Cloud Survey & Facts

Microsoft released data from its SMB Cloud Adoption 2011 Survey this week.

It reveals that across the globe, 39% of SMBs will pay for levels of Cloud services in the next 3 years which is a sharp increase in numbers since the last survey was done a year ago. The figures point to SMBs taking an average of 3.3 Cloud based services.

The figures were interpreted to show that SMBs and Enterprise customers alike will mix on-premise based solutions and Cloud based and have some level of hybrid services. The interesting finding is that the larger the SMB, the more Cloud based services they will buy over the next 3 years. Some 56% of companies with between 51 and 250 employees will buy on average 3.7 Cloud based services.

Here's an interesting statistic - within 3 years, 43% of workloads will become paid Cloud services while 28% will remain on-premise and 29% will be free or bundled with other services. Heart warningly 82% of SMBs say buying Cloud services from a provider with local presence is critical.
An interpretation of the data by Microsoft itself is that Cloud services adoption will be gradual over the next 3 years and that there will remain a mixture of Cloud based and on-premise applications - so existing infrastructure will need to remain. But as equipment reaches the end of its life cycles, more and more companies in the SMB market place will start to consider Cloud based alternatives for the future.

I refer to such milestones as 'Compelling Events' when kit needs to be upgraded or hardware comes off maintenance contracts or a significant refresh of kit is required.

The good news for the Channel is that it appears local support and supply is key. Plus it is presumed that more resellers will take 'White Label' Cloud services such as co-hosting, back up, archiving, disaster recovery, unified communications, remote desktop support and email solutions in future.

Drivers to the Cloud are reaffirmed in the survey. Companies want to get greater scalability in their business to match growth expectations, drive down costs and profitability up, and pay-as-you-go models are becoming increasingly attractive. Obtaining more smooth and predictable costs when growing rather than lumpy IT costs are more desirable for businesses and their investors.

Much of the above merely augments the view of Cloud fans like myself. It doesn't necessarily address some of the obvious concerns and blockages like security and data management to help persuade people but it certainly validates what is the perceived opportunity to vendors and Channel players.

What it also doesn't address is how Channel players should take advantage of the opportunity but a clear message is that Channel companies should be looking to offer a range of options from hosting, applications, to deployment services and support. But there is a definite demand for clear solutions beyond simple software offerings.

What is clear is that as the adoption of Cloud services grow, there will be a corresponding decrease in the usual software application opportunity and the server/storage usually associated with on-premise solution. The two models in terms of sales revenue and cost structure are very different. A £100,000 on-premise sale today creates the lump of profit to fund current sales activity. But if that sale collapsed to a potential £4,000 a month then many resellers will be top heavy in terms of cost.

The quid pro quo is that as annuity style revenues accrue over time by renewing these deals and growing the user bases, then by 3 years down the line there will be a substantial monthly revenue flow that will have accumulated well above the cost structure.

So modelling the costs, realigning resources and reassessing commission models will be fairly fundamental for vendors and resellers alike. This is probably the most important area of understanding required by the industry in The Cloud as getting this right can yield huge results. Getting it wrong can bring ruination.

SaaS veterans like myself have long understood that selling software and services on a monthly annuity basis versus capital spend needs different selling skills, a different mentality and a very different incentive structure. Vendors and resellers should know that the initial decision for an end user to go into Cloud solutions is only the point at which the real sales effort starts. Instead of revelling in the deal volumes and the bloated commission cheques, salespeople need to drive adoption and usage from the first moment of deployment.

That requirers an entirely different sales mentality and incentive structure. Large software vendors are already making big mistakes in the reward structure and margin opportunities for the Channel maintaining the old 'sell and forget' model of reward. The margin and reward structure needs to incentivise on a basis of 1) Initial deployment, 2) Adoption driving, 3) Usage driving, 4) Renewal securing, 5) Driving upgrades.

There has to be enough 'skin in the game' to make selling after the initial deployment worthwhile as that is where the real profit lies in The Cloud.