Cloud computing market in key emering countries

Cloud Computing Landscape in Key Emerging Markets
November 2010

Global IT spending is springing back after a decline last year with a strong push from BRICSS markets
1
IT Spend Growth Trend by Regions/ Countries, 2010, In Constant Currency
Emerging markets such as Brazil, Russia, India, China, South Africa & South Korea (BRICSS) have shown tremendous growth in the IT investments over the last 12 months
BRIC countries have been growing faster compared to others for the last few years primarily owing to faster growth of user industries in these markets
Source: Zinnov Research

BRICSS nations contribute significantly towards the IT spend globally
2
Split of IT Investments by Category, US$ Billion in 2010E
$86.8
IT Spend Contribution by BRICSS Countries, 2010E
$21.8
$21.3
$15.4
$15.4
$9.4
Worldwide IT Spend (2010E) = US$ 1.51 Trillion
Source: World Bank, Zinnov Research

Characteristics of the BRICSS nations are unique and mandate an altogether different approach
3
Highly Demanding Market
Rapidly Changing Market
1
2
Most value for least price is expected
Product should enable revenue generation
No need of advanced features – work should get done
Education about consumption – user friendly
Variance in needs based on demography/ location
Need for localization - tailor product to market needs
Attach to local brands/ channels for market acceptance
Diversity
Limited Income/ Revenue
3
4
Large base of SMBs; fast growing enterprises
Young generation make 50% of the population
Huge market for “cool” product, entertainment & communication devices
Revenues lesser than counterparts in developed nations
Smaller/ compact models with variants preferred
Pay per use models thrive in emerging markets
Products for community/ group succeed for cost reason
Poor Infrastructure
Weak Distribution Network
4
6
Limitations of climate, infrastructure and resources such as power
Need to build infrastructure to support the business
Need to use existing infrastructure creatively
Lack of strong supply & distribution network
Lack of financing options – Microfinance required
Position smaller stores, telcosand other channels for reach
Source: Zinnov Research

CIO organizations’ top business and technology priorities, clearly spell out a future in cloud for the market constituents
4
Top Business Priorities for CIOs in 2010
Top Technology Priorities for CIOs in 2010
1
Business Process Improvement
Virtualization
2
Reducing Enterprise Costs
Cloud Computing
3
Increasing Use of Information/ Analytics
Web 2.0
4
Improving Enterprise Workforce Effectiveness
Networking, Voice & Data Communications
5
Attracting & Retaining New Customers
Business Intelligence
6
Managing Change Initiatives
Mobile Technologies
While IT budgets increase at a fast pace, storage demand is growing at 20-30% and bandwidth demand is increasing at a fast pace of 30-50% in BRICSS nations, clearly mandating need for higher cost control from the IT departments within the enterprises – cloud is the way forward
Source: Zinnov analysis of interactions with CIOs of multiple Global & local companies

The cloud market in BRICSS nation is slowly starting to come out of the nascent stages
5
Evolution of Public Cloud Spending (US$ Million) in BRICSS Nations 2008-2011E
Country Wise Share of Public Cloud Spending in 2010
$688.0
$457.4
$310.8
SaaS
Small and medium businesses are a key focus area for majority of the players looking to scale in BRICSS
The key SaaS adopting verticals in BRICSS are Telecom, Financial services, Government, Manufacturing, etc.
PaaS
The PaaS/ Platform ecosystem in BRICSS is still in its early stages with very less local company participation
Most of the local developers leverage global platform providers such as Force.com, Google, Azure etc in the current landscape
IaaS
The IaaS & Hosting ecosystem in BRICSS is very nascent. The hosting market is completely dominated by the state run telecom companies and has very few small or mid-sized hosting providers
Source: Zinnov interactions with stakeholders across the cloud computing stack across geographies

The BRICSS cloud ecosystem plays host to a lot of global companies across the cloud computing stack who are increasingly focusing on these markets
6
Illustrative List of Key Players (non-exhaustive)
Salesforce.com
WebEx
NetSuite
RightNow
Oracle
Microsoft
Citrix
Google
Yahoo
Symantec
McAfee
Zoho
TrendMicro
Software as a Service (SaaS)
Focus of Top Global 150 Cloud Computing Companies
Force.com
Google
Microsoft
Zoho
Joyent
Platform as a Service (PaaS)
Amazon Web Services
Power All
Rackspace
Infrastructure as a Service (IaaS)
IBM
Oracle (Incl. SUN)
Microsoft
EMC
RedHat
HP
VMWare
NetApp
Juniper
Symantec
Cloud Technology Enablers
IBM
Dell
Cisco
Alcatel Lucent
Hardware Providers
HP
Huawei
Nokia Siemens Networks
Source: Zinnov research & estimates based on preliminary interactions with key players in the market

