U.S - The SMB market landscape & IT opportunity


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US SMBs set to grow $575 billion additional revenue and employ 23 million additional people by 2020

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U.S - The SMB market landscape & IT opportunity

  1. 1. SMB Landscape of The United States of America This report is solely for the use of Zinnov Client and Zinnov Personnel. No Part of it may be quoted, circulated or reproduced for distribution outside the client organization without prior written approval from Zinnov
  2. 2. Agenda 1 U.S. SMBs: Key Business Trends 2 U.S. SMBs: Key IT Trends 2
  3. 3. Summary: Key Business Trends 42% contribution to GDP; $2.1 trillion revenue generated by SMBs 1 Massive Contribution to the U.S. Economy 2 SMBs Dominate Services Sector in Terms of Revenue and Employment Retail, HealthCare, Prof. Svcs.1, Food & Construction constitute ~60% SMB revenue & employment 3 Southern U.S. States Emerge as the Hub of SMB Concentration South U.S. states – led by Florida, Texas, Georgia – constitute more than 1/3rd of U.S. SMB activity 4 Significant Export Potential with Emerging Markets 5 Health of the U.S. SMBs Affected by Cash Flow Issues 6 SMBs Instrumental in Driving the Economic Recovery Increasing the SMB exports by value by 1.8X would generate additional ~$350B •~26% U.S. SMBs shut down in 2011 •Only about Half of the SMBs survive for 5 years SMBs to grow $575B additional revenue and employ ~23M additional people by 2020 *Prof. svcs. include scientific research, architecture, engineering, law, accountancy, advertising, MR, and consulting 3
  4. 4. 1 SMBs Make a Sizeable Contribution to the U.S. Economy No. of SMBs 28M Total SMB Base 2% ~0.6M 99.7% Of all U.S. Enterprises $2.1T 42% 6% ~1.6M Revenue from SMBs Contribution to U.S. GDP1 ~50% Revenue 92% ~25.6M 66% Medium $1.4T Medium (20-499) (20-199) Small (5-19) Small (5-19) Micro (1-4) Micro (0-4) 24% $0.5T 11% $0.2T Contribution to total Employment India US Australia China Contribution to GDP Very High Very High Medium Low Contribution to Employment Medium Very High Very High Medium Medium sized firms – constituting only 2% of SMBs (~0.6M) – generates a massive 2/3rd of SMB revenue (~1.4T) *Relative ratings Note: 1Contribution to GDP represents Non-agricultural GDP Source: U.S. Small Business Administration (SBA) data; U.S. Census Bureau 4
  5. 5. 2 U.S. SMB Market is Fragmented Across Verticals Retail & Wholesale Professi onal Services Construct ion Health Care 1 Food & Accommo dation Services Manufact uring Others2 % No. of SMBs 17% 13% 12% 11% 8% 4% 35% % SMB Employment 16% 8% 8% 15% 12% 9% 32% % SMB Revenue 15% 14% 10% 15% 5% 10% 31% Contribution of SMBs in Total Sector Revenue 47% 53% 79% 42% Services Manufacturing 89% 10% 1% % SMB Employment 90% 9% 1% 39% - Retail & HealthCare make up ~30% of SMB revenue & employment SMBs dominate enterprises in Construction, Food & Accommodation & Professional Services in revenue terms Agriculture, Mining % SMB Revenue 55% Retail, Professional Services, Construction & HealthCare forms more than 50% of SMBs U.S. SMBs dominate Services sector both in terms of revenue and employment 1Professional services 2Others include Source: include scientific research, architecture, engineering, law, accountancy, advertising, MR, and consulting; Agriculture, Mining, Utilities, Transport, Information, Finance, Real Estate, Education, Arts, and Entertainment U.S. Small Business Administration (SBA) data; U.S. Census Bureau 5
