IDC 1320
I D C E X E C U T I V E B R I E F
I t ' s T i m e f o r M i d s i z e F i r m s t o L e v e r a g e C l o u d
C o m p u t i n g C a p a b i l i t i e s : K e y N e x t S t e p s
May 2013
Adapted from Worldwide SMB 2013 Predictions: Impact of Changing Shifting Priorities, Preferences, and Challenges by Ray Boggs, IDC #240196
Sponsored by NetApp
Introduction
Midsize businesses, those with 100–999 employees, are under increasing competitive pressure from both above and below. Larger companies benefit from economies of scale as well as national and even global capabilities to go after customers that midsize firms may once have had to themselves. Smaller firms are leveraging new technology, building more efficient infrastructure, and showing great agility as they also compete with midsize firms for new customers. Clearly, a return to "business as usual" when it comes to technology investment will not be the answer for midsize firms — fresh thinking is called for.
For many companies, cloud computing (and the public cloud in particular) will be a new way to gain access to important productivity resources in an effective and affordable way. Firms need to expand and be flexible as business conditions change. But they also need to sharpen their defenses against vulnerability to make certain that they can recover from any accident, whether through disaster or human error, that might threaten the business. Empowering business growth and improving data protection are not contradictory goals since advanced technology can be deployed to effectively support both.
A significant share of large businesses is already using cloud resources, and a growing share of mid-sized firms as well. The key question for midsize firms, of course, is whether cloud-delivered
capabilities are more efficient and effective than traditional approaches. This IDC Executive Brief reviews different cloud computing approaches and provides a framework for evaluating different cloud solutions. It also reviews the kinds of resources that have gained the most traction with midsize firms, examines future trends, and discusses the five key questions that companies should consider as they move forward with potential cloud implementation.
Cloud Computing Definition: Technology Resources Available
"Off-Premises"
Cloud computing may seem a variation of a classic approach to technology deployment — a centralized resource that is shared remotely. It basically involves using a service provider to access resources that are hosted or located offsite and delivered through high-speed Internet connections. Web hosting or remotely hosted email (such as hosted Exchange) is most common and, like remote storage, was being used by many midsize firms long before "cloud computing" became a popular term (and decades after the idea of time sharing helped reduce company IT costs).
remotely hosted offerings, the ease with which the offerings can be implemented, and the widespread availability of high-speed Internet connections that make effective implementation possible.
Cloud computing is the overarching term that includes three basic categories: cloud applications, cloud platforms, and cloud infrastructure. The first two categories are sometimes included under the general heading of "software as a service" (SaaS) since the system infrastructure software part of cloud infrastructure is also included in SaaS. At present, the SaaS part of cloud computing accounts for the largest share of total cloud spending — roughly two-thirds — with all three categories
benefiting from midmarket spending growth of about 20% annually.
IDC's definition of cloud computing includes the following eight key attributes. The "standard" aspect is especially important since cloud resources are designed to meet a general market need rather than a specific customer need. For midsize firms, this means that cloud offerings will be designed to be affordable and less complicated, using standardized architecture and technologies. Of course, this also sets the stage for innovation and leverage by service providers looking to appeal to new customers.
Shared, standard service — built for a market (public), not a single customer
Solution-packaged —a "turnkey" offering, integrates required resources
Self-service — administration, provisioning; may require some "onboarding" support
Elastic scaling — dynamic and fine grained
Use-based pricing — supported by service metering
Accessible via the Internet/IP — ubiquitous (authorized) network access
Standard UI technologies — browsers, RIA clients, and underlying technologies
Published service interface/API — e.g., Web services APIs
Key Benefits to Cloud Capabilities (and Why Midsize Firms Need to
Think About Cloud Differently from Large Firms)
The public cloud approach will be especially appropriate for the largest share of midsize firms. This is where the greatest economies and the easiest-to-implement solutions will be found. Larger
companies have significant technology resources to draw on and can develop their own internal or "private cloud" resources to share among diverse locations globally. Larger companies may also prefer more complete control of their data and where it resides, or they may have very specialized needs, which would justify the greater expense of private cloud solutions. The nature of financial accounting can also make cloud solutions appealing to firms with more constrained financial resources because it allows them to more tightly align spending with resource use.
Note also the ease of resource management and deployment, which is of less concern to users than to the IT staff members who are responsible for those activities (see Figure 1). Access to advanced capabilities — both applications and infrastructure — is especially important for midsize companies. The ability of the cloud to provide reliable and affordable resources and management is especially compelling and can improve midmarket performance in the important areas of backup and recovery, as well as long-term archiving and disaster recovery. IDC believes this will be an area of increasing mid-market focus both from external obligations and internal operational preferences.
