SMBs Show Greatest Adoption of On-Demand Infrastructure Services 

What is Happening?  Two segments within the overall category of small and mid-sized businesses (SMBs) – those with fewer than 100 employees and those with 500-999 employees -- indicate the greatest growth in adoption and use of infrastructure on-demand services over the next few years.

A recently published Strategic Perspective (see Infrastructure On Demand: Which SMBs Will Buy IT in the Cloud, MKT-533, 28Nov08) shows that adoption of infrastructure-on-demand services varies predictably by the size of organization across a wide list of solution categories.  Organizations with 100-499 employees have been the most aggressive adopters to date, while those with under 100 employees and from 500-999 employees plan the most aggressive adoption through 2009.  By 2010, however, adoption rates across all segments, including large enterprises, become very similar, implying broad and deep acceptance and use of infrastructure on-demand services regardless of company size.

Figure 1 summarizes current and future demand. Note that in Figure 1, each size segment has two columns: Already in Use (at left and bold], or Plan to Adopt 2008-2009 [at right and in italics].  For additional cross tabs, by segment, see the premium Strategic Perspective noted above.

Figure 1: Infrastructure On Demand: In Use v. Plan to Adopt, 2008-2009

Source: Saugatuck Technology Inc. 2008 SaaS Research (multiple surveys)

A quick glance at the chart tells the story.  Organizations with 100-499 employees have been the most aggressive adopters to date, while those with under 100 employees and from 500-999 employees plan the most aggressive adoption through 2009.

• For the under 100 employee organizations, the most aggressive buying plans are for website operations, backup/recovery, disaster recovery, network operations, IT security, server/processor capacity, technical services, data warehouse solutions and performance management.
• For the 500-999 employee organizations, the most aggressive buying will be for website operations, backup/recovery, network bandwidth, storage capacity, disaster recovery, server/processor capacity, technical services, data warehouse solutions, application development, application execution, performance management and capacity planning.

Why is it Happening?   SMB executives are always looking for low-cost, reliable alternatives to traditional IT that enable them to concentrate on making their businesses better, and infrastructure-on-demand helps them accomplish this.

“If I had these types of services 20 years ago, I would never have bought half the hardware that we own,” the finance director and COO of a $100M, 300-employee professional services firm told Saugatuck in November of this year.

This Is not a new sentiment or new behavior for SMBs or for larger enterprises. But the increasingly tough economic climate worldwide is forcing SMBs to make similarly tough choices when it comes to it. Most are choosing not to invest unless they have to.

When they have to invest in IT, they are looking at cloud-provided IT, whether SaaS, infrastructure, IT management/integration, or a combination of these.

Market Impact:   Saugatuck’s segmentation by size class helps provide some useful insights for providers of on-demand infrastructure services as to which segments present what types of opportunity over the next year-plus. It also helps provide insight into the types of investment that will be required by providers and by users to realize these opportunities – namely, significant investment in partner and channel capabilities for selling, bundling, customization, industry-specific offerings, and of course support.

Aggressive adoption plans span all categories of infrastructure on demand services in the under-100-employee size segment.  By the end of 2009, only vendor SLA monitoring and capacity planning fall below the 20 percent to 60 percent adoption range, and those categories are growing in seven- to ten-fold increases.  Clearly this is one segment that will repay an investment to capture market share, and the most cost-effective approach will most likely be through value-added resellers (VARs), regional system integrators (RSIs) and managed services providers (MSPs).

The 100- to 499-employee segment has recently experienced high rates of adoption of SaaS (please see Saugatuck Strategic Research Report SSR-510, “Different Wavelengths: SMBs, Change, and SaaS Adoption,” published 30 Sept. 2008) and infrastructure on demand, and leads all segments by organization size in adoption of Infrastructure On Demand. There should exist well-established channels and a well-educated buyer base that will not require the same investment in conveying the cloud value proposition as will the less penetrated, but higher planned-growth segments.  In other words, this segment may offer continued significant growth at a lower cost of acquisition than either the under-100 employee or 500-999 employee segments.

Because the 500- to 999-employee segment is far less penetrated – with only website operations showing more than 20 percent in use -- it will likely require significant investment in channels and partners in order for providers to realize the full potential that this planned growth represents.

To manage this adoption and keep costs as low as possible, SMBs themselves should be able to adapt and improve many existing IT outsourcing management practices rather than create entirely new (and costly) programs.  Those user firms that have not previously outsourced IT can look to the practices (including successes and failures) of peers and partners for guidance.

The authors invite your comments and inquiries on this Research Alert. Please contact Mike West at mike.west@saugatech.com or Bruce Guptill at bruce.guptill@saugatech.com.   For a PDF Version of this Research Alert please Click Here (Site Registration Required).

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