  6. 6. 3 Southern U.S. States Constitute over One-Third of Overall SMB Activity No. of SMBs Employment Revenue West U.S. States: WA-Washington; OR-Oregon; CA-California; ID-Idaho; NV-Nevada; UT-Utah; AZ-Arizona; MT-Montana; WY-Wyoming; CO-Colorado; NM-New Mexico West U.S. (W) 24% 23% 23% Total 7M SMBs Midwest U.S. (MW) 22% 23% 22% Total 6M SMBs Northeast U.S. (NE) 20% 20% 23% Total 6M SMBs Top 3 West U.S. States South U.S. (S) 35% 34% 32% Total 10M SMBs Northeast U.S. States: ME- Maines; VT- Vermont; NY- New York; PAPennsylvania; NH- New Hampshire; MAMassachusetts; RI- Rhode Island; CTConnecticut; NJ- New Jersey Top 3 NE U.S. States *all figures expressed as % of total 16% total no. of SMBs 15% total employment 17% total revenue California, Washington, Colorado NE MW W 15% total no. of SMBs 14% total employment 16% total revenue New York, Pennsylvania, New jersey Top 3 South U.S. States Top 3 Midwest U.S. States 10% total no. of SMBs 11% total employment 11% total revenue S 17% total no. of SMBs 15% total employment 15% total revenue Florida, Texas, Georgia Illinois, Ohio, Michigan Mid-West U.S. States: ND-North Dakota; SD-South Dakota; NENebraska; KS-Kansas; MN-Minnesota; IAIowa; MO-Missouri; WI-Wisconsin; IL-Illinois; Mi-Michigan; IN-Indiana; OH-Ohio New York (in NE U.S.) and California (in West U.S.) alone constitute ~20% of total SMBs, employment and revenue Note: Above classification done according to U.S. Census Bureau Source: U.S. Small Business Administration (SBA) data; U.S. Census Bureau South U.S. States: OK- Oklahoma; TX- Texas; AR- Arkansas; LALouisiana; KY- Kentucky; TN- Tennessee; MSMississippi; AL- Alabama; GA- Georgia; WVWest Virginia; VA- Virginia; NC- North Carolina; SC- South Carolina; FL- Florida; DEDelaware; MD- Maryland; DC- District of Columbia 6
  7. 7. 4 Significant SMB Export Potential Can be Realized by Increasing Focus on Emerging Markets SMB Contribution to Exports U.S. EU Challenges with U.S. SMB Exports 1 Limited Global Reach & Visibility % Businesses Exporting* 98% 99.8% ~60% SMB exporters posted sales to only one foreign market (mostly to Canada, Mexico, UK) % Revenue from Exports 33% 58% Only 5% SMBs export to India and 5% to Brazil, compared to ~40% to Canada Ratio 3:1 1.7:1 2 SMBs exporting to BRIC 25% 40% U.S. SMBs had little success exporting to the lucrative BRIC nations Lack of Export Initiatives by Govt. 85% SMB exports are dependent on U.S. Govt. to circumvent trade barriers and open foreign markets Majority SMBs feel the govt. should negotiate additional trade agreements and help with market access (esp. for India & China) Lack of Trade Agreements in place Lack of Knowledge of potential export markets due to limited SMB resources Language and Cultural Barriers to export esp. in case of India and China SMB’s Export Value can increase 1.8X to reach EU levels… …Potential revenue upside of $350 Bn *SMBs exporting as a % of all enterprises Source: U.S. International Trade Administration report; SBA Fact Sheet 2012 Germany (EU); USITC SME reports 7
  8. 8. 5 Cash Flow Issues Trigger a High SMB Mortality Due to Non-Supportive Banks and Government Policies… 26% U.S. SMBs shut down in 20111 Only about Half U.S. SMBs are able to survive for 5 years Cash Flow Issues due to Strict Credit Norms post down time SMB Growth Challenges 1 2 3 Non-supportive Government Policies drain out SMB funds Employment Issues and Shortage of Skilled Labor 61% SMBs feel U.S. economy affected their business negatively in 2011 32% cite budget constraints as major hurdle in their growth plans 3% decline in the total value of SMB loans in 2012 More than 70% SMBs feel Banks are averse to lending to SMBs 73% SMBs feel federal government is a hindrance to their business 40% feel no organization setup for SMBs (like SBA etc) are helpful Fiscal cliff policy2 (tax hikes and budget cuts), and compulsory Health Care insurance3 for employees will further dry up SMB funds 42% SMBs feel U.S. economy impacted 2012 hiring plans negatively 65% SMBs don’t plan to hire more in 2012 ~30% SMBs who intend to hire feel availability of skilled labor as a major barrier (for instance, hi-skill labor is required in manufacturing) Note: 1includes SMB closings plus bankruptcies; 2implemented since Jan 1, 2013; 3 to be implemented starting Jan 1, 2014 Source: Yodle Small Business Sentiment survey; NBC News; U.S. SBA data; Zoomerang SMB perspectives 8