F i g u r e 1
Understanding Midm arket Cloud Appeal and Concerns
Source: IDC, 2013
Factors discouraging cloud adoption have been remarkably consistent over time, with security as the perennial number one concern. What is noteworthy, though, is the decline in the percentage of firms, especially midsize businesses, citing security as a cloud adoption inhibitor. When IDC began asking five years ago about cloud drivers and inhibitors, security was cited by over 70% of small and
medium-sized businesses (SMBs). That percentage had declined with increasing cloud familiarity and experience, but has returned to over 60% following some publicized data losses.
Although security is still a concern, it is increasingly being addressed with strong service-level agreements (SLAs) and the support of major technology companies standing behind different service providers, some of which are channel partners. Thanks to the educational efforts of some suppliers, midsize firms are increasingly aware of their use of cloud solutions (e.g., for malware security
updates), which in turn makes them more comfortable with online resource delivery. In many respects
Encourage Midsize Business Use of
Cloud/Software as a Service
Discourage Midsize Business Use of
Cloud/Software as a Service
• Pay for capabilities as needed • Ability to integrate in current
application environment
• Ability to add new users without difficulty • Ability to bring capabilities in-house
if needed
• Remote management that eases IT staff workload
• Easier to support branch/remote offices • Use services along with
on-premises resources
• Concern about data security
• Concern about recurring cost of ownership • Concern about not "owning" software • Concern about service reliability (including
availability and backup)
• Loss of control of IT department over applications
• Prefer software and data remain onsite
concern about security can actually be addressed through cloud resources like data protection and disaster recovery which can be used to supplement on-premises resources.
Cloud Capabilities with the Greatest Midmarket Appeal
At present, almost one-half of midsize firms in the U.S. are using public cloud solutions and IDC expects that the share will reach 2/3 early in 2014. Cloud use is growing in other regions as well, especially Western Europe (Private cloud solutions have less traction among midmarket firms in terms of both spending and share of firms using the technology, although activity continues to increase.)
Spending on public cloud capabilities by midsize firms is also growing more rapidly than the
segment's IT spending in general. IDC expects overall midmarket IT spending worldwide to grow by 6% in 2013, but spending on cloud resources will grow three times as fast, and the trend will continue through 2017 and beyond, with more cloud capabilities being added to supplement (and, increasingly, substitute for) on-premises resources.
As noted, a number of basic resources have been obtained through hosted or online solutions, and these are the first steps toward cloud enablement. Midsize firms' use of cloud resources clearly shows the continuing importance of the "big three": Over 60% of midsize firms with cloud capabilities cite the use of security, data backup/archiving, or hosted email (see Figure 2). These are natural and effective areas for cloud engagement, with both security and data backup/archiving being areas where firms continue to expand their use of cloud resources.
Security capabilities, provided though public cloud resources, can extend to endpoint, network, and messaging security. Cloud delivery means that all parts of an organization can benefit from he same levels of security, effectively managed and consistently updated. IDC has found growing midmarket use of cloud-based security solutions, with roughly one-third of all midmarket security spending associated with online capabilities.
Data backup and archiving, provided through the public cloud, can extend to related areas such as disaster recovery. In addition to providing consistent and reliable backup and data protection resources across the organization, cloud resources can simplify standardization, and "data protection as a service" can be easier to use while avoiding the capital expense of a secondary datacenter for backup and restore capabilities. (In addition, site failover capabilities can minimize the risks to productivity and goodwill associated with data loss and downtime.)
F i g u r e 2
Share of Midmarket Firms Using Different Cloud Capabilities
Source: IDC, 2013
The second tier of cloud applications, cited by 40–50% of midmarket cloud users, includes categories such as Web serving and personal productivity applications (such as sales force automation) that are well suited to online delivery. Note that simple storage on demand is different from data backup and archiving. The convenience of on-demand online storage appeals to midsize firms, but data backup and archiving are more central than supplementary when it comes to improving infrastructure strength and management resources. Storage is a key enabler for a wide range of advanced
capabilities that midsize firms rely on, and the ability of the cloud to support effective data backup and archiving, as well as disaster recovery, makes it especially appealing.
While some firms may still worry about having critical data off-premises "in the cloud," that view has been broadly replaced by the understanding that data can be better protected and more easily retrieved when kept securely by service providers than when managed by on-premises solutions that midsize firms might be considering. Of course, it will be important to check the track record of any service provider and make sure that company has recovery SLAs to meet your needs.
