What sets apart the fastest-growing small businesses is their an innate strength at turning data and information into results.
It’s becoming easy to spot a smaller business who is going to break out and grow quickly. They often have these qualities: they highly value knowledge, expertise and speed over seniority or cronyism; they have successfully managed a geographically distributed supply chain, production and service operations early in their history; and long before they reach $20M in sales they have learned how to balance domestic and international customer demands. In short, they learned fast how to compete and win business globally.
Over the last several months research firms and enterprise software vendors have released studies on cloud computing adoption in small & medium businesses (SMBs).
The following are the key take-aways from these studies:
- Forrester forecasts that channel partners will increase their reliance on cloud software and services from 22% to 27% from 2013 to 2014. The majority of this growth will be in SMBs. For additional details please see the free reprint of the report, Cloud Channel Trends, 2013 To 2014 by Tim Harmon and Jonathan Silber, February 28, 2013. You can download the reprint here (no opt in required): http://www.forrester.com/pimages/rws/reprints/document/90001/oid/1-LMIK8X
- 61% of SMBs who responded to a recent survey are using cloud-based solutions today, with an additional 5% planning to add cloud services in the next six months. 69% of SMBs with fewer than 20 employees and 55% of SMBs with 250 to 999 employees are using cloud-based applications today. North American SMBs are more likely to use cloud-based applications co these services than EMEA (64% compared to 56%). Source: State of SMB IT 1H 2013 Semi-Annual Report On Small And Midsize Business Technology Plans & Purchase Intent (Opt-in required): http://www.spiceworks.com/marketing/state-of-smb-it/ The following is a graphic from the report:
- SMB spending on cloud solutions will grow by almost 20% over the next five years, with 3 in 10 midsize firms adopting public cloud solutions. IBM is offering a free download of the IDC report, Cloud Computing in the Midmarket: Assessing the Options in 2013 (no opt-in required): http://idcdocserv.com/995 IDC’s graphical definition of how their Primary Market and Secondary Market IT Product Taxonomy maps to the NIST Taxonomy is shown below:
- Cisco predicts the U.S. SMB commercial-services market addressable by service providers will grow to more than $200B by 2015. Also included is an analysis of how fundamental differences in business segments drive IT behavior, as the following table illustrates. Source: What Do SMBs Want from Commercial-Services Providers? Insights from Cisco’s U.S. Research on SMB Services Delivery Link:http://www.cisco.com/web/about/ac79/docs/sp/SMB-Cloud-Survey.pdf. Please click on the image to expand it for easier reading.
- Hosting and cloud services provider Parallels projects that the worldwide SMB SaaS applications market was $14.5B in 2012 today and will grow to $33.8B by 2015, attaining a 32% Compound Annual Growth Rate (CAGR). Please see the following illustration of a breakdown by region over the forecast period. Source: Profit from the Cloud 2013 Global Parallels Global SMB Cloud Insights Opt-in required, Link: http://www.parallels.com/fileadmin/parallels/documents/smb-reports/2013/2013_SMB_Brochure_Global_web.pdf. Please click on the image to expand it for easier reading.
- SMEs overwhelmingly prefer to buy or acquire these critical systems (43%) rather than lease or pay for use (23%) in an SAP-sponsored survey by Oxford Economics. The study found that the tools most commonly used by SMEs are business management software (48%), mobile (46%), and analytics (44%). Cloud computing adoption is expected to jump from 35% to 47% in three years. An infographic summarizing the results is below. You can get the survey results here: http://cdn.news-sap.com/wp-content/blogs.dir/1/files/SAP-SME-analysis-presentation.pdf . Please click on the image to expand it for easier reading.
North Bridge Venture Partners and GigaOM Research released the results of their third annual Future Of Cloud Computing Survey today, providing a glimpse into cloud computing adoption trends, inhibitors and drivers of long-term growth.
This year’s survey included 855 respondents selected across business users, IT decision makers and cloud platform and application vendors. North Bridge and GigaOM Research report that a third of respondents are C-level executives in their organizations.
You can view a copy of the report results here from SlideShare.
The following are key take-aways from the report:
- Cloud adoption continued to rise in 2013, with 75% of those surveyed reporting the use of some sort of cloud platform – up from 67% last year. That growth is consistent with forecasts from GigaOM Research, which expects the total worldwide addressable market for cloud computing to reach $158.8B by 2014, an increase of 126.5% from 2011. The survey also shows significant growth is yet to come in SaaS adoption for business systems and IT management.