  9. 9. 6 …But SMBs are Set to Act as Job & Revenue Generators and Drive the U.S. Recovery Post-downtime Employment Revenue Generation SMBs are set to grow ~$575B in Revenue and Add ~23M employees by 2020 2010 2015 $2.1T 2020 $2.4T $2.7T 2010 2020 55M 78M Note: 2015 and 2020 figures are based on Zinnov Projections using historic growth figures and future estimates Source: Bureau of Labor Statistics (BLS) Occupational Handbook; U.S. SBA data; U.S. Census Bureau; Zinnov Analysis 9
  10. 10. Agenda 1 U.S. SMBs: Key Business Trends 2 U.S. SMBs: Key IT Trends 10
  11. 11. Summary: Key IT Trends 1 SMBs have a Remarkable Level of Technology Infrastructure 2 Massive Addressable IT Opportunity for U.S. SMBs ~$260 billion (~90% incremental growth) is the total Addressable IT Opportunity for SMBs 3 Software & Services Show Impressive Growth at the Expense of Hardware Investments in Mobility, SaaS, and Security is driving Software & Services 4 Cloud Set to be the Core Focus Area for SMB IT Investments Instant Collaboration, Hosted Infrastructure, Security & Storage poised to grow 5 IT Vendors are Resorting to Unique Business Models to Attract SMB Customers ~90% SMBs have internet with broadband Vendors are offering bundled services and forging strategic alliances to enhance value 11
  12. 12. 1 U.S. SMBs show a Remarkable Level of Infrastructure Readiness Overall U.S. 79% Flat, no growth over 2011 90% 25M Broadband Penetration1 38% ~100M 90% 23M PC Ownership 93% ~10% plunge 85% 24M Smartphone Ownership 55% ~170M 90% 25M 22% YoY 46% rise in tablet shipments 65% 18M Internet Penetration Technology Infrastructure U.S. SMBs Tablet Ownership Internet infrastructure is strong for U.S. SMBs Smartphones & Tablets cannibalizing PC sales 1Broadband penetration as a % of internet users Source: AT&T’s SMB Report; NPD Connected Intelligence; Gartner estimates; Forrester estimates; SBA figures 12
  13. 13. 2 Huge Addressable Opportunity for IT Adoption by U.S. SMBs U.S. SMBs Overall ICT Spend U.S. SMBs already spend more on IT compared to Telecom $265B 53% IT Spend SMB’s spending in IT would further increase in future 6-8% $140B Telecom Spend Cloud & Mobility are driving IT investments 47% Includes Internet spend $125B 3-6% Future Growth Telecom spend is already tapering off & shifting towards IT Addressable SMB Opportunity ~$9,400 Average SMB IT Spend (2013) Source: 28M SMBs $263B SMB Total Addressable IT Opportunity IDC estimates; TechAisle Research; Gartner estimates; Zinnov analysis ~88% Incremental Growth over $140B 13
  14. 14. 3 Software & Services Related Market Set to Grow at the Expense of Hardware Spend Current Spend SMB IT Spend Areas 65% Hardware Mobile Apps important for SMBs on the go 1 60% YoY growth in SMB use of SaaS (2013 over 2012) 3 Mobility/Cloud would drive spend on Security ~50% SMBs intend to spend on security solutions $5.6B is the intended SMB spend on security in 2015 Source: Shift from PCs to Mobiles and Tablets 90% SMB Smartphone penetration 65% SMB Tablet penetration efficiency and saved time Shift from CAPEX to OPEX would drive SaaS < 0% Hardware Growth Inhibitors ~45% SMBs want more access to documents remotely 80% SMBs feel mobile solutions helped improve their 2 ~10% 35% Software & Services Software & Services Growth Drivers 1 Future Growth 2 Shift from On-Premise to cost effective Cloud 40% SMBs intend to shift from on-premise to IaaS servers by 2016 Mature SMB’s increased spending on Mobile Apps, SaaS and Server Virtualization is cannibalizing Hardware Spend IDC Estimates; AT&T’s SMB Report; Parallels U.S. Cloud Report, 2013; IDC Security Report 14
