Parallels SMB Cloud InsightsTM

Global Headquarters500 SW 39th Street,Suite 200Renton, Washington 98057

USAmain: +1 425 282 6400HostingSales@parallels.comwww.parallels.com/spp

EUNAWilly-Brandt-Platz 381829 MunichGermanymain: +49 89 450 80 86 -0HostingSales.eu@parallels.com

APAC3 Anson Road, #36-01Springleaf Tower 079909Singaporemain: +65 6645 3290HostingSales.apac@parallels.com

For more office locationswww.parallels.com/contact

2014Brazil

1

Cloud Services CategoriesThis research is focused on the cloud services that matter most to SMBs: IaaS, web presence and web applications, unified communications, and a general category we refer to as business applications.

Parallels SMB Cloud Insights has entered its fourth consecutive year of research into the cloud service consumption of SMBs. In 2014, Parallels has updated its research by redefining some of the categories examined. Infrastructure-as-a-Service now includes the use of cloud servers by SMBs, which wasn’t previously measured due to cloud servers being considered an enterprise level solution. But SMBs are also beginning to take advantage of them as a scalable and flexible solution. Unified Communications, previously called Communication and Collaboration, now includes collaboration applications.

The Brazilian SMB cloud market had a remarkable year of growth in 2013, expanding to R$4B BRL ($1.7B USD). The largest contributor to this market size is Infrastructure-as-a-Service at R$1.4B BRL ($576M USD). Web presence and web applications add R$578M BRL ($245M USD). Unified communications brings in R$782M BRL ($332M USD), and business applications nearly matched IaaS, by adding the remaining R$1.3B BRL ($547M USD).

The Overall Brazil Cloud Market Continues Growth

DEFINITIONS

Infrastructure as a service (IaaS): Dedicated servers, virtual private servers (VPS), managed hosting, as well as add-on applications and services for hosted infrastructure, such as control panels, development platforms, LAMP stack (Linux, Apache, MySQL, PHP), security, server backup, and database add-ons. Includes cloud servers as of 2014, due to their increasing use among SMBs.

Web presence and web applications: Third-party web hosting, domain registration, SSL and ecommerce add-ons, site-building tools, high-opportunity web applications – web server backup, content delivery networks (CDN), content management, mobile optimization tools, search engine optimization (SEO), and web server security and health monitoring.

Unified Communications: Business-class email services, including email security, email archiving, along with mobility and hosted phone services, including hosted PBX. As of 2014, includes communication and collaboration applications, such as web and phone conferencing, instant collaboration, and mobile device management (MDM).

Business applications: The major types of software applications that can be accessed online—file sharing, online accounting, online backup and storage, online CRM, payroll and HR, support and help desk, and virtual desktop (VDI).

SMB Definition and SegmentationWe define SMBs—also known as small and medium enterprises (SMEs) - as companies with 1 to 250 employees. There are around 2.7M such SMB establishments in Brazil today. Segments include: micro (1-9 employees), small (10-49 employees) and medium (50-249 employees)

Cloud Opportunity Type

Cloud leapers: This category consists of SMBs that currently are not using an in-house IT solution (no servers, no web server, or no PBX system) and are likely to move straight to the cloud, “leaping over” the intermediate in-house IT solutions. The cloud leaper category also includes startups that choose cloud services over traditional in-house IT as they start their business.

Cloud converters: These SMBs currently have in-house solutions but are either moving or planning to move to hosted services. For example, many SMBs that currently have in-house servers may switch to hosted servers when it comes time to upgrade their infrastructure.

Cloud expanders: These SMBs, who are already using some form of cloud services, represent an opportunity for upselling to new and expanded cloud offerings. For example, an SMB who is using web hosting would be acting as a cloud expander when they purchase mobile optimization to complement their website.

R$2.2B2013 2014

R$4B($1.7B)($1.1B)

32

Top Concerns About Hosted Servers Decreased Slightly

Price Security In-House Apps

IT PersonnelDoesn’t

Recommend

INFRASTRUCTURE-AS-A-SERVICE (IaaS)

IaaS Grew To R$1.4B in 2013

R$1.4BR$775M2013

2014laaS Grew by 51%

Infrastructure-as-a-Service is currently the largest market in Brazil. In 2013, many SMBs without servers opted for hosted server solutions, causing 51% growth in IaaS use from last year. Of note, most of these were medium sized businesses. This year the IaaS market size includes cloud server use by SMBs, which adds an additional R$190M BRL ($79M USD) to the infrastructure market. Over 10% of SMBs are now taking advantage of this scalable solution.