- 63% of those surveyed report Software-as-a-Service (SaaS) is in use in their companies, growing 15% over 2012. 45% are using Infrastructure-as-a-Service (IaaS) today, attaining a growth of 29% from last year. Platform-as-a-Service (PaaS) is expected to grow the fastest over the next five years, with 72% of respondents saying they expect to use PaaS in their organizations.
- The survey results also included cloud segments and overall growth analysis forecasts from 451 Research Market Monitor Report. The graphic showing CAGRs by IaaS, PaaS and SaaS is shown below, with comparisons of 2012 results and 2016 market forecasts.
- 52% of organizations are using cloud-based applications to advance business priorities, compared with 36% that use applications that advance IT initiatives.
- CRM, marketing (including marketing automation) social business & collaboration and file sharing cloud-based applications are in use by more than 50% of all organizations in the sample.
- North Bridge Venture Partners reports that cloud investments by venture capitalists totaled $1.6B in 2010, increasing to $2.4B in 2011. Investments in 2012 dropped to $1.8B and through May, 2013, venture-based investments in cloud computing application and services providers totaled $281M. Subscription fee-based business models dominate with 77% of cloud vendors relying on this strategy.
- Gaining greater business agility (54.5%), scalability (54.3%) and cost (48%) are the three main drivers of cloud adoption today according to the survey results. Mobility was mentioned by 25% of respondents as a major driver for adopting cloud applications and platforms, behind cost.
- Security concerns (46%), vendor lock-in (35%), interoperability (27%), concerns over reliability (22.3%) and complexity (21%) are the top inhibitors to cloud adoption. Regulatory compliance (30%) and privacy (26%) are he next most frequently mentioned inhibitors to cloud computing adoption according to the survey.
- 39% expect to increase training, and 17% expect to hire outside resources as a result of increased cloud adoption.
- Amazon (14.3%), Microsoft (10.96%) and Google (7.88%) are the three most used cloud platforms by the organizations who responded to the survey.
The best manufacturers I’ve visited this year all share a common attribute: they are obsessed with making themselves as easy as possible to work with from a supply chain, distribution and services standpoint. Many are evaluating cloud-based manufacturing applications including Enterprise Resource Planning (ERP) and several have adopted cloud-based applications across their companies.
With so much interest, there is much confusion as well. I recently spoke with Cindy Jutras, founder and CEO of MintJutras. Her firm has recently completed a survey of SaaS adoption in manufacturing, distribution and other industries. She found the following:
- 49% of respondents in the manufacturing & distribution industries do not understand the difference between single- and multi-tenant SaaS architectures. Overall 66% of respondents to the survey did not know.
- SaaS-based applications are 22% of all manufacturing and distribution software installed today, and will grow to 45% within ten years according to MintJutras.
- The three most important characteristics of a SaaS solution in manufacturing and distribution include giving customers a measure of control over upgrades, consistent support for global operations and allowing for rapid and frequent upgrades.
Why Manufacturers Are Looking To Cloud Computing
Manufacturers are under constant pressure to increase accuracy, make process speed a competitive force, and capitalize on their internal intelligence and knowledge to make every supplier, distributor and service interaction count. The manufacturers spoken and visited with to gain the following insights are in the high tech, industrial and aerospace and defense industries, where rapid product lifecycles and short time-to-market schedules are commonplace.
Cloud-based strategies give these companies the chance to bring their own innate intelligence and knowledge into every sales situation. While on-premise systems could also do this, cloud-based systems were quicker to roll out, easier to customize and showed potential to increase adoption rates across resellers.
One manufacturing manager explained how during a new product launch the speed and volume of collaboration was so rapid on between suppliers and distributors that an allocation situation was averted. That he said, made senior management believers. These epiphanies are happening daily in manufacturing.
Based on my visits with manufacturers, here are the ten ways they are using cloud computing to revolutionize manufacturing:
- Capturing and applying company-wide intelligence and knowledge through the use of analytics, business intelligence (BI), and rules engines. For the many manufacturers who rely on build-to-order, configure-to-order and engineer-to-order strategies as a core part of their business models, using cloud-based platforms to capture knowledge and manage rules is accelerating. A key part of this area is mobility support for analytics, BI and rules engine reporting and analysis.
