May 2014, IDC #248297

Customer Needs and Strategies

Buying into the Cloud: Customer Insights for the Channel

Marilyn Carr

IDC OPINION

Cloud services encompass public and private cloud services, IT hardware and software that enable

building/running cloud services, and services that support adoption, development, integration, and

management of cloud. This means there is substantial revenue opportunity for partners, regardless of

their chosen niche, if they pay attention to customers' cloud perceptions and needs. IDC forecasts that

worldwide spending on cloud professional services will reach $15.3 billion in 2015, which is almost

double the amount of spending in 2012. There is also a continuing trend away from partner reliance on

resale revenue in favor of services. IDC believes that partners that aren't well on the path to cloud

services need to take a close look at their business model. IDC's 2013 Cloud Track Survey,

encompassing 1,109 respondents from North America and Europe, reveals several useful customer

insights for partners:

Only 33% of companies with 1 99 employees believe they have adequate internal IT

knowledge of cloud standards and industry best practices. This rises to 51% for companies

with 1,000+ employees; however, it reveals a tailor-made opening for partners to offer cloud

strategy and preparation services.

Among companies with 500999 employees, slightly less than half (47%) feel they are able to

foster collaboration between business and IT leaders when it comes to evaluating and

selecting cloud solutions. That's why IDC believes partners have a natural role to play in

bridging the relationship between IT and business functions.

The top reasons for moving to cloud are very similar across all sizes of company. This means

that partners can arm their sales force with one set of value propositions that can open a

conversation with virtually any potential customer.

The majority of organizations (59%) look to their cloud provider for planning, assembly,

integration, and ongoing management of cloud, rather than relying strictly on their own IT staff.

Most companies (74%) expect to have a single cloud provider for infrastructure, platform, and

applications.

2014 IDC #248297 1

IN THIS STUDY

This study presents a perspective on customer cloud readiness, reasons for moving to cloud, and the

use of external resources for cloud planning and implementation. It also provides essential guidance

for channel partners that are currently offering cloud services and solutions or are considering entering

the cloud market.

Methodology

Data used in this study was collected from IDC's Cloud Track Survey, which is a Web-based survey

with 1,109 respondents spanning five countries across North America and Europe. The respondents

were business users and IT professionals from organizations already using cloud services or with firm

plans to implement certain cloud services within the next 12 months. Respondents were all VPs or at

the director level or higher and were at least very knowledgeable about their organizations' decisions

related to purchasing and managing of IT products and cloud computing services.

Note: All numbers in this document may not be exact due to rounding.

SITUATION OVERVIEW

Cloud services encompass public and private cloud services, IT hardware and software that enable

building/running cloud services, and services that support adoption, development, integration, and

management of cloud services. This means there is substantial revenue opportunity for partners,

regardless of their chosen niche.

There is no doubt that cloud solutions have gained considerable traction, but the IT departments of

potential customers still have some readiness gaps. The size and nature of the gap varies depending

on the size of the company (see Figure 1).

Overall, small companies feel least prepared for cloud from an IT perspective, likely because they

don't have many, if any, dedicated IT resources. Only 33% of companies with 199 employees believe

they have adequate internal IT knowledge of cloud standards and industry best practices. This rises to

51% for companies with 1,000+ employees; however, it reveals a tailor-made opening for partners to

offer cloud strategy and preparation services. Partners also have an opportunity to offer performance-

monitoring dashboards so that IT staff within larger customers can keep tabs on the cloud component

of their infrastructure.

Partners also play a natural role as trusted advisors as IT makes the move to incorporate cloud

applications and infrastructure.

For an organization as a whole, there are also several areas of concern that provide insight into some

actions partners can take to accelerate the sales cycle (see Figure 2):

It is very important to have firsthand experience with cloud. Partners that use cloud

applications and infrastructure within their own business are the only credible advisors about

how to use it to drive business innovation.

