SMBs are the Low Hanging Fruit in the Corporate Cloud Computing Market, but is this Anything New?

With enterprise business moving at a very slow pace, it looks like ISVs are increasing their efforts to persuade SMBs to make the jump to cloud SaaS offers. This heightened activity should not be read as a change in focus. As far back as 2011, Microsoft published an article titled How to Sell Office 365 to SMB Customers. Google, in turn, claims 5 million customers on its Google Apps for Business web site. The Google Apps for Business customers featured on the web page appear to include a number of smaller businesses.

But the driver behind this new effort may be a renewed confidence of a substantial amount of additional sales potential in the SMB market segment for these offers. In a post to Microsoft’s “Fire Hose” news blog on its TechNet web site titled Survey shows that most small businesses feel the need to keep up with technology, but many have yet to adopt the cloud, some results of a survey, sponsored by Microsoft® and performed by Ipsos Public Affairs, of 500 SMBs point out “60 percent surveyed do not use cloud technologies”.

So, is it safe to infer the 60% not using cloud technologies amount to sales targets? If the actual market size is, as the survey claims, 28 million businesses in the US, then almost 17 million sales targets are out there waiting to be signed up.

But, hold on, the survey includes another very important statistic: of the 28 million businesses in this segment in the U.S., 92% of them, nearly 26 million, have fewer than 4 employees. Keeping an eye on just how small the majority of these SMBs actually are, then I think it makes sense to carefully calibrate just how much additional potential there is in this market segment.

What if this market segment follows the same pattern as the enterprise segment? If a mere 40% of the remaining uncommitted businesses sign up by, for argument’s sake, by 2016, then we aren’t looking at a really meaningful amount of additional revenue potential, especially when one considers the competition for those sign ups (16.8 million x 40% = 6.8 million x $20 per month = approx. $16 billion annual run rate / 2? or 3? players)

Based on this survey, the new focus (which both of the main competitors in this space, Microsoft and Google, appear to have adopted), and my math, the recent re-calibration of market valuations for a number of these cloud SaaS offers, downwards, looks very sensible to me.

How about you?

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

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