- Piloting and then moving quickly to full launch of supplier portals and collaboration platforms, complete with quality management dashboards and workflows. Among the manufacturers visited, those in high tech are the most advanced in this area, often implementing Vendor Managed Inventory (VMI) and demand management applications that deliver real-time order status and forecasts.
- Designing in services is now becoming commonplace, making cloud integration expertise critical for manufacturers. From simplistic services integration on iPhones to the full implementation of voice-activated controls including emergency assistance in the latest luxury cars, adding in services integrated to the cloud is redefining the competitive landscape of industries today. Revising a product or launching an new product generation with embedded services can mitigate price wars, which is why many manufacturers are pursing this strategy today.
- Accelerating new product development and introduction (NPDI) strategies to attain time-to-market objectives. Using cloud-based platforms in high tech manufacturing is growing today as time-to-market constraints are requiring greater collaboration earlier in design cycles.
- Managing indirect and direct channel sales from a single cloud platform tracking sales results against quota at the individual, group and divisional level is now commonplace across all manufacturers visited. Dashboards report back the status by each rep and for sales managers, the profitability of each deal.
- Using cloud-based marketing automation applications to plan, execute and most important, track results of every campaign. Marketing is under a microscope in many manufacturers today, as marketing automation applications have promised to deliver exceptional results and many manufacturers are still struggling to align their internal content, strategies and ability to execute with the potential these systems promise.
- Automating customer service, support and common order status inquiries online, integrating these systems to distributed order management, pricing, and content management platforms. Manufacturing industries are at varying levels of adoption when it comes to automating self-service. The cost and time advantages in high tech are the highest levels of adoption I’ve seen in visiting manufacturers however.
- Increasing reliance on two-tier ERP strategies to gain greater efficiencies in material planning, supplier management and reduce logistics costs. Manufacturers are also using this strategy to gain greater independence from a single ERP vendor dominating their entire operations. Several manufacturers remarked that their large, monolithic ERP systems could not, without intensive programming and customization, scale down to the smaller operational needs in distributed geographic regions. Cloud-based ERP systems are getting the attention of manufacturers pursuing two-tier ERP strategies. Acumatica, Cincom, Microsoft, NetSuite and Plex Systems are leaders in this area of ERP systems.
- Reliance on cloud-based Human Resource Management (HRM) systems to unify all manufacturing locations globally. This often includes combining multisite talent management, recruiting, payroll and time tracking. Contract manufacturer Flextronics uses Workday to optimize workforce allocations across their global manufacturing centers for example.
Bottom Line: Using cloud-based systems to streamline key areas of their business, manufacturers are freeing up more time to invest in new products and selling more.
Last year, four out of every ten CRM systems sold were SaaS-based, and the trend is accelerating.
In the recent Gartner report Market Share Analysis: Customer Relationship Management Software, Worldwide, 2012 published April 18, 2013 the authors provide insights into why the worldwide CRM market experienced 12% growth in 2012, three times the average of all enterprise software categories. Gartner cites demand they are seeing from their enterprise clients for CRM systems that can help acquire customers, analyze and act on customer behaviors, and increase all-channel management performance. Big data inquiries are also increasing in CRM, driven by the interest enterprise clients have in getting more value from social network data and interactions.
Key take-aways from the report include the following:
- The CRM worldwide market grew from $16B to $18B attaining a 12.5% growth rate from 2011 to 2012.
- 80% of all CRM software in 2012 was sold in North America and Western Europe. North America CRM sales grew 16.6% from 2011 to 2012. The highest growth regions of CRM sales between 2011 to 2012 included Greater China (26.9%) and Latin America (24.3%).
- Salesforce.com is the world’s leading CRM software vendor with 14% market share in 2012 ($2.5B in sales), surpassing SAP (12.9%, $2.3B in sales), Oracle (11.1%, 2.01B in sales), Microsoft (6.3%, $1.1B in sales), IBM (3.6%, $649M in sales) and all others. The top ten vendors worldwide generated $10.9B in sales alone in 2012.
