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IDC: SMBs will contribute to 40% of worldwide public cloud spending by 2019

Global spending on public cloud services will grow six times faster than overall IT spending in the next four years, according to recent research by IDC. Small and medium-sized companies will continue to be a significant contributor to this total spending, according to the market researcher.

Public cloud spending will grow at an annual rate of 19.4% in the coming years, or from about $70 billion in 2015 to more than $141 billion by 2019, according to data from IDC’s “Worldwide Semiannual Public Cloud Services Spending Guide,” published this month. While most of this spending will come from large companies and enterprises (which will spend over $80 billion on public cloud in 2019), small and medium-sized businesses will contribute to 40% of this total, or $61 billion, in 2019. Infrastructure as a service and platform as a service will be the fastest-growing segments, according to IDC.

This forecast follows a pattern that was already trending upward. According to a report based on IDC’s cloud adoption survey, U.S. SMB adoption of IT-sanctioned cloud computing apps and services has grown rapidly in the past five years, rising from below 20% of SMBs to now 75% of small companies (those with fewer than 100 employees) and 95% of midmarket companies (those with 100 to 999 employees). Not only that, but the number of IT-sanctioned cloud applications has risen swiftly among SMBs, with small companies running an average of four apps (up from three in 2013) and midmarket firms currently deploying an average of eight apps (up from six in 2014).

One of the main factors driving this rapid growth in public cloud spending among SMBs is maturity in the cloud space, said Christopher Chute, a research vice president at IDC. This is combined with the fact that companies today no longer have the budget or the time to develop applications on-premises like they did in the past, he added.

“We’ve moved to a point where, if you want to be competitive and agile and respond to customer demands, and essentially … to grow revenue, you have to be engaged with different types of cloud services and cloud applications,” he said.

One area that small businesses in particular are increasingly moving to the cloud is back-office functions, such as email, data backup and payroll. For example, instead of hiring a payroll manager or a staffer to manage accounts payable, the payroll function can be outsourced to the cloud so an office manager can manage more functions on their own. “It’s that level of operational efficiency that’s driving the small-business space,” Chute said.

Midmarket companies, on the other hand, are heading to a cloud-first IT infrastructure environment, with most of the cloud growth in that space revolving around Office 365 and accounting/finance functions. These companies are not just moving back-office functions to the cloud, but also ERP, CRM, e-commerce capabilities and mobile functions, said Chute.

SMBs in the finance, retail and healthcare industries are driving this shift to the cloud, with the last sector leading the way, especially in the U.S., said Chute. This is partially attributed to the impact of government regulations, such as the Affordable Care Act and HIPAA, that are changing how healthcare is being delivered.

“[These mandates are] essentially requiring what was a sort of unregulated industry to become very regulated, in terms of having to meet basic efficiency requirements, basic customer service requirements. So if you wanted to get paid out for Medicare, [for example], you had to offer a higher-level quality of service that, oh by the way, the patients are going to report on, are going to get surveyed about,” Chute said.

He added that these factors have pushed healthcare SMBs not just to the cloud, but to mobile technology like purpose-built tablets and mobile apps that can link to cloud-based data repositories, allowing staff to be more efficient.

Head to part two to read more about public cloud adoption among SMBs and advice for SMBs that are looking to move to the cloud.