0 10 20 30 40 50 60 70
Five Steps to Effective Cloud Engagement: What Critical Questions
Should We Ask Ourselves Moving Forward?
As important as it is to examine the capabilities and costs of different cloud solutions, it is just as important to review the company environment in which those solutions will be deployed. IDC has found that the following comprehensive internal review can make a significant difference in helping identify the right cloud resources for a given company and also pave the way for effective cloud deployment:
How are IT resources used to support company objectives today? Assess your current IT environment, including network capabilities, key resources being used, business continuity and data protection processes, and the extent and nature of any online application use. This assessment needs to be done objectively and will serve as a starting point for any major IT investment decision, not just cloud deployment.
How physically diverse/complicated is your company? Confirm the current number of your company's sites/locations and how that number is likely to change in the coming years. (Does your company have a single site for all IT versus multiple sites needing support?) The more geographically diverse your operations, the more potentially appealing a cloud solution will be. But if diverse processes and solutions are used in different locations, the coordination and consolidation around a single approach will require hard work, regardless of whether a new cloud or on-premises solution is preferred.
What is your company's structural pace of change/evolution? Evaluate how your company is likely to grow, both organically and through mergers and acquisitions, in the coming years. If your company is growing rapidly, the ability of cloud resources to scale up (and down) can be a real advantage. Similarly, if you expect increasing merger and acquisition activities to enhance company growth, cloud resources may be easier to extend to new organizational constituents, at least when compared with purely on-premises approaches. Storage, data protection, and disaster recovery resources can also be more easily shared through cloud-based solutions.
What role do mobile workers play in your company? (And what role should they be playing?) Review your company's policies and practices regarding mobile workers and support to identify potential areas of improvement, especially if increased mobile activity is anticipated (which is likely the case). Cloud-based approaches can help improve mobile worker productivity, providing access to applications as well as data (which makes effective cloud storage all the more important).
Where to Go to Obtain Cloud Resources: Diverse Choices Regarding
Sourcing
On the surface, it would seem that the most natural way to acquire cloud computing resources would be to arrange for purchase online. After all, that is how cloud resources are delivered, and service providers often have the ability to support that approach. Yet most midsize firms use different channel partners, whether local value-added resellers (VARs) or systems integrators that they have worked with in the past. Why would price-sensitive midsize companies be willing to bring other participants into the process?
The reason is the close relationship that many midsize firms have with their local technology sources, whether VARs, computer dealers, or systems integrators. Technology resellers are increasingly familiar with advanced cloud capabilities, and some even serve as hosts of online technology resources — they may build and sell their own capabilities, brand third-party services as their own (white label), or resell the branded services of others. In any event, a trusted technology provider brings multiple benefits to a midsize customer.
These VARs or systems integrators know the customer technology environments and are able to help integrate cloud capabilities with existing on-premises resources. They can also help with
implementation (through training) and work with the technology and business management to design a road map for cloud deployment that will extract maximum value from existing IT investments while moving ahead with acquisition plans, sometimes across multiple branch office locations. While midsize firms might be tempted to "go it alone" and acquire cloud resources online, it will likely be worth an additional investment to involve channel partners that will make sure that a company's staff and processes are not disrupted and that integration happens smoothly as new capabilities are acquired.
Conclusion and Recommendations
Although cloud computing can be seen as a compelling and appealing way to provision advanced technology in an effective and affordable fashion, midsize firms still need to address critical issues before they move forward with major cloud engagements:
Integrating business priorities and IT priorities with cloud deployment strategy. A company's or business unit's strategic goals and supporting IT strategies need to be clearly articulated and understood so that any cloud strategy can be built on a sound conceptual
foundation. Cloud investments should support larger company objectives and advance long-term IT goals as well as deliver on near-term financial objectives.
Capitalizing on the flexibility and business agility associated with cloud computing for maximum impact. Simply providing a lower-cost approach to technology deployment will not make cloud computing into a game-changing investment for midsize firms. While improved efficiency is appealing, the real benefit of cloud computing is its potentially transformative role in providing access to consistent resources across the organization. Advanced business
applications are obvious examples of this, especially from the user's perspective. But even more compelling for the organization can be improvements in infrastructure performance and
capabilities, especially those related to data protection and disaster recovery. The consistent deployment and regular updating associated with cloud-based resources will set the stage for continuing business success.
as part of a long-term technology road map is a key goal of current users, a view that others thinking about cloud adoption can learn from. Integration can take different forms, of course, and the most popular cloud applications often enable other technologies in effective ways. Looking forward, midsize firms should anticipate and encourage what will likely be an increasing pattern of collaborative engagement between both remote and on-premises resources.
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