SMB Cloud Forecast: The Future is Bright


SMB Cloud Forecast: The Future is Bright

By Erin Harrison, Executive Editor, Cloud Computing  |  April 30, 2012

This article originally appeared in the April 2012 issue of Cloud Computing Magazine.

By now, you’ve seen the statistics, or you’ve seen it with your own eyes: Small and medium-sized businesses (SMBs) have been the most aggressive segment to adopt cloud services. In fact, Gartner (News - Alert) projects this sector’s revenues will exceed $150 billion by 2013.Adding to this sunny prediction for cloud service providers, McKinsey says SMBs with fewer than 250 employees are more than twice as likely as larger companies to adopt subscription or on-demand technology services.

The bigger story, of course, is that the cloud enables SMBs to get on-demand access to the same enterprise-class communications applications that have previously beenexclusive to large organizations.Cloud Computing recently sat down with Walter Scott, CEO of GFI Software, to discuss adoption trends in the SMB market, how cloud is helping them level the playing field, and what concerns about cloud are justified or, more important, not justified.Our full exchange follows:

EH: According to recent industry studies (including Gartner and Microsoft (News - Alert)), SMBs are adopting cloud at a much faster pace than enterprises. Do you see wider acceptance among the mid-level space and why is this trend happening?

WS: I would say there are a number of reasons for this trend.

First, the fear factor is decreasing among small and medium businesses, and this has, in part, been driven by the consumerization of cloud services – their personal email is hosted; they save files in the cloud, their tablets and smart phones use cloud services, and so on.

Second, not all SMBs can afford an ever-increasing infrastructure with good IT staff, security software or hardware, licensing and renewal costs, and other expenses that come with on-premise solutions. For very small businesses, the capital outlay often exceeds the budget allocated for IT. At the same time, they cannot do without the technology. Cloud service providers address SMBs’ concerns and budget limitations by providing a full package at a very reasonable price and they are capable of providing them with redundancy and continuity while removing the burden of managing the technology on-premise.

Third, the market is starting to mature. Vendors and the services they offer are more robust than ever; they have made massive investments in data centres, security and compliance and, now even price points are coming down. SMBs are keen to adopt cloud services so long as they have guarantees that they services is reliable, their data is secure and they are not ripped off. As each concern is knocked off the list, this trend will continue at a rapid pace.

Fourth is the fact that the SMB simply doesn’t have the time required for the care and feeding of the system.Without a dedicated resource the “technical” guy in the office ends up taking time away from their job to be the IT guy. With shrinking margins, and a sluggish economy, that person’s time would be better spent selling, or accounting or whatever they are actually paid to do by the company, and not chasing down user or operations issues.

Finally, as technology continues to advance with more access points, higher access speeds, faster computers and so on, systems are now available that support a robust cloud environment.

EH:  How has cloud helped resolve IT challenges for SMBs in ways that traditional on-premise computing can't?

WS: Having access to greater computing power than ever before without the need for massive capital investment and complex licensing is changing the way SMBs use IT and do business. Cloud computing is giving SMBs the ability to act like, and appear to be, organizations that are much larger and it is also impacting positively on their business by enabling growth with minimal investment. Because the cloud takes away the need to install new hardware, configure software, maintain and update the software, deal with complex licensing, the IT manager or administrator can dedicate more time to managing the network and ensuring the service provider is delivering as promised.

Cloud-based services also have a higher velocity of change.Program improvements can be rolled out on a daily basis to improve the user experience.If a more efficient way to roll-out a patch was implemented in a cloud service tonight, tomorrow when the user logged in they would be able to take advantage of that change immediately.This continued improvement-and-use model allows many more development cycles to be introduced over a given period of time.

EH: Which cloud-based service is being adopted most readily by SMBs and why?

WS: I don’t think there is a single cloud-based service that stands out; I would say, however, that SMBs are looking at a mix of services that allow them to improve operations, reduce costs, increase productivity and, from an IT manager’s perspective, secure and manage the corporate network.

SMBs are taking advantages of hosted email and storage, hosted email security, archiving, online payment, accounting software, CRM, collaboration software and faxing. If the cloud service boosts efficiency, increases productivity and lowers costs, then it is an attractive option for an SMB to consider.

Adoption increases when SMBs are able to source more than one solution from one interface – a one-stop shop. GFI has used this approach with our traditional on-premise services and we are now doing the same as we take our product portfolio to the cloud and to a wider audience.

EH: What is the biggest misnomer about cloud computing and small to medium-sized businesses?

WS: I think the biggest misnomer is that you either have everything on premise or you have to take everything to the cloud. There are situations when a company will not or cannot move to a cloud-based solution. If you work in a highly regulated industry and manage confidential information, it may be against company policy to move data into a cloud environment managed by third parties. So, hosted archiving, for example, is a no-go. At the same time, their CRM and HR systems are provided by a cloud provider, freeing up resources, increasing efficiency and reducing overheads: Same company, different needs and objectives.

EH: There is still a lot of concern in regard to security and the cloud. In what ways are these concerns justified or not justified?

WS: The questions I would ask is “are these security concerns any different to those that businesses have been facing for the past 30 years?”In some ways the issues are the same and in some ways there is a need for some concern.When data is stored in the cloud we have less control over it.We are depending on the vendor to take the appropriate steps to safeguard the data.And in many cases the vendors have failed.My advice would be to make sure you ask your cloud provider what measures they have taken to not only assure the availability of your information but the safeguarding of it against hackers or the introduction of viruses and other malicious software.