  15. 15. 4 Cloud Emerging as Core Focus Area for SMB IT Investments 70% $19B 13% U.S. SMB Cloud spend as a % of Total SMB IT Spend 19% 2013 U.S. SMB Cloud market Expected Growth in Cloud market by 2016 ($32B) Expected increase in SMB’s Cloud adoption by 2016 Reduce CAPEX and enhance affordability Key Reasons Increase IT Reliability Provide accessibility in mobile environment SMB’s Cloud Purchase Preference 68% SMBs prefer to buy Cloud Services as a part of “discounted” ICT Bundle When buying a Bundle, SMBs see internet as the lead service to anchor the bundle 75% SMBs prefer the current Internet access providers for Cloud Services Though 60% would switch to another provider if cloud services are not properly supported Source: Cloud Service Provider Selection Criteria 44% SMBs quote Reliability of Service (Egno downtime) as the most important criteria 41% SMBs see Quality of Service (Eg- speed of service transactions) as a criteria 31% SMBs consider Security – Network, Data, and Information important Parallels U.S. SMBs Cloud Report, 2013; Cisco U.S. SMB Cloud Watch; Zinnov Analysis 15
  16. 16. 4 Instant Collaboration, Hosted Infrastructure, Security & Storage are Expected to Drive Cloud Growth $6.8B $6.5B U.S. SMB SaaS Market (2013) 60% 2X YoY growth over 2012 10% YoY growth over 2012 Growth in SaaS market by 2016 14% CAGR till 2016 SaaS Growth Drivers 1 U.S. SMB IaaS Market (2013) Instant Collaboration for SMBs on the go IaaS Growth Drivers 1 Hosted Servers to shift from CAPEX to OPEX ~40% U.S. SMBs use instant collaboration software currently 30% new Hosted Servers to be added by SMBs by 2016 21% SMBs expected to adopt by 2014 40% SMBs to shift from in-house to hosted servers by 2016 2 Mobile SMBs to increasingly adopt File Sharing 2 Security increasingly gaining Prominence 37% U.S. SMBs currently use SaaS file sharing on the go 45% SMBs plan to add Security for hosted infrastructure 18% additional SMBs to adopt file sharing by 2014 50% SMBs cite security as a major concern in move to cloud 3 Cloud based Accounting to optimize cash flows 3 Storage driven by Optimization of utilization 31% U.S. SMBs currently use SaaS Accounting 25% SMBs use storage and backup as add-ons for IaaS 21% additional SMBs will adopt Accounting by 2014 More than 50% SMBs plan to add Backup for their IaaS Source: Parallels U.S. SMBs Cloud Report, 2013; Cisco U.S. SMB Cloud Watch; Zinnov Analysis 16
  17. 17. 5 IT Vendors are Exploring Unique Strategies to Tap the Market Potential A B Forge Strategic Acquisitions & Partnerships Providing Bundled ICT Services Target U.S. SMB Market Building Extensive Partner Network Easy IT Financing & Leasing Options C Innovative Partner Programs & Incentives D E 17
