UK SMB cloud services market growing fast

One of the common predictions for the relationship between cloud services and the small to medium sized business community is that it is a marriage made in heaven, even if the partners have yet got round to truly consummating the union yet.

Now, however, comes some hard evidence to suggest that the pair are starting to cuddle up rather well. Parallels, provides hosting and cloud services tools to hosted services providers, has just published `Parallels SMB Cloud Insights’ for the UK marketplace. This is a detailed report showing the size of the market, some predictions of the future, and giving illustrations on how service providers can profit by delivering cloud services to the SMB community.

The report estimates that the overall UK cloud market in the SMB sector has a current annual run rate of £1.4 billion. But it is growing well, for the report also predicts it will nearly double in size, to £2.5 billion, by 2016. This, it suggests, will come mainly from year-over-year growth rates of 38 percent for hosted infrastructure, and 56 percent for the business applications market.

As of summer 2013, Parallels calculated that the UK SMB market total sub-divided into clearly defined groups. Of the £1.4 billion total, IaaS contributes £574million to this market, web presence and web applications contribute £337 million, hosted communication and collaboration (consisting of hosted premium email and hosted PBX) adds £52 million, and business applications account for the remaining £474 million.

“The UK cloud services market for small and medium businesses is almost twice the size of the French or German markets. The demand for IaaS and business applications, which accounts for 75 percent of all SMB needs, is continuing to grow,” said John Zanni, Chief Marketing Officer, Service Provider, Parallels. “Looking forward, the UK will continue to experience strong growth across all cloud services and will remain among the most mature SMB cloud markets worldwide.”

The Cloud Insights for the UK report details the fastest growing opportunities to deliver cloud services to SMBs across the four key market sectors: IaaS, web presence and web applications, hosted communication and collaboration, and business applications. The report also provides specific recommendations for applications and services in the aforementioned categories.

For example, in the past year, the UK SMB market for IaaS has continued to grow strongly, increasing 22 percent and reaching a current value of £574M, while 28 percent of UK SMBs now use a hosted server - a solid 33 percent increase over last year.  Growth has been driven largely by smaller SMBs (those with fewer than 50 employees) purchasing their first servers from the cloud, rather than choosing to buy an in-house server.

Twelve percent of small SMBs and 22 percent of medium SMBs currently use both hosted and in-house infrastructure. As these companies’ in-house infrastructure ages, Parallels expects that many of them will convert to hosted infrastructure, fueling continued double-digit growth in this space.

Today, a substantial 70 percent are already using a range of add-on services and applications for their hosted servers, with security (including antivirus and antispam) and server backup among the most popular.

During 2012, the UK web presence market maintained low double-digit growth, adding 14 percent to the market size to reach £337M. Web hosting is already a very mature market in the UK; nearly three quarters of SMBs already have a website.

Looking forward, although the UK web presence market is headed for slower growth overall, it will be buoyed by SMB demand for a large range of web applications to complement web hosting packages.

Although use of web applications is already quite strong, even the most popular of them only have about 25 percent of SMBs with websites using them today. These relatively low penetration rates point to excellent opportunity still left in the web application space.

The fastest-growing website add-ons through 2016 will include mobile optimisation, search engine optimisation, content management system, and ecommerce solutions.

Although the current overall market for hosted communication and collaboration (primarily hosted premium email and hosted PBX) at approximately £52M is only a fraction of the web presence and IaaS market sizes, it is growing much faster. Hosted premium email in particular was the fastest growing cloud service in this year’s research.

Over the next few years, research indicates these two cloud services will continue to grow quickly, more than doubling the current market size to reach approximately £124M.

Parallels estimates the overall market will grow 36 percent growth year-over-year through 2016.

At a current market size of £474M, business applications remain UK SMBs’ second largest category of cloud spending, after IaaS.

Business applications grew at a rate of 30 percent in the past year, and although UK SMBs are not yet spending as much on business applications as their counterparts in other developed countries, Parallels expects continued strong growth to close this gap over the next several years.

As compared to the 2012 research, UK SMBs are using a larger range of business applications, causing many applications categories to grow rapidly this year. The current top applications include file sharing, instant collaboration, and online backup and storage. Payroll and HR applications, and phone and web conferencing are also very popular among medium SMBs.

Parallels sees substantial growth in online business applications to continue as newer SMB-focused offerings become mainstream across all categories of business applications.