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.

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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 performancemonitoring 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.

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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

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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

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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 revenuegenerating products and services for companies with <100 employees (see Figure 3).

FIGURE 3
Reasons for Moving to Cloud by Company Size
Q.

Of the following potential reasons for moving to the cloud, which are considered important
drivers that you expect to achieve?

n = 1,109
Source: IDC's Cloud Track Survey, 2013

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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.

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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.

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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

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About IDC
International Data Corporation (IDC) is the premier global provider of market intelligence, advisory
services, and events for the information technology, telecommunications and consumer technology
markets. IDC helps IT professionals, business executives, and the investment community make factbased decisions on technology purchases and business strategy. More than 1000 IDC analysts
provide global, regional, and local expertise on technology and industry opportunities and trends in
over 110 countries worldwide. For more than 48 years, IDC has provided strategic insights to help our
clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading
technology media, research, and events company.

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