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5/13/2011
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SMB Cloud Spending To Double By 2015

Telecoms will likely benefit from a strong preference for bundling hosted services, as the market climbs to more than $49 billion, finds AMI Partners' study.

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Small and midsize businesses (SMBs) in the United States will spend more than $49 billion on cloud services in 2015, nearly double the size of the market today, according to new research from AMI Partners.

Donald Best, analyst at AMI, attributed the boom to a combination of reliable broadband, thin applications, and the financial appeal to smaller businesses--namely, that cloud services don't require significant capital expenditures to acquire. A recovering economy and growing SMB IT budgets don't hurt, either.

"It's a factor of IT spending increasing, and it's also an increasing percentage of total spending that's going to the cloud," Best said in an interview. AMI's study found that SMBs are currently setting aside 10% of their IT budgets for cloud services; that's expected to grow to 15% by 2015.

As SMBs' cloud spending increases, so does their taste for purchasing multiple services from the same vendor. For example, 38% of smaller companies indicated a desire to buy software as a service (SaaS) as part of a broader cloud bundle, compared with 11% who said they preferred to purchase SaaS applications on an individual basis. Cost is a key driver behind bundling, according to Best. He points to the potential discounts that can come with acquiring multiple services from the same vendor, but said cost is not the only factor.

"It's convenience and it's one neck to choke," said Best. "You think about an IT director at a large company, and they manage vendors. Small businesses don't have that luxury. By bundling, you get one invoice and if there's a problem you call one company and one help desk."

Some clarity of vocabulary: AMI used "cloud" as the umbrella term for any IT function hosted off-premises--including infrastructure, security, unified communications (UC), and remotely managed IT services--on someone else's servers. SaaS referred to specific business applications hosted off-site, such as productivity, accounting, customer relationship management, or analytics packages.

The lean toward bundling extended across cloud categories: One in three SMBs expressed interest in hosted infrastructure and remotely managed services from the same vendor, while just 9% stated they would prefer to buy each separately. Many of the common combinations of services found in AMI's research were fairly intuitive. For example, Best noted that the top preferred pairing with hosted UC was a productivity and collaboration suite.

Telecom companies such as Verizon and AT&T are particularly well-positioned to offer bundled cloud services, Best said. Verizon, for example, bundles software and services from Microsoft, Google, Intuit, and others with its own voice and data plans for SMBs. AMI's data show telcos accounting for more than $19 billion of the SMB cloud market in 2015, up from $11.3 billion in 2010. Best said the interest in telecom vendor bundles is strongest among businesses with between 10 and 250 employees, and then declines among midsize firms as they approach 1,000 employees.

"The telcos are really a huge force behind bundling," Best said, noting that those firms use bundling to soothe their Achilles' heel: customer churn. "Voice and broadband, you can get that anywhere. But if you lock someone in with a productivity suite and remotely managed IT services, you're less likely to switch. The telcos are making it very attractive."

AMI's study included 513 U.S. businesses with fewer than 1,000 employees.

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