- Worldwide CRM software spending by subsegment shows Customer Service and Support leading all categories with 36.8% of all spending in 2012 ($6.6B), followed by CRM Sales (26.3%, $4.7B), Marketing (includes marketing automation) (20%, $3.6B) and e-commerce (16.9%, $3B). The following chart shows the distribution of revenue by category:
- 40% of all CRM software sold in 2012 worldwide was SaaS-based. Gartner states that they are seeing their enterprise clients seek out easier-to-deploy CRM systems compared to on-premise alternatives. The report states that many enterprises are now replacing their legacy systems with SaaS-based CRM systems as well. Enterprise clients also report that SaaS-based CRM systems are delivering net-new applications that deliver complementary functionality not possible with legacy and previous-generation CRM platforms.
- Ten fastest growing CRM vendors as measured in revenue Annual Growth Rate (AGR) in 2012 include Zoho (81.2%), Hybris (78.6%), Teradata (70.4%), Bazaarvoice (56.2%), Marketo (54.3%), Kana (44.2%), Demandware (43.9%), IBM (39.4%), Technology One (37.1%) and Neolane (36%).
- Communications, media and IT services were the biggest spenders on CRM in 2012 due to their call center requirements. Manufacturing including Consumer Packaged Goods (CPG) was second, and banking & securities were third.
Translating time into dollars matters far more to many CEOs I’ve spoken with versus what platform their applications are running on.
What matters most is getting all they can out of every hour their business is operating. They are all focused on getting beyond the constraints that held their growth back in the past – everyone wants a growth accelerator today. For manufacturers especially, this includes applications with depth of functionality that can be quickly deployed regionally, and in more cases than ever, globally as well. Line-of-business leaders want applications that make an immediate impact on their entire value chain.
Just having a cloud strategy is not enough for any enterprise software company anymore. Owning the pain prospects and customers go through daily to get work done is all that matters. Every application and platform component needs to contribute to the goal of reducing customer’s challenges of doing business. In studying companies who excel at this, I’ve often used stock market indices to see how they compare to market averages and their competitors.
Charting Progress Using the Cloud Computing Stock Index
Creating and using stock indices to track the performance of specific industry and market sectors is a great way to cut through hype. I’ve been using these for over a decade to track industries and markets of interest, and have built the Cloud Computing Stock Index. You can download the latest summary here. If there are companies you think need to be included please let me know. I deliberately left out IBM, Google, Microsoft, Oracle and SAP as a prerequisite is that a firm derive at least 50% or greater revenue from cloud-based applications and services.
The graph below shows all-time performance of the Cloud Computing Index relative to Microsoft, Salesforce.com. NetSuite and Workday.
Key Take Aways
- NetSuite posted a 62.6% increase in stock performance, followed by Workday (+20.57%), Salesforce (+4.23%) and the Cloud Computing Index (+4%) with Microsoft seeing a 8.18% decline in share price during the period.
- NetSuite, Salesforce and Workday continue to gain new customers in the mid-tier and enterprise areas of the market based on depth of functionality, rapid application development (RAD), and increasing success creating alliances with system integration, selling and technology partners.
- Workday’s expertise in Human Capital Management is accentuated by the depth of analytics and trend analysis and expertise in cloud-based integrations. Their depth of functional expertise in these areas is leading to rapid growth.
- NetSuite is succeeding with its two-tier ERP selling strategy against long-standing ERP vendors including Oracle, SAP and others.
Bottom line: Salesforce, NetSuite and Workday show how developing cloud-based applications designed for ease of use and speed of deployment are winning new customers in the enterprise – and driving up their stock price as a result.
Specifics on the Cloud Computing Stock Index
I used The Cloud Times 100 as the basis of the index, and included the 23 following companies, all of which are publically traded. These include:
- Akamai Technologies.
- Amazon.com, Inc.
- ARM Holdings plc
- CA, Inc.
- Cisco Systems, Inc.
- Citrix Systems, Inc.
- EMC Corporation
- F5 Networks, Inc.
- Fusion-IO, Inc.
- Juniper Networks, Inc.
- Keynote Systems, Inc.
- NetSuite Inc
- Qualys Inc
- Rackspace Hosting, Inc.
- Red Hat, Inc.
- Riverbed Technology…
- Salesforce.com, inc.
- Symantec Corporation
- Trend Micro Incorporated
- VMware, Inc.
- Websense Inc.