While price and security remain top barriers to SMBs switching their in-house servers to hosted servers, overall fewer SMBs reported concerns about switching than last year. As such, service providers should focus on marketing their hosted infrastructure offerings by addressing these concerns, specifically educating SMBs about the cost and security benefits of hosted solutions.

Many SMBs Would Pay $10 more per Month for High Availability or Unlimited Storage

30% of SMBs would pay $10/mo more for

high availability

28% of SMBs would pay $10/mo more for

unlimited storage

$5 $10

Top Hosted Server Add-ons

Most Popular Uses for Hosted Servers are the Same as 2013

1 2 3

52%Web Server

35%Database

Applications

23%Accounting

30% 28%

High Availabity Unlimited Storage

2014 UsageCloud Server

Market Size: R$190M ($79M)

($372M) ($576M)

22% 23%

6% 9% 1% 4%

SecurityServer Backup Database Add-ons

Control Panel Database Add-ons Security

2014

2017

40% 36% 35%

68% 63% 55%

4 5

IaaS Opportunity Through 2017

Cloud Expanders Cloud ConvertersCloud Leapers

Although IaaS has had slower growth among fully mature markets, Brazil is still a maturing cloud market and IaaS is continuing to grow rapidly. The increasing adoption of cloud servers among SMBs furthers the potential. Moving forward, each segment presents excellent opportunities, as more than 60% of leapers, converters, and expanders show interest in adding hosted infrastructure by 2017.

50% Of SMBs Buy Web Apps Bundled With Website Purchase

Web Presence Market Grew to R$564k in 2014

Security, Backup, SEO, Expected to Remain Highest Demanded Web Apps Through 2017

Expanding by 37% in 2013, the Brazilian web presence market is still experiencing solid growth. Reaching R$578M BRL ($245M USD) in 2014, much of the growth came from cloud leapers, adding their first website as one hosted by a service provider. 30% of the growth involved converters, switching from self-hosted websites.

WEB PRESENCE

28%3 Year CAGR

R$2.8B

Increase Spending Switch From In-HouseNew Adoption

71% 66%70%

R$421M2013

($202M)R$578M

2014($245M)

($1.2B)

BackupSecurity SEO

Backup Security SSL Certs/SEO

2014

2017

25% 23% 20%

50% 45% 40%

76

Mobile Optimized Websites are Growing in Popularity – and Many SMBs Still Need One

SMBs are Starting to Use More Third Parties to Design and Manage their Websites

50% 30%

59% 16%

Top Forms of Social Media Use Among Brazilian SMBs

Designed By Managed By

Web Presence Opportunity in 2017

Cloud ExpandersCloud Converters Cloud Leapers

Many SMBs are using third parties to both design and manage their websites. This indicates a rise of managed web hosting, which enables SMBs to better focus on running their businesses.

LinkedInTwitterFacebook

These top web applications are used by over a fifth of Brazilian SMBs. By 2017, usage is expected to double. So where do these SMBs buy their web apps from? According to the SMBs interviewed, 50% of them purchase web apps bundled with their website from their web hoster. Another 25% get them from a third party provider. This means that service providers have the best opportunity to cross-sell these apps to their SMB customers in a bundle with the initial website purchase.

Web Designer Sitebuilder

Web Hoster 3rd Party By 2017, the Brazilian web presence market is projected to be R$921M BRL ($390M USD), growing at a healthy 27% CAGR. The cloud converter opportunity is staggering, with nearly 99% of SMBs who self-host websites desiring to switch in the next few years. Additionally, Brazil still has 1.6M SMBs who don’t have websites, so the cloud leaper opportunity is outstanding as well.

17%3 Year CAGR

18%19%43%

No Optimization Needed PC Only Optimzed

Mobile Optimized

28%

32%

34%*

Increase SpendingSwitch From In-House New Adoption

83%99% 49%

R$921M($390M)

*Best Opportunity

8 9

Unified Communications Market Growth What Features are Most Useful to SMBs in Hosted PBX Systems?

