickling into smaller firms and developers are creating services specifically for the SMB market. Service providers can take advantage of these trends by harnessing the insights produced within this report.

This is Odin’s first year researching the Turkish SMB cloud services market. As of 2015, we estimate the SMB cloud service market to be 2.9B ($1.3B USD). The Turkish infrastructure-as-a-service (IaaS) market is the largest category in the SMB cloud service space and is valued at 1,052M ($464M USD). Web presence and unified

communication markets are valued at 445M ($196M USD) and 617M ($272M USD), respectively. Business applications, sometimes referred to as software-as-a-service (SaaS), has a market value of 794M ($350M USD). This report dives into each of these markets, breaks down how SMBs are using these services, and explains how service providers can leverage this information.

The Overall US Cloud Market Continues

Growth

2015

($1.3B USD)

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VPS Used More Heavily Than Cloud

or Physical Servers

INFRASTRUCTURE-AS-A-SERVICE (IaaS)

IaaS Accounts for 36% of the Cloud Services

Market in 2015

The Turkish IaaS market reached an estimated 1,052M ($464M USD) in the last quarter of 2015. The market is still maturing and demand for IaaS among Turkish SMBs is growing. The VPS is the most popular form of IaaS because SMBs prefer the flexibility and value that a VPS offers over a physical and cloud server. As this market emerges, SMBs are also consuming many full-featured add-ons and managed services rather than relying on in-house development of add-ons and server management. We will dive into these trends below.

36%

15%

21%

28%

2.9B ($1.3B USD)

1,052M ($464M USD)

IaaS Web Business apps

presence Unified communications

Note: 32% of SMBs interviewed use more than one

type of server

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Our research has found that micro firms are extremely price sensitive when it comes to adopting new technology. As a result, the largest barrier holding them back from using hosted servers is price. Small and medium firms are less sensitive to price, but those that avoid hosted servers do so due to security concerns and a need to host in-house. Service providers can address these concerns by providing low cost solutions to micro firms and offering robust security packages for larger firms.

Top Workloads for Hosted Servers

Top Barriers to Hosted Servers Vary

by Firm Size

1

2

3 69%

Web server

57%

Database applications

30%

Project management / file sharing

60%

50%

40%

30%

20%

10%

0 Price

Security / privacy

Micro Small Medium

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74%

50%

75%

48%

SMBs Are Willing to Pay More for

High Availability and Unlimited Storage

Control Panels Will Remain the Top Server

Add-on through 2018

SMBs would pay

up to 5 more

each month

SMBs would pay

up to 10 more

each month

High Availabity Unlimited Storage

2018

2015 Control

panel Control

panel backupServer databaseSQL Security

SQL

database Security backupServer

Almost all SMBs interviewed indicated that they use at least one server add-on with their hosted server. The most commonly used add-on was a control panel, such as cPanel or Plesk. Other popular add-ons include SQL databases and security / anti-virus tools. Moving into 2018, control panels will remain the most popular add-on and server backup will rise in popularity. Our research shows that SMBs will increase their usage of all types of add-ons over the next few years adding to growth in the IaaS market.

38%

80%

48%

of SMBs with self-managed servers want to upgrade

to fully managed within three years

of SMBs with hosted servers reported using fully-managed servers

of cloud leapers want to go fully

managed within 3 years

High-touch, managed solutions are becoming more popular among SMBs. Many SMBs without hosted servers want to move directly to managed servers and those with in-house management of hosted servers want it to be outsourced. Service providers offering managed services will be able to increase their revenue while enabling SMBs to focus on their own businesses.

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The Turkish IaaS market is poised for explosive growth. By 2018, the market will more than double its current size growing to 2,353M ($1,036M USD) at an annual growth rate of 31%. Service providers who are able to meet the needs of SMBs will be able to take advantage of this expansion. Customers in the micro segment can be won through competitive pricing while the larger segments will look to more robust security packages. Dedicated servers are losing popularity while the ease of VPS and the flexibility of cloud servers are gaining more traction. Service providers in Turkey will find success aiding cloud leapers and cloud converters grow their businesses by moving into the cloud.

