Part 4 of a 5-part series detailing Parallels SMB Cloud Insights research
Welcome to Part 4 of our overview of findings from our Parallels SMB Cloud Insights report. So far in this series, we’ve discussed the different segments of the SMB cloud services market and how they relate to hosted infrastructure and web presence.
In the area of hosted communication and collaboration, the opportunities for hosted email penetration are the same for SMBs working with either mature or maturing cloud service markets in developed countries. Therefore, in this post we’ll look at all developed countries as a single group. We’ll also focus our research on two areas: premium business email, including security, archiving, and mobility features; and hosted PBX.
Worldwide, the SMB market for both these services is small, with less than 10% of SMBs currently paying for premium hosted email and less than 5% using hosted PBX services (see Table 3 below).
Hosted Email
About 50% of SMBs in countries with mature cloud services use hosted email (see Table 3), and less than 10% of those in mature and maturing cloud service environments pay for it (except in the US, where over 15% do). Though this may seem like a challenge, current low usage of paid hosted email actually offers two major growth opportunities for service providers.
The first is in encouraging adoption among micro and small SMBs currently using in-house email servers. Our research found that around 10% of micro SMBs and more than 20% of small SMBs in developed countries use in-house email servers. This is an expensive and complicated solution for small companies, particularly those without dedicated IT staff. And since some 25 to 40% of SMBs with in-house email servers are either definitely planning to or at least considering switching to premium hosted email in the next three years, these SMBs represent a sizable opportunity for service providers.
The second opportunity lies in upselling small and medium SMBs that are currently using free email. Free is hard to compete with, but free only gets business so far. In fact, 20 to 50% of small and medium SMBs using free email are either planning to or considering adding premium hosted email in the next three years. The trick to upselling to these businesses is demonstrating the benefits of hosted email, like its team collaboration aspects and its “pay-per-seat” pricing model.
For the markets with emerging cloud services, less than 20% of SMBs are even using email at all, and only 5% are paying for it. These companies can benefit from the same features as SMBs in developed countries, so the best opportunity here is to upsell small and medium SMBs using free email through a hosting service, ISP, or other free provider.
Hosted PBX
Hosted PBX is a fairly new service in all geographies, which means the SMB market for this service looks similar in both developed and developing countries. Our research found that, except in the U.S., less than 5% of SMBs in any country have a hosted PBX system (see Table 3). For U.S. companies, it’s still a meager 10%. Nevertheless, we expect other countries to catch up to the U.S. rate quickly.
The easiest targets for service providers looking to step into the hosted PBX market are SMBs that currently use in-house PBX systems (about 10 to 20% of micro SMBs and more than 30% of small SMBs). Selling points include the less complicated, more flexible options hosted PBX offer.
Service providers will also have to address the three big stumbling blocks to hosted PBX adoption for SMBs: price, security and privacy issues, and technical know-how. We believe the trick to working around this is two-fold: offer small bundles in order to keep prices lower, and actively educate SMBs about security and technical aspects. Hosted and in-house PBX systems have similar technical features and are equally secure, yet many SMBs mistakenly think otherwise.
SMBs also often indicate that it’s important to them that their service provider has a local presence. It’s crucial for service providers with a local presence push this advantage, by emphasizing their expertise in local language voice offerings, for example.
In our last series entry, we’ll discuss opportunities in Business Applications, and wrap up the findings in our Parallels SMB Cloud Insights report.