  18. 18. 5 A Vendors are Attracting SMBs by Bundling ICT Services to Provide End-to-End Solutions & Enhance Efficiency ~40% U.S. SMBs prefer to buy services as a part of an ICT Bundle rather than from multiple vendors Key Reasons Common software framework ensures Superior Network Performance & Enhanced Efficiency Ease of Installation, Use, and Management Internet access Accounting services Analytics / Storage Landline Voice ICT Bundled Services CRM services Security services IaaS / SaaS Lower Total Cost of Ownership Vendors offer Unique Bundles for SMBs Cisco offers Networking Bundles (Flex & Cross-Technology) to SMBs Cisco Partners can offer a higher value proposition to SMBs vis-à-vis competitors Cisco Rewards Program provides incentives to Partners selling Bundles HP Total Care Portfolio provided SMB Bundles for Security, Storage, and Networking solutions (in 2009) Vendors partner other Players for Bundles HP SMB IT in a Box bundles HP’s SMB PCs and Printers with Google Apps Cisco partnered with Plantronics to provide a UC bundle1 Dell has integrated Salesforce.com’s CRM with Microsoft Dynamics and Intuit Quickbooks for SMB Cloud Microsoft & Verizon (Voice & Internet) launched a UC bundle1 Note: 1UC: Unified Communication; Source: Cisco U.S. SMB Cloud Survey; ZDNet articles; ChannelInsider articles; CRN News; Zinnov Analysis 18
  19. 19. 5 B Vendors are Undergoing Acquisitions & Forging Partnerships to Provide Solutions in the SMB Space Vendors have been very active in undergoing acquisitions and partnerships for SMB solutions Intuit recently partnered mobile payment firm Square in an API deal Intuit integrated its Quickbooks accounting software with Square’s point-of-sale products to allow SMBs to feed mobile payment data automatically into their financial books Intuit’s Small Business Group acquired Demandforce, a SaaS Marketing firm for $425M in 2012 The acquisition allowed Intuit to add marketing and communication tools to its existing Cloud offerings aimed at SMBs Intuit had also acquired Homestead , a Website hosting firm for SMBs, for $170M few years back Source: IBM’s Cast Iron partnered with ADP’s TAXServices in 2010 for SaaS-based Tax Filings for SMBs IBM had earlier acquired Cast Iron Systems to bolster its cloud-based data integration capabilities Google partnered with Intuit & Local Governments for the U.S. Get Your Businesses Online (GYBO) GYBO provides SMBs free hosting for 1 year, free domain name, and access to Intuit’s website builder The initiative got ~300,000 SMBs online since 2011, and increased customer base of Google & Intuit Intuit website; Google website (GYBO); TechCrunch article; InfornationWeek; Zinnov Analysis 19
  20. 20. 5 C Vendors are Offering Easy IT Financing and Leasing Options to Ease Cash Flow Burden of SMBs SMBs want to Reduce CAPEX and Enhance ROI Banks & Brokers provide tougher credit terms to SMBs Shift from Purchasing to Vendor Financing and Leasing Vendors push SMBs towards product adoption Leasing helps SMBs update their obsolete IT infrastructure Vendors have Stepped up 0% Financing Incentives HP Financial Services offers 0%, 12month lease with $1 purchase Or 0%, 36month lease on HP equipment up to $250,000 Recently, HP launched Extended Finance Program for partners with 0%, 60-day repayment period In 2010, Cisco Capital in alliance with GE Capital allowed SMBs to lease hardware, software, bundled services & maintenance for 0%, 36 months and own it after that Source: IBM Global Finance is pumping $4B for In 2011, IBM launched custom Cloud, Analytics & Security offerings for SMBs financed by payments as low as $5 /user /month for 100 users (over 36 months) SMBs aimed at Cloud & Analytics offerings for 1-yr, no down payment and 0% interest Available for both IBM and non-IBM products IBM’s similar financing of $1B in 2011 bought 6,800 SMBs on-board HP website; Cisco website; CRN News; Ciol articles; ChannelNomics; IBM Newsroom; Zinnov Analysis 20