60%50%40%30%20%10%0

Price

Most Barriers to Hosted PBX Adoption Have Increased since 2013

What Features Caused SMBs to Choose Paid Business Email Over a Free Email Provider?

CalendarAlerts

SharedCalendar

Archiving OutlookIntegration

Security

UNIFIED COMMUNICATIONS (UC)

Formerly communication and collaboration, the unified communications market for Brazilian SMBs grew to R$782M BRL ($332M USD), more than doubling from its relatively small base last year. A good portion of the growth came from increased use of collaboration apps, such as instant collaboration and web/phone conferencing. There was also 54% increase in the percentage of paid hosted email users, most of which were small businesses. Hosted PBX grew mainly among medium businesses.

Unaware of PBX

In House Apps

Security Technical

At What Point Would SMBs Choose to Switch From Free Email to Paid Business Email?

34%Need

IncreasedSecurity 27%

Need Professional

Look and Feel

What are Major Purchase Triggersfor Hosted PBX?

Major Business Change

29% 73%Good Price Point

$782M 2014

($111M)($105M) ($115M)

Hosted EmailHosted PBX Collaboration Apps

20142013Market SizeUnified Communication

R$263MR$248M R$272M

($153M)R$368M

($332M)R$782M

Ability to Track Billable Calls

Seperate Phone Lines

One Mailbox for Messages

93%54%48%24%17%

SMBs Concerned About Switching

2013 2014

1110

Unified Communications Through 2017

Opportunities through 2017 in the UC market vary by service. For hosted email and hosted PBX, over 50% of cloud leapers indicated interest in going right to hosted versions, and 88% of in-house email users would like to switch to hosted premium email. For each of the collaboration apps, 25% or more of SMBs who don’t have them would like to start using them within the next three years. The Brazilian SMB UC market is expected to reach R$2.8B BRL ($1.2B USD) by 2017.

BUSINESS APPLICATIONS

Business Applications

Top Applications Remain Consistent Over Time

33%CAGR 32%

Another category which has grown tremendously among Brazilian SMBs is business applications. Topping R$1.3B BRL ($547M USD) in 2014, this market has nearly caught up to IaaS. Overall use of business applications increased by 33% last year. SMBs reported more users for many of their applications, leading to increased spending which caused a great deal of the growth.

PayrollOnlineBackup/Storage

File Sharing

2013

201451%3 Year CAGR

Average Increase in Overall Business

Application Use

SMBs concerns about using hosted PBX services have actually risen since 2013. The main concerns -- price, technical, and security – all increased significantly. However, the majority of SMBs with in-house PBX say they would be compelled to switch to hosted PBX if the price was appealing. Furthermore, 22% of SMBs still haven’t even heard of hosted PBX. Therefore, service providers should focus their marketing messages around education, namely about the security and technical features of hosted PBX solutions, and offer low cost solutions that will meet the needs of the SMBs.

Projected Use of Top Applications in the Next Three Years

File Sharing SupportOnline Backup/Storage

OnlineAccounting

65% 44%62% 40%

Cloud Expanders

Cloud Leapers Cloud Converters

50%

Web/Phone Conferencing

Mobile Device Management

Instant Collaboration

55%

88%

Hosted Email

New User Opportunity

25%34%

27%

Cloud Leapers Cloud Converters

Hosted PBX

R$691M2013

($288M)R$1.3B

2014($547M)

R$2.8B($1.2B)

50%63%

1312

19%Purchased

without free trial

Free Trial Important for Converting SMBs to Purchased Versions

Business Applications Opportunity in 2017

BUYING CLOUD SERVICES

To Bundle or Not to Bundle?

70% of SMBs Use Only One Service Provider

Many SMBs prefer buying cloud services as bundles, but what about those who don’t? This year Parallels asked SMBs who prefer to purchase services a la carte about why they prefer that over bundles, and discovered that when SMBs choose not to bundle, it is because they want choice in the service provider or brand and are concerned about lack of transparency in bundle pricing. SMBs are willing to pay more to get the exact service or brand they want. Service providers can still attract these SMBs with bundles, so long as they offer a variety of bundle options with services that cater to different SMB preferences and needs.