IaaS Opportunity through 2018

Cloud leapers (New adoption) Cloud converters (Switch from in-house) Cloud expanders (Increase spending)

14%

75%

70%

($1,036M USD)

2,353M

($464M USD)

1,052M

31%

CAGR 2015 2018

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Web Presence Accounts for 15%

of the Cloud Services Market in 2015

The Turkish web presence market is estimated to sit at 445M ($196M USD). This market is comprised of the 870,000 Turkish SMBs which have a website for their business (38% of total). Managed websites are becoming increasingly popular as are website add-ons such as SEO and e-commerce capabilities. Below we will explore the SMB’s pathway as it purchases and manages its business website. Many SMBs rely on in-house expertise for their website design and management. However, we expect this dependency on in-house resources to change over the next few years. 68% of SMBs with in-house hosting are considering moving to third-party hosting and 36% of firms with in-house management are considering moving to fully-managed websites. Services providers which position themselves as a one-stop shop for design, hosting, management, and website applications will be able to grow a SMBs move towards hosted and managed websites.

WEB PRESENCE

2.9B ($1.3B USD)

15%

27%

59%

Site only displays properly on a computer

Optimized for mobile devices Site displays on mobile without

optimization

Mobile Optimization of Website

36%

15%

21%

28%

445M

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Web Site Design

SEO

In-house Web

designer hosterWeb Family friend E-Commerce

Website

Hosting

Third-

party

hosted

Top Website Applications

Website Add-on

Purchase Location

Website Management

Self

hosted

Backup

33%

67%

75%

17%

4%

36%

of SMBs are considering moving to a fully managed website

39%

22%

21%

18%

Purchased from web hoster at time of website purchase

Purchased directly from application developer Other third party Purchased from web hoster after purchasing website

In-house Third-party web designer

220 億円

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Web Presence Opportunity through 2018:

Web Presence

Top Social Media Use in 2015

The web presence market is estimated to more than double in size by 2018. Growth in this market will come from businesses adding new websites and businesses moving away from in-house hosting. Despite the competitive marketplace for commodity hosting, there are value propositions to be made in every step of the web presence lifecycle. From website design and hosting to management and application sales, there is tremendous opportunity in this market.

LinkedIn

Twitter

Facebook

25%

15%

39%

68%

14%

of SMBs with self-hosted websites are considering converting to 3rd party web hosting within three years

of SMBs with hosted websites are planning to increase spending on web hosting over the next three years

($408M USD)

927M

($196M USD)

445M

28%

CAGR

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The unified communications category, which includes hosted business voice services (PBX), hosted email, and communication applications, holds an estimated value of 620M ($273M USD). 1 in 2 Turkish SMBs rely on smartphones and rank them as their most frequently used mode of communication. More complex communication tools – including hosted business voice services – are commonly adopted as firm size increases. In terms of email, half of SMBs do not use business email, but many indicated that they are interested in adding it within the next three years. This section describes the concerns and purchase triggers SMBs face when considering hosted business voice services and premium email. It also identifies the value that current users find in these services.

UNIFIED COMMUNICATIONS

Unified Communications Accounts

for 21% of the Cloud Services Market in 2015

Communication Devices Used

by Turkish SMBs

2.9B ($1.3B USD)

Smartphone

49%

45%

Landline

32% 15% 13%

Tablet Softphone IP Phone

9

36%

15%

21%

28%

620M

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Most SMBs Keep Their Business Voice

Services In-House

Top Concerns about Hosted Business Voice

Services

28%

_G

row

th

Business Voice Service Usage

60%

50%

40%

30%

20%

10%

0 Micro

Small

Medium

Hosted

In-house

86%

14%

50%

40%

30%

20%

10%

0 Price

Unaware of business

voice services

Micro Small Medium

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Top Purchase Triggers for Hosted Business

Voice Services

Value of Hosted Business Voice Services

50%

40%

30%

20%

10%

0 Instant

message

devices

Mobile

Increases

customer satisfaction Increases productivity Both

Auto

attendant

distribution

Auto call

Major change to business Good price point New office locations Business growth

As firm size increases, SMBs are more likely to use hosted business voice services but the vast majority prefer to keep their voice services in-house. Concerns about hosted solutions vary by business size. Micro and small businesses are price sensitive while medium

businesses’ largest concern is security. Service providers should offer enticing value propositions to small firms and highlight the security of their systems to medium firms.