- Workday Inc
Note: I do not hold equity positions or work for any of the companies mentioned in this blog post or included in the Cloud Computing Stock Index.
2013 will be one of the most pivotal years for cloud computing because trust in these technologies is on the line.
Expectations are high regarding these technologies’ ability to deliver business value while reducing operating costs. Enterprises’ experiences have at times met these high expectations, yet too often are getting mixed results. Managing cloud expectations at the C-level is quickly emerging as one of the most valuable skills in 2013. The best CIOs at this are business strategists who regularly review with their line-of-business counterparts what is and isn’t working. These CIOs who are excelling as strategists also are creating and continually evaluating their cloud computing plans for 2013. They are focusing on plans that capitalize the best of what cloud computing has to offer, while minimizing risks.
CIOs excelling as strategists are also using cloud computing planning to punch through the hype and make cloud technologies real from a customer, supplier and internal efficiency standpoint. Lessons learned from these cloud computing planning efforts in enterprises are provided below:
- Cloud computing needs to mature more to take on all enterprise applications, so plan for a hybrid IT architecture that provides both agility and security. This is a common concern among CIOs in the manufacturing and financial services industries especially. As much as the speed of deployment, customization and subscription-based models attract enterprises to the cloud, the difficult problems of security, legacy system integration, and licensing slow its adoption. There is not enough trust in the cloud yet to move the entire IT infrastructure there in the majority of manufacturing companies I’ve spoken with.
- Reorganizing IT to deliver greater business agility and support of key business initiatives will be a high priority in 2013. The gauntlet has been thrown at the feet of many CIOs this year: become more strategic and help the business grow now. Cloud is part of this, yet not its primary catalyst, the need to increase sales is. IT organizations will increasingly reflect a more service-driven, not technology-based approach to delivering information and intelligence to the enterprise as a result.
- Recruiting, training and retaining cloud architects, developers, engineers, support and service professionals will be a challenge even for the largest enterprises. There isn’t enough talent to go around for all the projects going on and planned right now. State Farm Insurance has 1,000 software engineers working on their mobility applications for claims processing and quoting for example. And they are hiring more. Certifications in cloud technologies are going to be worth at least a 30 to 50% increase in salary in specific positions. This is very good news for engineers who want to differentiate themselves and get ahead in their careers, both financially and from a management standpoint.
- Measuring the contributions of operating expense (OPEX) reductions is going to become commonplace in 2013. From the cloud computing plans I’ve seen, OPEX is being tracked with greater accuracy than in any other year and will be a strong focus in the future. The capital expense (CAPEX) savings are clear, yet OPEX savings in many cases aren’t. Cloud computing’s greatest wins in the enterprise continue to be in non-mission critical areas of the business. This is changing as cloud-based ERP systems gain adoption within businesses who are constrained by monolithic ERP systems from decades ago. Plex Systems is a leader in this area and one to watch if you are interested in this area of enterprise software. SaaS is dominating in the area of lower application costs and high user counts, which is the Public Computing Sweet Spot in the following graphic:
Source: 2013 Cloud Computing Planning Guide: Rising Expectations Published: 1 November 2012 Analysts: Drue Reeves, Kyle Hilgendorf
- Start building a SaaS application review framework including Service Level Agreement (SLA) benchmarks to drive greater transparency by vendors. Gartner forecasts that the SaaS-based cloud market will grow from $12.1B in 2013 to$21.3B in 2015, with the primary growth factors being ease of customization and speed of deployment. CIOs and their staffs have SaaS frameworks already in place, often with specific levels of performance defined including security and multitenancy audits. SLAs are going to be a challenge however as many vendors are inflexible and will not negotiate them. At a minimum make sure cloud service providers and cloud management platforms (CMP) have certifications for ISO 27001 and Statements on Standards for Attestation Engagements (SSAE) No. 16, as this shows the provider is making investments in availability, security and performance levels.