2014 IDC #248297 2

Partners have a natural role to play in bridging the relationship between IT and business

functions. That's because partners are realizing the power position the line of business (LOB)

holds in technology decision making. They can help broker collaboration between IT and

business leaders and smooth the transition to cloud.

The move to cloud can be a significant business decision; therefore, return on investment and

cost/benefit analysis are important inputs. Many vendors provide these tools as partner

resources, and many successful partners have developed their own readiness assessment

guides. Utilize these as early as possible in the sales cycle.

FIGURE 1

IT Department Cloud Readiness by Company Size

Q. Thinking about your organization's readiness to execute its cloud strategy,

please indicate whether you believe the current IT staffing, processes, tools,

and skills are ready to support your cloud strategy.

n = 1,109

Source: IDC's Cloud Track Survey, 2013

2014 IDC #248297 3

FIGURE 2

Organizational Cloud Readiness by Company Size

Q. Considering your organization's overall IT and line-of-business mindset,

governance process, tools, and skills, please indicate whether you believe

the following are ready to support your cloud strategy.

n = 1,109

Source: IDC's Cloud Track Survey, 2013

2014 IDC #248297 4

It's very important to know why a potential customer is considering moving to the cloud, in order to

frame both the sales conversation and the proposed solution. The top reasons are very similar across

all sizes of company. These include access to more business functionality and opportunities to reduce

expenses or increase revenue. There are a few differences, such as a higher desire to improve

resource utilization among companies with 500999 employees and a focus on building revenue-

generating products and services for companies with

2014 IDC #248297 5

Partners can use this data in several ways:

Develop probing questions for sales calls. Credibility increases immensely if sales staff can

have a business-oriented conversation. Arm them with a checklist that covers the main

reasons why companies are considering a move to the cloud.

Provide case studies. Many customers want to know how someone else has already achieved

success via a cloud solution. Case studies that are tailored to each major cloud objective (or

that encompass several motivations) demonstrate feasibility and describe the path and the

journey. These might be examples provided via a vendor's partner program resources, but

they are even more powerful if they are a partner's own success stories.

Appeal to the desire to be a leader, but make it painless. The range of functionality accessible

via cloud solutions provides the opportunity for a customer to show that its company is fully

part of the 21st century. However, customers don't always know how to get there or even how

long the transition from their legacy systems will take. Partners need to show them how quickly

they can be up and running, and how little the transition will disrupt "business as usual."

Partners tell us that "try before buy" is often a help.

The good news is that the majority of organizations (59%) look to their cloud provider for planning,

assembly, integration, and ongoing management of cloud, rather than relying strictly on their own IT

staff (see Figure 4). However, even though some customers plan to utilize their own employees for

cloud implementations, there is still an opportunity for partners to offer advisory and educational

services to in-house staff or set up an ongoing relationship for ad hoc questions and advice.

Even more good news is that the professional services component of cloud budgets is generally equal

to what is spent on the subscription (see Figure 5). This might be lower in order of magnitude than for

on-premise projects, but partners tell us that cloud services are usually highly profitable because they

can be delivered remotely and enable significant leverage for high-cost, high-value resources. The

subscription or recurring revenue side of the pie is also an extremely lucrative annuity. The bottom

line is that professional services certainly don't go away when partners take on cloud solutions.

2014 IDC #248297 6

FIGURE 4

Use of External Resources for Planning, Assembly, Integration, and/or

Management of Cloud

Q. Generally speaking, how have you built your cloud? For what percentage of your

planning, assembly, integration, and management is your organization using

in-house resources versus an external vendor?

n = 1,109

Source: IDC's Cloud Track Survey, 2013

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FIGURE 5

Cloud Budget Spent on Professional Services Versus Subscription over

the Past 12 Months

Q. Considering your total spending over the past 12 months, what percentage

represents the professional services component and what percentage represents

the subscription component?

