When you look at the adoption curves for cloud computing, something very clear jumps out: The most aggressive use of cloud technologies has been at the very upper end of the market (with large enterprises) and at the lower end of the market (with small businesses). Mid-market businesses have been markedly more cautious in moving critical business applications to the cloud. That dynamic may seem like a head scratcher at first glance, but it starts to make sense when you look more closely at the dynamics within each of these three types of customers.
Large enterprises have led the way with utilization of the cloud for a variety of reasons. They have IT departments big enough to investigate new technologies and implement pilot projects to test them. They have a larger suite of applications, giving them a greater need to move computing loads to the cloud. And they also have deep pockets for getting all the help they need for successfully utilizing new technologies. As a result, large enterprises typically have a highly sophisticated use of the cloud, with a hybrid cloud approach that utilizes the best type of solution for the applications at hand.
Small businesses typically are not at the vanguard of new technology adoption, but the cost benefits of using the public cloud combined with the ability to offload ownership of IT infrastructure to third-party vendors have proven to be an irresistible value proposition for small business owners and their micro-sized IT teams (that are often one and the same as the business owner). For this slice of the market, moving applications to the cloud is an instant money-saver and headache-eliminator.
But what about the mid-market, which doesn't have the resources of large enterprises yet has more complex IT needs than small businesses? This large slice of the cloud market has been much more hesitant to go all-in on the cloud. Mid-market companies overwhelmingly have pilot projects involving outsourcing of select applications to the cloud, but the level of adoption has lagged far behind their much larger and much smaller peers. I believe that mid-market gap is about to change in a significant way over the next six to 12 months, and it represents an enormous opportunity for cloud services providers that can meet the very specific needs of this size customer.
Let's take a second to look at the size of this market, which too often gets overlooked by the telecom industry because of the size of lucrative enterprise accounts and because of the sheer number of small businesses that bracket the mid-market. There are nearly 200,000 mid-market businesses in the US economy, which represents tens of millions of employees who rely on a sophisticated set of telecom and IT services for their day-to-day jobs.
Companies that provide cloud and IT services typically split their businesses into a business unit that serves the upper end of the market with a high-touch account structure aimed firmly at the biggest of the big enterprises, and a business unit that serves the small business market with a retail mass-market approach that bundles a set of pre-packaged services to small businesses in largely the same way telecom companies serve residential customers.
Mid-market customers too often fall through the gap between those two models, with pricing that is too high and services that are too complex on the enterprise side versus inadequate support and offerings on the small business side. That is particularly true for cloud services, which are designed with the two extremes of the market in mind and too little attention paid to the middle of the market represented by those 200,000 businesses.
Telecom and IT providers that don't focus on the gap between those two ends of the market will miss out on the next big wave of cloud adoption, because all indications point to much more aggressive cloud implementation by mid-market companies now that they are completing pilot projects and are ready to start transitioning critical business processes to the cloud. It's important for this category of company to have proper support because unlike large enterprises, a mid-market company typically does not have the depth of in-house talent to move ahead without significant external help. They need service providers to serve as an extension of their internal team as they move more IT processes to the cloud, which is exactly why the mid-market has been underserved.
Because each mid-market company is a unique case in terms of how the cloud will be used and how far along they are in cloud adoption, providers can't use a one-size-fits-all approach with a pre-packaged cloud solution. This size company needs tailored services and providers who are willing to be true partners.
One of the things that makes mid-market companies unique when it comes to the cloud is the financial driver behind it. Unlike small businesses that are often seeking to cut specific line items in their IT budget by moving to the lowest-cost public cloud services available, mid-market companies have much more complex objectives. They are bogged down in high costs of IT across the board because of the overall complexity of the systems they have adopted over time. Utilizing the cloud isn't simply about cutting a specific bill. It's about a more fundamental streamlining of IT operations that makes IT less of a burden and better aligned with where the company is headed -- while also cutting costs in the process. In this way, adoption of the cloud isn't just about moving more stuff to off-site servers; it's about a major rethinking of IT strategy and laying a foundation for the future.
That makes cloud adoption a strategic initiative, not just a tactical one, and they need partners who are willing to see the project in the same terms. One of the first ways that plays out is in key decisions early on about whether and how to use a hybrid cloud model. Mid-market companies typically require a hybrid cloud strategy that matches their specific needs to the appropriate mix of public cloud services and private cloud services. However, these companies typically have little experience with a hybrid model because their pilot projects typically have been conducted with either a public cloud service or a private cloud service. For the vast majority of these customers, the right strategy is not going to be either public cloud or private cloud. It is going to be a mix of the two that is based on their IT needs, their budgets and other factors unique to their business.
These decisions may seem second-nature to us service providers and may also seem clear to large enterprises we have worked with who have had the means to explore the use of multiple cloud scenarios, but that is simply not the case for most of the mid-market. For mid-market companies that have only experimented with the public cloud, they may not understand that for many applications the public cloud's reliance on the public internet is a recipe for poor performance, worrisome security vulnerabilities and a number of other headaches. After all, it's the same Internet that your kids are using to stream movies and post selfies on Instagram. Those issues may have been tolerable when companies were just experimenting with the cloud for non-critical applications, but it is a very different situation when mission-critical applications are brought into the equation.
Conversely, a purely private cloud approach simply isn't practical for this type of customer due to the higher cost typically involved with an all-private implementation. For the mid-market, a blended approach is often the most appropriate solution, and that must be carefully tailored to a customer's needs and then adjusted over time.
Without the deeper resources of large enterprises, mid-market companies must rely on the knowledge and support of their cloud services provider to navigate the complex decisions about when and how to deploy SD-WAN. The mid-market is poised for explosive growth in its adoption of the cloud, but companies in our industry shouldn't use a two-sizes-fit-all approach to working with these customers. Neither the large enterprise model nor the small business model works for the unique needs of mid-market customers, and it is our responsibility to provide more customized services that meet their needs in a thoughtful and flexible way. The next year is a critical period for the mid-market's embrace of the cloud, and it will take effective collaboration between customers and telecom providers offering the right set of hybrid cloud solutions to meet their specific needs.
— Mike Kozlowski, Vice President, Product Management, Enterprise Business Unit, Windstream