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Business Email Location

Advantages of Paid Business Email over

a Free Service

Top Purchase Triggers for Premium

Hosted Email

Do not use email Free service Hosted by a service provider In-house server

12%

9%

30%

49%

75%

46%

37%

30%

Outlook integration

Calendar alerts and notifications Archiving Security Good price point Increased need for security

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Unified Communications Opportunity

through 2018

Half of Turkish SMBs use email, but only a smaller proportion use a paid hosted email service. More than any other attribute of paid hosted email, SMBs value the security it offers. Service providers should educate SMBs on the importance of email security and develop secure email offerings.

2015 Web conferencing Switch from in-house Instant collaboration New adoption Mobile device management Increase spending 2018

31%

51%

32%

10%

26%

10%

Likelihood of Enter Cloud Market for Email

23%

47%

68%

29%

of SMBs without hosted business voice

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The unified communications market is estimated to grow at a rate of 23% year-over-year reaching 1,137M ($500M USD) in 2018. Significantly, Turkish SMBs place a high value on security for hosted voice services and hosted email. This should be a focus of service providers’ marketing and product development plans. Collaboration applications such as WebEx, Skype, and AppTec clearly have value to SMBs as they are looking adopt these services in the near future. Within the unified communications market, the market for collaboration applications will grow at a CAGR of 23% over the next three years.

Unified Communications

($500M USD)

1,137M

($272M USD)

620M

23%

CAGR 2015 2018

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The business applications market sits at an estimated 794M ($350M USD) in 2015. SMBs use a number of business applications but rely most heavily on file sharing and online backup. While other applications currently used at lower rates, SMBs have indicated that they are interested in using more applications in the near future. This section dives into how SMBs purchase their business applications and how service providers can promote sales.

BUSINESS APPLICATIONS

Business Applications Accounts for 28%

of the Cloud Services Market in 2015

Present and 2018 Usage of Top Business

Applications

2.9B ($1.3B USD)

2015

File sharing Online backup

Online accounting

Support / help desk

Payroll and HR VDI Online CRM 2018

46%

32%

37%

31%

35%

24%

26%

25%

15%

12%

14%

6%

36%

15%

21%

28%

794M

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78% of the Paid Business Application Market

Was Captured by Offering a Free Trial

Business Application Opportunity in 2018

55%

23%

22%

Purchased after free trial expired

Purchased without a free trial Purchased to access more features

Average

new use

Average increase

in spending

21%

27%

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Business Apps

The Turkish business applications market will see strong growth over the next three years reaching 1,656M ($730M USD) by 2018. Presently, web hosters take in over 50% of sales in this market but other sales channels have the potential to disrupt this paradigm. As the data shows, free trials are an effective tool in turning potential customers into sales. While all types of applications will see growth during the next three years, usage of support / help desk and online CRM is estimated to increase significantly. When developing a sales platform for business applications, service providers have the option to bundle applications with other services or leave services unbundled. The following section looks into SMBs’ preferences for bundled and unbundled services.

($350M USD)

794M

($730M USD)

1,656M

28%

CAGR

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50% 40% 30% 20% 10% 0%

Number of Service Providers

1 2 3 4 5 5+

BUYING CLOUD SERVICES

To Bundle or Not to Bundle?

Number of Service Providers Used by SMBs

SMBs always try to maximize the value of their spending and avoid paying for unnecessary services. As a result, Turkish SMBs find value in both bundled and separately purchased services. SMBs find it advantageous to purchase in a bundle if it offers a significant discount. However, SMBs prefer the transparency of separately purchased services if the bundle incurs unnecessary costs. Most SMBs use only a few service providers for their business meaning that it is crucial for service providers maintain long-term relationships with their customers.

49%

51%

Of SMBs prefer to

purchase their cloud services in a bundle

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

Of SMBs prefer to purchase their cloud services separately

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How do SMBs Contact Their Service

Providers?

Total Market Opportunity

36%

20%

35%

9%

Email support Online chat Over the phone

Regular in-person visits

($500M USD)

1,137M

($272M USD)

620M

28%

CAGR 2015 2018 2018 2015

IaaS Web presence Unified

communications applicationsBusiness

1,052M 2,353M 445M 927M 620M 1,137M 794M 1,656M

Turkish SMBs are running more efficiently and growing their

companies by moving many business functions into the cloud. The market for cloud services will experience significant growth reaching an estimated 6.1B ($2.7B USD) by 2018. Service providers have the opportunity to profit from this explosive growth but must keep up with the complex and changing needs of SMBs as this cloud market matures.

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Learn More

Please contact [email protected] 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 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 http://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.

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