What’s driving the deep and growing cloud/SMB relationship

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What’s driving the deep and growing cloud/SMB relationship

The relationship between small- and medium-sized businesses and cloud computing is deep and rich. For small and medium-sized businesses, cloud is both an IT priority and an IT reality. In fact, it has become not only the essential IT infrastructure but also the essential business infrastructure as it addresses real-world issues. Techaisle’s survey of 848 SMBs [small- and medium-sized businesses] in the United States not only found a strong link between cloud and IT – it also found a strong link between cloud, IT and business success.

The research shows that technology is viewed as critical to the success of SMB businesses. Cloud provides a compelling response to SMB business issues and addresses constraints within the SMB market. Cloud provides the ability to adopt new IT capabilities without adding IT staff. For SMBs, tech means cloud.

Today, cloud helps SMBs exert control over an uncertain environment. SMBs are sometimes seen as “small fish” in a pond that is also home to much larger creatures. They know, or at least have a sense, that they are subject to tides and actions that are understood only when they are felt: When business lags, when orders grow sparse, when supplier costs increase, when the competitive environment changes. Cloud offers direct relief.

In a very real sense, cloud delivers a degree of certainty and control over cost/performance and time. The need to manage technology as a business asset is an important real-world issue. Most SMB executives understand that technology plays a central role in their management processes. A small business has trouble consuming all of the capacity of new gear, meaning that they often pay for resources they don’t use. An SMB using cloud works with a provider capable of sustaining high utilization levels, which reduces the per-cycle cost of the underlying assets. And a cloud provider is able to purchase new gear in greater volumes than an SMB – qualifying it for greater scale-based discounts – and is attuned toward more rapid, “just in time” deployment of new systems. Cloud also meets the need of expanding the scope of staff skills. Every very small business -- and even many larger SMBs – understands that they are constrained by the staff they can engage.

What is the value proposition of the cloud?

In all ways, this is a money issue, but it is manifested in several ways: SMBs lacking the funds to hire as many people as they would like, lacking the funds and business scope to hire and fully engage specialists with important domain knowledge, and/or lacking the funds to employ or develop more skilled staff across their current organizations. The reality is that cloud and cloud-based systems help reduce some of the frictions that impede SMBs from addressing these staff issues. Because cloud is delivered “as a service,” important functions are handled by the supplier. This means that the SMB doesn’t have to dedicate employee budgets to IT staff with specialized skills that support core systems but don’t meaningfully differentiate the company. Cloud applications generally embed operational expertise sourced from industry leaders, so the SMB is able to quickly adopt processes that have been vetted in other organizations.

SMBs have been using the cloud for a while. This is not a new thing. Are they becoming more savvy in how they use the cloud? Is their use changing?

In many SMB organizations, cloud may have first been introduced as a means of reducing CAPEX and/or overall IT costs, but today it is viewed by SMBs as a means of increasing business agility and introducing capabilities that would have been cost or time-prohibitive to deploy on traditional technology. Companies in the “middle” of the SMB market – those with 50 to 250 employees – emphasize the ability of cloud to make IT staff more productive, while smaller and larger organizations are primarily interested in enabling business staff. Our research also shows that SMBs use a mix of private and public clouds – and that organizations often use two or three of these approaches simultaneously. The data suggests that the cloud deployment process starts with the business requirement, and moves back to the deployment model – rather than starting with a platform, and expanding across incremental workloads.

Is its use by SMBs staying the same?

Their use is definitely changing. Generally, SMBs have used cloud to supplement IT infrastructure resources. Two examples are procuring cloud-based storage to offload data from on-premises drives or by using cloud for backup. Cloud has also made its way into SMBs as a means of supporting non-core applications and related processes. For example, cloud might be used to automate previously manual tasks in HR or customer support that aren’t linked to financial and production systems.

But data from Techaisle’s SMB and Midmarket Cloud Adoption Survey suggests that use of cloud is expanding even into business-critical applications. We asked SMBs to indicate the areas of their operations where cloud has been or will be applied. Nearly half report that they are using or planning to use cloud for IT infrastructure. Thirty-seven percent state that cloud will be deployed to support non-core processes and applications. However, nearly 30 percent say that they are using or are implementing cloud to run at least some of their core applications. Given that these core applications are not changed or re-platformed very often, 29 percent is a surprisingly high figure. Cloud is expanding beyond IT-specific uses and niche applications, and is increasingly seen as a viable platform for even business-critical process support.

The data clearly demonstrates that cloud has achieved wide penetration, at least for initial deployments. More than half of small businesses are already using some form of IaaS and SaaS [infrastructure-as-a-service and software-as-a-service]. Penetration in both areas is expected to increase substantially. In the case of SaaS, it will reach nearly 100 percent for firms with 1 to 99 employees when current plans have been instantiated. Midmarket figures are even higher:

Nearly 85 percent of U.S. businesses with 100 to 999 employees are already using SaaS, and nearly all of the remaining firms have plans to adopt it.

Other significant data:

Two-thirds of midmarket businesses are using IaaS. The sum of current and planned use indicates that penetration will reach 90 percent in the foreseeable future.
PaaS penetration is at 64 percent today, and is expected to reach 85 percent. PaaS environments often lead to SaaS development, so Techaisle expects that this trend will add to the quantity and variety of SaaS applications used in this segment.
Nearly three-quarters of midmarket firms are using or planning to use communications-as-a-service.

At the highest level, what is the biggest trend in SMB use of the cloud right now?

Through its relatively brief history, cloud projections have been hampered by the “hockey stick” phenomenon. Cloud is growing in multiple ways simultaneously. The number of SMB firms using cloud is increasing, the number of individuals using cloud within these firms is increasing (e.g., as business users in different areas and IT workers find discrete uses for cloud-based systems), and the number of platforms and applications in use within each organization is increasing.

These compounding growth curves drive extreme expectations that are difficult to digest: Even as we see articles discussing 500 percent annual growth in SaaS high fliers, we tend to have an intuitive belief that at some point, the curve will start to level out. Techaisle’s view is that cloud is no longer a trend that is discrete from mainstream IT. Cloud is not a future issue – it is an essential (if new) component of SMB IT. The key now is automation and orchestration.

SMBs cover a huge area -- from SOHOs to pretty big businesses. Does cloud have a sweet spot in this category? Is it used differently by different subgroups?

There are several differences in adoption between small and medium-sized businesses with respect to the type of cloud technology being used. Techaisle data shows that small businesses (1 to 99 employees) are reaching a saturation point in terms of cloud adoption. Midmarket businesses of 100 to 999 employees are ahead of the small business segment with respect to cloud. Future small business behavior is likely to echo current midmarket activity patterns.

Small and midmarket respondents are most likely to report that cloud’s primary benefit is its ability to deliver better and faster access to critical information. Both groups also agree on the second most important benefit from cloud, which is increased sales and revenue. In fact, for the most part, the two groups are in lockstep. This concurrence extends to bottom-line benefits as well. We believe that cloud will continue to expand in the SMB market because its followers perceive cloud as delivering the same kinds of business benefits that prompted market leaders to commit to cloud initially.