Better Cost Value is Top Benefit of Using One Service Provider

23%3 Year CAGR

With a CAGR of 23%, the business applications market will hit R$2.4B BRL ($1B USD) in 2017, playing a major part in the overall Brazilian SMB cloud market. All business apps are expected to increase in use, with many doubling in usage by 2017. As shown above, 59% of SMBs who pay for their apps first used a free trial, making it a very effective way to capture the market over the coming years.

of SMBs60%

of SMBs46%

of SMBs56% 22%

of SMBs

71%

WebHoster

Online Retailer

Telco/Mobile Provider

IT Consultant

Application Website

Where Do SMBs Buy Online Applications?

14%9% 8% 6%

43%

43%Purchased after free trial expired

16%Purchased after

free trial to access more features

80%

60%

40%

20%

0%

Say Ease of Billing is More Important than Discounts When Purchasing Bundles

Quote Cost Transparency as Their Main Barrier to Bundle Purchases

Prefer Purchasing Bundles as Opposed to a la Carte

Say Service Provider Choice is Their Main Concern About Buying in Bundles

of SMBs say

Number of Service Providers1 2 3 4 5 6

File Sharing

Online Storage

Support

Online Accounting

Payroll

Virtual Desktop

Online CRM

41%

44%

35%

31%

25%

29%

28% Projected New Use in 2017

R$2.4B($1B)

Unified Support is Also Important48%

of SMBs say

Current Use

1514

51% Of SMBs Contact their ServiceProvider Over the Phone

77% Of SMBs Use Email toCommunicate with theirService Provider

The Brazilian SMB cloud market is forecasted to have a 31% CAGR, approaching R$9B BRL ($3.8B USD) by 2017. Each category of cloud services has a great outlook. Infrastructure-as-a-Service will undergo considerable growth, as Brazil is still a maturing market many SMBs are catching onto the benefits of hosted infrastructure. Web presence, while a much smaller market, will grow at a steady rate as SMBs continue adding websites and web applications. Unified Communications, with the Fastest Growth Rate, Will Likely Increase Four-fold; SMBs Consume More of these Services When their Businesses Flourish. Business applications will also remain a large contributor to the overall market, as SMBs use more applications to meet their needs and continue adding users. The potential across all opportunity segments is exceptional.

© 2014 Parallels IP Holdings GmbH. All rights reserved. The Parallels logo and Parallels are registered trademarks of Parallels IP Holdings GmbH.

No part of this publication may be reproduced, photocopied, stored on a retrieval system, or transmitted without the express written consent of Parallels.

The Brazil Cloud Services Market is Projected for 31% Growth Over the Next 3 Years

OPPORTUNITIES

2014 2017

How do SMBs Contact Their Service Providers? Learn MoreThis Parallels Market Outlook for 2014 report only covers a portion of the extensive data included in Parallels SMB Cloud Insights™ research. You can learn more by:

• Visiting Parallels PartnerNet. For Parallels Partners, register for Parallels PartnerNet and go to the SMB Knowledge Center for more SMB Cloud Insights™ data analysis and go-to-market materials. Find Parallels PartnerNet at www.parallelsnetwork.com.

• Attending an SMB Cloud Insights™ webinar. Register for our webinar series highlighting Parallels research and teaching SMB marketing strategy, tips, and best practices to help grow your hosting business. Go to www.parallels.com/about/subscribe/ to sign up for webinar notifications.

• Talking to Parallels Business Consulting team. Parallels Business Consulting delivers services designed to accelerate time-to-revenue by 20-35%, increase profits, and grow subscribers. We provide critical business thinking and best practices forged from hundreds of deployments, custom research by SMB Cloud Insights™, and go-to-market workshops. Start a conversation with Parallels Business Consulting team. Get in touch at accelerate@parallels.com.

Please contact SMB@parallels.com with any further questions. Parallels is committed to helping our partners understand the best opportunities in the SMB cloud market and profit from the cloud.

R$4B($1.7B)

R$9B($3.8B)

Parallels SMB Cloud InsightsTM

Global Headquarters500 SW 39th Street,Suite 200Renton, Washington 98057

USAmain: +1 425 282 6400HostingSales@parallels.comwww.parallels.com/spp

EUNAWilly-Brandt-Platz 381829 MunichGermanymain: +49 89 450 80 86 -0HostingSales.eu@parallels.com

APAC3 Anson Road, #36-01Springleaf Tower 079909Singaporemain: +65 6645 3290HostingSales.apac@parallels.com

For more office locationswww.parallels.com/contact

2014Brazil