  21. 21. 5 D Vendors are Building Extensive Partner Networks to Target SMB Market Potential Indirect Channels facilitate more than 50% SMB Purchases Vendors with deficient reseller channels lose market share Self-help does not work for SMBs who need hand holding SAP is building its Channel aggressively to capture a bigger share of SMB Wallet Local resellers help vendors increase their Reach of SMBs Vendors like Lenovo have successfully exploited channels to gain SMB market SAP’s Rapid Deployment Solutions (RDS) to grow and enable its partner network to serve SMBs more effectively (2012) Partners generate majority of SAP’s 197,000 SMB base and ~35% SMB sales its Channel partners aggressively rather than direct selling SAP is on-boarding partners to build microvertical solutions on Business One. EgOrchestra builds specialized SMB solutions on Business One in beer & food industry SAP Business One’s revenue grew 20% YoY Source: Lenovo has been engaging and enabling Lenovo overtook Dell to attain No.2 spot in Lenovo saw a 30% increase in partners in North America U.S. PC sales Verizon has consolidated its partner initiatives with Verizon Partner Program to enable resellers to deliver to SMBs with more flexibility and short sales cycle (2013) SAP website; CRN News; ChannelNomics; IBM Newsroom; Zinnov Analysis 21
  22. 22. 5 E Vendors are Resorting to Innovative Partner Programs and Incentives to On-Board Partners and Push SMB Sales Innovative Partner Programs & Incentives Huge Commissions & Bonus to push sales Vendors have a host of Partner Programs & Incentives targeted at SMB Cloud Higher Reward Points per deal closure Vendors are evangelizing Partners through Trainings and Free-Trials MS Cloud Easy’s up to 38% commission on referrals to Office 365 helped regain lost customers MS integrated Cloud Essentials and Cloud Accelerate with MPN, making renewal for MSPs faster and easier; Rewarded high performing MSPs with sales incentives Led to 15k partners joining in 1 week; ~100k within 1 year in 2012 Lenovo offered partners & sales reps big cash incentives of ~$10,000 /quarter & SPIFFs based on deal closures for SMBs Source: Provide Trainings & Free-Trials to partners Lenovo website; CRN News; ChannelNomics; Zinnov Analysis HP LIFE (Learning Initiative for Entrepreneurs) trainings for SMBs around HP solutions (such as HP servers, switches) HP has invested ~$20M in 4 years; added 40 new training centers MS SMB Cloud Champions Club offers SIs trainings on Azure, ISVs 30 days free Azure accounts, and also allows partners access to MS events Generated ~1,000 partner cloud wins in 6 months; 25% jump in MSPs in 1 month 22
  23. 23. Conclusion: How to Win in U.S. SMB Market ? 1 Targeted Focus on the Mature SMBs in the Southern U.S. States* 2 Evangelize Cloud, Mobility and Security Solutions for SMBs 3 Provide Bundled ICT Offerings to Enhance Value for SMBs 4 Forge Strategic Alliances with Other Players to Provide Solutions for SMBs 5 Build Partner Capacity through Innovative Programs & Incentives 6 Address Cost Concerns of SMBs by Offering Lucrative Schemes & Engagement Models *Top contributing South U.S. include Florida, Texas, and Georgia 23
  24. 24. 69 "Prathiba Complex", 4th 'A' Cross, Koramangala Ind. Layout 5th Block, Koramangala Bangalore – 560095 Phone: +91-80-41127925/6 @zinnov First Floor, Plot # 131, Sector - 44, Gurgaon – 122002 Phone: +91-124- 4420100 info@zinnov.vom 3080 Olcott Street Suite A125 Santa Clara, CA 95054 Phone: 408-716-8432 21, Waterway Ave, Suite 300 The Woodlands TX – 77380 Phone: +1-281-362-2773 Meilifang Tower 4, Entrance 4, 10/F #1003, 11 Beiyuan Shuangying Road, Chaoyang District, Beijing China 100012 Level 42, Suntec Tower Three 8 Temasek Boulevard Singapore 038988 Phone:+65 6829 2123 Thank You This report is solely for the use of Zinnov Client and Zinnov Personnel. No Part of it may be quoted, circulated or reproduced for distribution outside the client organization without prior written approval from Zinnov www.zinnov.com