Source: IDC's Cloud Track Survey, 2013

Figure 6 provides a perspective on who customers intend to work with for their cloud solutions. There

are several messages apparent in this data:

An established relationship is a gateway to cloud. The fact that it is important for most (88%)

customers to have an established relationship with a vendor in order to trust the vendor as a

provider of cloud services is good news for on-premise partners that are adding cloud to their

portfolio. A good way to build out a cloud business is to start with existing "friendly" clients that

are willing to be the first customers.

Customers expect a one-stop shop. Generally, customers would prefer not to have to juggle

multiple contracts and negotiations for their cloud requirements. Partners need to find a way to

offer a comprehensive portfolio, but this doesn't mean all expertise needs to be under one

roof. Rather, expanded capabilities can be achieved through alliances, resale relationships,

and partner-to-partner cooperation.

Innovation changes the game. Small partners can and are being very successful in the cloud.

This is particularly true for "born in the cloud" companies that don't have any 2nd Platform

baggage and therefore offer a clean slate for innovation. However, differentiation is important

for all partners because cloud can commoditize traditional offerings.

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FIGURE 6

Use of Cloud Vendors

Q. To what extent do you agree with the following statements about your organization's

usage of external cloud vendors?

n = 1,109

Note: Data represents those respondents that "agree" or "agree strongly."

Source: IDC's Cloud Track Survey, 2013

FUTURE OUTLOOK

Cloud is here to stay. IDC forecasts that worldwide spending on cloud professional services will reach

$15.3 billion in 2015, which is almost double the amount of spending in 2012. There is also a continuing

trend away from partner reliance on resale revenue in favor of services. IDC believes that partners that

aren't well on the path to cloud services need to take a close look at their business model.

ESSENTIAL GUIDANCE

Cloud momentum is driving customer demand. Successful partners will align with both the demand and

the customer preferences with respect to how they want to consume and pay for their cloud services.

The not-so-secret secret lies in understanding the customers and their cloud hopes and fears.

2014 IDC #248297 9

Actions to Consider

Tell stories, leverage real examples. From the customer's perspective, it's much easier to try

something new if you know that others have already walked down the path. Partners need to

build confidence by documenting customer success stories and arranging onsite reference

visits for cloud prospects.

Unburden the customer. Cloud is supposed to make life easier, but sometimes customers

can't see how to get there. A powerful value proposition for cloud is the opportunity to free

internal IT staff to work on strategic activities or completely outsource core IT responsibility for

smaller businesses. But you have to help the customer see the end of the tunnel by providing

a clear road map.

Jump in with both feet. It is completely feasible to add cloud to an existing on-premise

business, and the hybrid world is in fact a reality for many customers. But it's important to

choose and commit to a cloud strategy. Consider how best to differentiate and how to round

out a basket of services. Customers will only have confidence if you are confident yourself.

LEARN MORE

Related Research

Cloud Partner Transformation: Software Vendors (IDC #244417, November 2013)

Cloud Partner Transformation: Resale and Referral (IDC #244187, October 2013)

Cloud Partner Transformation: Training and Support Services (IDC #243945, October 2013)

Cloud Partner Transformation: Hosting, Outsourcing, and Managed Services Providers (IDC

#243754, October 2013)

Cloud Partner Transformation: Business Consulting Services (IDC #243609, October 2013)

Cloud Partner Transformation: IT Consultants and Integrators (IDC #243421, September

2013)

Cloud Partner Transformation: Sales, Marketing, and Business Strategy (IDC #241349, June

2013)

Synopsis

This IDC study presents a perspective on customer cloud readiness, reasons for moving to cloud, and

the use of external resources for cloud planning and implementation. It also provides essential

guidance for channel partners that are currently offering cloud services and solutions or are

considering entering the cloud market.

"There is substantial revenue opportunity in the cloud for partners, regardless of their chosen niche, if

they pay attention to customers' cloud perceptions and needs." Marilyn Carr, director, Software

Channels research

About IDC

International Data Corporation (IDC) is the premier global provider of market intelligence, advisory

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over 110 countries worldwide. For more than 48 years, IDC has provided strategic insights to help our

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