7
While BFSI, Telecom & Government are the priority verticals in BRICSS, other verticals are also fast catching up
Key Vertical Focus for Cloud Solutions in BRICSS Countries
Focus
Low
High
Source:

The future of cloud market in BRICSS countries is very strong with growth rates well over 25% for the next 5 years
8
Growth of Public Cloud Spending in BRICSS Nations 2010-2015E
$3,480.8
CAGR = 38.3%
Current cloud budget of enterprises in BRICSS countries is less than 50% of the budget of developed nations such as US & Western European countries
More than 50% of enterprises/ SMBs in India & China are looking to increase the IT investments over the next year
Private cloud opportunity in the immediate future to be significantly larger because of concerns around SLAs, data security and latency
Cloud vendors across the stack would be investing heavily to address some of the challenges on demand side
$688.0
Source:

BRICSS ICT ecosystem is continuously improving on multiple fronts which is enabling increased adoption of cloud services
9
Governments in BRICSS are extremely active participants in the Cloud ecosystem
The government is actively promoting cloud computing through construction of various testbeds and the launch of multiple cloud service initiatives such as e-governance, cloud grids etc.
1
Telecom Service Providers are aggressively focusing on the cloud opportunity
With fast growing subscriber base and declining Average Revenue Per User (ARPU), the Telecom Service Providers (TSPs) are looking at targeting the cloud computing opportunity
2
Internet Infrastructure is increasingly gaining traction in BRICSS
The penetration of broadband and 3G is building a promising opportunity for cloud solutions in the BRICSS nations
3
Large base of cost sensitive small & medium enterprises looking for IT adoption
A large base of SMBs (closed to 100 million in BRICSS nations alone) are looking to enhance the global competitiveness by increasing use of IT
4
Source: Zinnov Analysis

Governments in BRICSS are aggressively promoting cloud computing through multiple policies and partnerships (1/2)
10
Huge investments in e-governance initiatives in India; administrators in India are trying to implement cloud computing in e-governance
Government is making headway into the cloud computing space by conducting various awareness programs for its IT departments
UID Authority is creating a platform (identify, authentication and payment) onto which they would like to get solution providers and startups
India
Stimulus package of US$ 39 Bn to positively impact the IT spending of various industry verticals
Specific focus on cloud computing in the 12th five year plan
E-governance spending on a fast pace in China with a strong focus on cloud; 12 large golden shine projects towards e-governance initiatives
China
The Korean government plans to invest about US$ 540 Mn till 2014 to stimulate the domestic cloud computing market
Key goals of the government are to globally increase the Korean cloud market share to 10% and reduce cost of public ICT infrastructure by 50%
Initiatives across public sector IaaS, cloud computing test beds, facilitating private sector services, and policy regulations/ standards implementation
South Korea
Source: Zinnov analysis of Government’s Policy Updates; Official press releases by Ministry of IT

Governments in BRICSS are aggressively promoting cloud computing through multiple policies and partnerships (2/2)
11
Starting to consider projects involving cloud computing technology by hosting services online. IT is moving from paper-based ledgers to state-of-the-art systems
Advanced public service agencies such as SARS are running cloud based technologies in their environments
The Department of Home Affairs (DHA) has announced that it will spend more than SAR500 Mn on IT projects in the current financial year
South Africa
Government is trying to diversify the Russian economy by reducing its dependence on oil and gas exports. It has made developing hi-tech sectors and encouraging research the focal point of the economic agenda
Expansive projects like "Electronic Russia" and "Electronic Government“
Government is currently developing a modern center for R&D near Moscow and the first innovation project is a cloud computing based project worth US$29 million
Russia
Huge investments in the national broadband plan to triple access to broadband services by 2014
Similar to India’s UID project, the government of Brazil has a civil digital identification project with projected investments of approximately US$800mn
As a part of its ongoing Growth Acceleration Plan – 2, the government plans to spend US$23 billion on science and technology with a focus on cloud computing
Brazil
Source: Zinnov analysis of Government’s Policy Updates; Official press releases by Ministry of IT

Mobile & 3G subscribers have grown significantly in the BRICSS nations
12
Mobile Subscribers & 3G Users in BRICSS Nations (Millions)
BRICSS nations are going through a mobile revolution – rapidly growing subscriber base. India alone adds 20 Mn new subscribers every month (fastest in the world)
BRICSS nations are jumping the technology curve – moving directly to wireless instead of wire line. Aggressive focus by government in BRICSS to build the 3G infrastructure
Source: Zinnov Analysis of Statistics from Telecom Providers in Each Country