It is in the interest of every vendor offering cloud-based services that the clients’ data is secure and protected. In a country like the United States where a lawsuit could result in material punitive damages for a business, cloud-based solution vendors do their utmost to protect the data they are managing. They have to out-perform because they know that a single incidence, a single breach could lead to litigation and significant risk and materially impact the corporate brand. Therefore, cloud-based solution vendors not only have the latest technology, the latest firewalls, the best datacenters and the highest levels of redundancy possible but they will apply multiple layers of defense in-depth that your average business (a Fortune 500 company may be an exception) can never have. Thus, if the cloud-based vendor can offer such a high level of security that is beyond what an SME can provide, isn’t this concern irrational?

I would argue that clients’ concerns should focus on how flexible the service provider is in meeting their requirements. In choosing a vendor, the existing security policies adopted must meet the needs of the business paying for the service. Moreover, if the client’s security requirements change, these changes must also be reflected in the security policies implemented by the cloud-based solution vendors. What has changed with the cloud is the extent that security policies can change. For example, if an employee were made redundant, you would delete his account and block all access to the network. When using a cloud-based service, you now also have to block any access rights to the data that is stored in the cloud. The concern that an employee could take confidential data with him is the same in both cases. The process to stop that requires additional policies. This is why it is so important that a vendor’s security policies are flexible and can change as their clients’ needs change.

The point I’d like to make is that security issues may have changed slightly with this delivery model but the approach to security should be the same irrespective of where the data is kept – on-premise or hosted/managed in the cloud. The same best practices apply. Good business judgement is still required.

EH: What do vendors need to be able to offer in order to deliver successful cloud implementations?

WS: With security no longer a priority with our delivery model, it makes sense that SMBs are focusing on the business aspects of the model. How much is it going to cost them? Will they be locked-in? How much will it cost to migrate their data if they choose to return to an on-premise model? These are the real business concerns that have a direct impact on the bottom line.

Businesses are going to look beyond the simple provision of the service that they signed up for and a major consideration is the quality, price and reliability of the service being provided. To be successful, vendors need to be crystal clear on pricing, how the subscription works and what the terms are for product support and customer service. Service level agreements should be written in a language that SMBs understand and should the SMB wish to part ways at some point, the vendor should explain what will happen to the SMB’s data; how the data will be returned, what happens to the vendor’s copy or logs and so on.

At the end of the day, what customers really want is freedom of choice and the ability to pick and choose applications, software, licensing models, even payment terms that suits them and not the vendor. That is the key to the successful delivery of cloud implementations.

EH:Cloud is still largely in its infancy; do you think in the next 12-18 months will we see more SMBs gravitate toward hybrid models and not just a public cloud? What will drive such trends?

WS: The beautiful thing about technology is that it brings about change and with change you get more choice. And with greater choice, SMBs can design and build their IT infrastructure in a way that is efficient, cost-effective and allows them to do what they do best – grow the company. GFI has been offering the hybrid model to our customers for over a year now; giving them the ability to create another line of defense using a cloud-based solution while they continue to run our on-premise products. So long as SMBs see value in the hybrid proposition, they will invest in it.

EH:Go out on a limb: What do you predict happening with cloud in the next 12 months, especially pertaining to SMBs?

WS: Adoption of cloud-based IT services is, to an extent, correlated to the adoption of smartphones and tablets and over the next 12 to 18 months, we will see more SMBs avail themselves of cloud-based services. There are certain markets, such as the financial sector, that will be more cautious in their approach. SMBs handling confidential client data may shy away from having third parties manage their data, but may look into services such as CRM, HR and basic IT services for other non-data critical departments.

The sweet spot for vendors remains the SMB market. Managing expectations and keeping prices within an acceptable range for SMBs are the key elements of success and what will drive adoption of cloud-based solutions. Looking beyond 2013, I would say that within the next four to five years, the cloud-based delivery model for IT will be main choice for many businesses.

One thing that SMBs will begin to discover is that just because you are paying by month or year does not mean the solution is any cheaper.In fact, it may be more expensive as the vendors have to incur the costs of storage and bandwidth to deliver their services.SMBs should expect that over time, however, the price points of cloud services will go down as the cost to store and deliver information is reduced.

EH:Cloud computing is often termed a “disruptive” force in technology. What would your compare this movement to or is such a disruption unprecedented?

WS: Cloud computing has changed the way we do business and how we deliver our products and solutions. It has changed the economics of IT, it has changed how businesses look at IT and adopt the technology. The technology in and of itself is not disruptive; after all we are simply using established computing technologies but it is a disruptive model of IT delivery which creates a much more efficient model for businesses.I would argue that the foundation of the disruption is the Internet itself, and we are now beginning to exploit its true value.There will be tremendous gains in the future in the areas of supply chain, distribution, and even manufacturing that we are just beginning to realize.The value of Big Data is another area that we are just scratching the surface.

EH: As many companies are still in the knowledge process of cloud, what perceptions about cloud do you wish to dispel?

WS: The cloud is not something adopted by large enterprise alone. There is nothing holding back small and medium businesses from adopting cloud-based solutions except the misconception that it is not good for them. Like any other tool in business, the value comes from the thoughtful use and complete understanding of how to exploit it.Today with a more level playing field than ever, the companies that don’t simply react to market pressure but take the time to take full advantage of these great new technologies will be the leaders of the future.

Edited by Stefania Viscusi