Winning in the SMB Cloud: Charting a path to success
July 2011 | Zoë Diamadi, Abhijit Dubey, Darren Pleasance, Ashish Vora
In the past five years, it has been difficult to escape the hype around cloud computing. These technologies have been proclaimed by many as forces that will “reshape IT” and “power innovation,” while others describe them as a passing fad and “just another form of outsourcing.” As is often the case with potential disruptions in the high-tech industry, the real promise of cloud computing lies somewhere between these breathless pronouncements.
Virtually all incumbent technology players (e.g., IBM, HP, Microsoft, Cisco, Oracle, EMC, and others) are making significant cloud investments while a number of “newer entrants” such as Amazon.com, Google, VMWare, and Salesforce.com are making substantial plays in the cloud space as well. Add to this the large telecommunications companies and service providers (e.g., AT&T, Verizon, Comcast, TimeWarner, and others) and a long and diverse group of other participants (e.g., hosting providers, cloud solution providers, resellers, and other players) and it quickly becomes clear that the cloud landscape is highly competitive and quite fragmented as players jockey for position.
Small businesses (companies with fewer than 100 employees) and midsize players (companies with 100 to 1,000 employees) stand to gain much from the promise of cloud-computing technologies. Cloud computing offers SMBs access to reliable and scalable infrastructure resources (for example, computing and storage), configurable platforms that allow for integration between the business and vendors or customers, and rich application functionalities that can be paid for on an ongoing basis. Consequently, cloud computing offers SMBs the opportunity to enhance or improve IT capabilities in a way they previously could not.
Given the large investments being made by established technology companies, is there room for smaller and more varied providers of cloud services to SMBs? Or will cloud computing become a winner-takes-all marketplace with a handful of dominant companies? What should smaller cloud players do to compete and win?
In this white paper, we will examine opportunities for SMB cloud service providers and explain how they can seek to do more than merely survive in the marketplace—we will explore how they can be active, successful participants. In the first section, “Follow the growth,” we describe the dynamics that make the SMB cloud services space so compelling. In the second section, “Size is not destiny,” we use a combination of historical examples and economic theory to explain why the SMB cloud services market will remain fragmented. In the last section, “Playing to win,” we share strategies and tactics that are being successfully employed by SMB cloud service providers in the marketplace today.
About the Authors
Zoë Diamadi is an associate partner in McKinsey's San Francisco office. She is a core leader of McKinsey’s Cloud Computing initiative. During her time at McKinsey, she has served clients all along the high tech value chain, from electronic component manufacturers and semiconductor companies to datacenter providers and online software vendors, with a focus on their cloud strategy and go-to-market topics. Zoë holds a PhD in computer science from Yale University.
Abhijit Dubey is a partner in McKinsey's San Francisco office. Abhijit leads the firm's North American Software practice, and is also a core leader of McKinsey’s Cloud Computing initiatives. During his career, Abhijit has worked across a broad range of high tech industries including software, hardware, services, and datacenter providers with a focus on growth strategy, with particular expertise in the areas of cloud computing.
Darren Pleasance is a partner in McKinsey's Silicon Valley office and is a co-leader of McKinsey's High-Tech Practice. Darren leads the firm's North American TMT Sales and Marketing practice, and is also the founder of McKinsey’s global Small and Medium Business (SMB) practice. During his career, Darren has worked across a broad range of industries including high-tech, retail, telco, and financial services with a focus on go-to-market and growth strategy, with particular expertise in the areas of indirect channels and field sales.
Ashish Vora is an engagement manager in McKinsey's Business Technology Practice in Chicago. Ashish is a member of the McKinsey Cloud Computing Initiative, and has worked with clients in the financial services, healthcare, high-tech and non-profit sectors along a number of topics including growth strategy, IT strategy, IT outsourcing and offshoring, and IT infrastructure.