- Create a Cloud Decision Framework to keep technology evaluations and investments aligned with business strategies. Business and application assessments and the vendor selection process need to take into account application requirements, role of external cloud resources, and how the RFI will be structured. These process areas will vary by type of company – yet concentrating in application requirements goes a long way to reducing confusion and forcing trade-offs in the middle of a review cycle. The following is an example of a Cloud Decision Framework:
Source: 2013 Cloud Computing Planning Guide: Rising Expectations Published: 1 November 2012 Analysts: Drue Reeves, Kyle Hilgendorf
- Mitigating risk and liability through intensive due diligence needs to become any cloud-based companies’ core strength. Regardless of how the HP-Autonomy litigation is resolved it is a powerful cautionary tale of the need for due diligence. And let’s face it: there are way too many SaaS companies chasing too few dollars in the niche areas of enterprise software today. A shakeout is on the way, the market just can’t sustain so many vendors. To reduce risk and liability, ask to see the financial statements (especially if the vendor is private), get references and visit them, meet with engineering to determine how real the product roadmap is, and require an SLA. Anyone selling software on SaaS will also have revenue recognition issues too, be sure to thoroughly understand how they are accounting for sales.
- Design in security management at the cloud platform level, including auditing and access control by role in the organization. One manufacturing company I’ve been working with has defined security at this level and has been able to quickly evaluate SaaS-based manufacturing, pricing and services systems by their security integration compatibility. This has saved thousands of dollars in security-based customizations to meet the manufactures’ corporate standards.
Bottom line: 2013 is the make-or-break year for cloud in the enterprise, and getting started on a plan will help your organization quickly cut through the hype and see which providers can deliver value.
The latest round of cloud computing and enterprise software forecasts reflect the growing influence of analytics, legacy systems integration, mobility and security on IT buyer’s decisions.
Bain & Company and Gartner have moved beyond aggregate forecasts, and are beginning to forecast by cloud and SaaS adoption stage. SAP is using the Bain adoption model in their vertical market presentations today.
Despite the predictions of the demise of enterprise software, forecasts and sales cycles I’ve been involved with indicate market growth. Mobility and cloud computing are the catalysts of rejuvenation in many enterprise application areas, and are accelerating sales cycles. Presented in this roundup are market sizes, forecasts and compound annual growth rates (CAGRS) for ten enterprise software segments.
Key take-aways from the latest cloud computing and enterprise software forecasts are provided below:
- Public and private cloud computing will be strong catalysts of server growth through 2015. IDC reports that $5.2B in worldwide server revenue was generated in 2011 or 885,000 units sold. IDC is forecasting a $9.4B global market by 2015, resulting in 1.8 million servers sold. Source: IDC Worldwide Enterprise Server Cloud Computing 2011–2015 http://www.idc.com/getdoc.jsp?containerId=228916
- IDC reports that enterprise cloud application revenues reached $22.9B in 2011 and is projected reach $67.3B by 2016, attaining a CAGR of 24%. IDC also predicts that by 2106, $1 of every $5 will be spent on cloud-based software and infrastructure. Report, Worldwide SaaS and Cloud Software 2012–2016 Forecast and 2011 Vendor Shares, Link: http://www.idc.com/getdoc.jsp?containerId=236184
- 11% of companies are transformational, early adopters of cloud computing, attaining 44% adoption (as defined by % of MIPS) in 2010, growing to 49% in 2013. This same segment will reduce their reliance on traditional, on-premise software from 34% to 30% in the same period according to Bain & Company’s cloud computing survey results shown below. SAP is using this adopter-based model in their vertical market presentations, an example of which is shown here.
- The three most popular net-new SaaS solutions deployed are CRM (49%), Enterprise Content Management (ECM) (37%) and Digital Content Creation (35%). The three most-replaced on-premise applications are Supply Chain Management (SCM) (35%), Web Conferencing, teaming platforms and social software suites (34%) and Project & Portfolio Management (PPM (33%). The following graphic shows the full distribution of responses. Source: User Survey Analysis: Using Cloud Services for Mission-Critical Applications Published: 28 September 2012
- In 2011, the worldwide enterprise application software market generated $115.1B in revenue, and is projected to grow to $157.6B by 2016, attaining a 6.5% CAGR in the forecast period. Gartner reports that 38% of worldwide enterprise software revenue is from maintenance and technical support; 17% from subscription payments; and 56% from ongoing revenue including new purchases. An analysis of the ten enterprise software markets and their relative size and growth are shown in the figure below along with a table showing relative rates of growth from 2011 to 2016. Source: Forecast: Enterprise Software Markets, Worldwide, 2011-2016, 3Q12 Update Published: 12 September 2012 ID:G00234766