Rapid growth of internet users provide promising opportunities for cloud based solutions in the BRICSS nations
13
Internet Users in BRICSS Nations (Millions)
BRICSS nations are witnessing a rapid penetration of internet over the last 5 years – Government & industry are aggressively focusing on providing internet in rural areas as well
Newer form factors such as mobile devices, touch pads & net books are slowly giving way to the desktops & laptops in these markets
Source: Zinnov Analysis of Statistics from Internet services Providers in Each Country; Zinnov research

Small & mid sized businesses (SMBs) form an important part of the economy in these countries and present a huge opportunity for cloud adoption
14
Small & Medium Sized Businesses (SMBs) in BRICSS (Millions)
Large base of small & medium enterprises – close to 100 million in BRICSS nations
SMBs account for close to 40% of exports and output in both India & China; accounts for 97% of the total enterprises in the country
While SMBs are slowly gearing up towards IT adoption to enhance competitiveness, cost constraints and lack of budget planning are the restraints to IT adoption
Source: World bank; Zinnov research

While the ecosystem is evolving, BRICSS nations by the virtue of large size, distributed SMB base and highly localized requirements poses unique challenges to cloud providers
Majority of the global cloud companies selling in BRICSS are offering the services at the global price points, with the exception of a few players
The global price points significantly overshoot the buying power of enterprises in BRICSS
Most of the Cloud services firms operating in BRICSS are aggressively SMB focused and they lack the sales bandwidth to effectively cater to the large base SMBs distributed across the country
Most of the sales efforts of the companies are focused toward the metro areas
15
Cloud Service Provider Challenges in BRICSS Countries
Lack of Scale
Pricing
ProductLocalization
ResellerLeverage
Due to the lack of in-house sales bandwidth, companies are increasingly relying on reseller partnerships
Majority of the companies do not have a clearly defined reseller strategy to cater to the market. In many cases the reseller is also engaged in promotion of a competing cloud or on-premise product which also hampers the adoption
Low proliferation of English and regional dialects hamper the adoption
Also, the nature of business in BRICSS is predominantly relationship based
The cloud products/ services do not account for these nuances which impact their uptake
Source: Zinnov analysis of Interviews with multiple senior stakeholders from the cloud ecosystem

From the demand perspective – Security and Integration are the top concerns with using public cloud services
16
Public Cloud Service Concerns of CIOs, 2010
The CIO organizations are more cautious about data confidentiality & security
There is a strong skepticism around business continuity for cloud deployments
The seamless integration is crucial for leveraging cloud technology to the maximum. In the current scenario, the compatibility issues hinder the integration
The loss of control on the business processes is another concern which slows down the cloud adoption
The cloud computing market is in nascent stage. The ecosystem of academia, enterprises and government is essential to facilitate the cloud adoption
There is lack of service level agreements and guarantees by the providers which adds to the user skepticism
The regulations and policies are not very well defined. Also, the industry lacks standardization frameworks
More clear regulations are needed to increase service providers’ accountability to gain consumer trust
The government poses stringent regulations and auditing requirements in some of the BRICSS countries. This makes the potential customers hesitant and inhibits the cloud adoption

Cloud service providers have adopted unique and differentiating approaches to succeed in some of these fast growth BRICSS countries
17
1
Go Local – Language & Pricing localization for better market penetration – SuccessFactors, Salesforce.com
2
Local Infrastructure Presence – To showcase market commitment & remove latency issues – Salesforce.com, Amazon AWS
3
Local R&D Presence – For better market understanding & acceptance – IBM, Dell, HP, Microsoft, SuccessFactors
4
Aligning Strategy to Government Policy – For better revenue realization – IBM
5
SMEs Penetration – Extremely critical for scaling in the market – HP, Microsoft, Salesforce.com
6
High Touch, Local Field Sales Team Essential – For better market reach – Microsoft, Salesforce.com
7
Special Economic Zones/ IT Parks – To enable conducting business easier & market acceptance – Joyent, IBM, Google
8
University Partnerships – For local product innovation & ecosystem development – Google, EMC, IBM
9
Telecom Service Providers – For gaining immediate market foothold– Leading Telecom Providers in BRICSS
10
Increasing Private Cloud Adoption – To leverage legacy investments & mitigate security risk – Dell, IBM, HP
11
Alliances – Critical to operate in the market & reach out to potential customers – IBM, Dell, Oracle, Microsoft

In a market with close to 3 billion population, partnerships – both strategic and operational, are extremely critical
18
1
2
3
4
Operational Partnerships
Strategic Partnerships
5
6

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Cloud computing market in key emering countries

by NASSCOM EMERGE Forum on Nov 19, 2010

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