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McKinsey's five step program for cloud services success

Martin Banks Profile picture for user mbanks March 11, 2014
Summary:
The cloud wave is larger than most people think so the issue, particularly for those businesses looking to provide cloud-delivered services, is to try and understand the nature and size of the opportunity, says McKinsey.

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Abhijit Dubey

The cloud wave is larger than most people think so the issue, particularly for those businesses looking to provide cloud-delivered services, is to try and understand the nature and size of the opportunity.

That's the view of Abhijit Dubey, a Partner with management consultants, McKinsey and Company, where he's one of the core leaders of the Tech, Media and Telecom Practices as well as leader of its global cloud computing service.

Some McKinsey worldview stats on the cloud:

  • The SMB cloud services market is a $400 billion opportunity globally.
  • Some 60% of US SMBs are already using at least one cloud service.
  • Some 28% already have more than five services running.
  • Around 40% of the total cloud opportunity will come from the SMB sector.
  • By 2016 SaaS will generate $32 billion of revenues, IaaS/PaaS $10 billion and services between $4 billion and $6 billion.

But the very nature of that community makes getting it to move collectively into the cloud something of a challenge. Most of those businesses can – and should – make effective use of cloud-delivered services.

But at the same time, most of them do not have the on-board skills needed to define what services are really needed, or how to implement and optimize them effectively.

And most of them are far too busy with their own core businesses to bother with learning about any services, regardless of how beneficial they may be in the end, that do not `slot in and deliver’ without too much thought.

Dubey acknowledges that though it is often referred to as the `SMB segment’, it actually consists of thousands of micro-segments that have different buying strategies.

It is certainly an area where one size does not fit all, so vendors need to be aware that no company will be able to build a direct sales capability to cover it. This alone is the most important reason why the channel is now so important to the development of cloud services overall.

Five step program

This problem has remained unchanged for at least the last four years. Everyone sees the opportunity that SMBs plus cloud services can represent, but getting them on-board with cloud service providers in vast quantities still remains elusive.

The McKinsey solution to this problem is a five stage strategy that businesses need to adopt in order to conquer the cloud wave and get the SMBs on-board.

Dubey sees this as cloud’s new `battleground’, not least because every IT vendor now has at least plans to become a cloud vendor. In his view, the winners are still unclear, though the biggest share of the market is currently going to incumbent ISVs, followed by pure-play cloud services providers. But he also sees the telcos creeping up and starting to take a bigger share.

The five strategies McKinsey identifies cover:

  • Segmentation
  • Aggregation
  • Consumerization of the go-to-market strategy.
  • Re-thinking the channel model
  • Turbo-charging the services capability.

On segmentation, he suggests that the goal is to target customer need and types of buyer. He breaks these down into four groups:

  • The no frills buyer, who usually buys on a price – which is 26% of the market.
  • The safety seeker, who goes for reliability over performance – 17%.
  • The connected feature seeker, who goes for the latest gizmos – 3%.
  • The IT sophisticate, who values service and support – 27%.

There is an opportunity for aggregation because, as Dubey observed, customers need it. They have to start somewhere and once started they usually then want to add bits.

Usually they start with email but then want other services, and around 50% tend to buy from the original vendor/service provider, a figure which holds true around the world. So having a channel that can aggregate together complementary applications and services will make life much easier for them.

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Consumerisation of the go-to-market piece is needed in order to map onto buying practice changes.

Users are moving from researching and identifying possible new services or applications face-to-face with company representatives, and moving to online research.

For example, they will often respond to a freemium or free trial offer - the Internet makes it possible to try a real product with some real data samples.

Dubey identified three priorities here.

  • Shift acquisition spend towards using digital approaches that are tailored to the market segments a vendor wants to address.
  • Use your product as a sales tool to demonstrate its capabilities.
  • Learn to predict customer needs on the basis of identifying what product it is that they next need to buy.

It's also time to rethink partnerships. The problem here is that the cost of customer acquisition is high and takes time to recoup. Partnerships can have the effect of spreading the costs, while at the same time increasing the sales opportunities.

Dubey's  suggestion is for all vendors seeking to sell cloud services into the SMB sector to actively foster an ecosystem of partnerships.

Finally, turbo-charge services, and in particular post-sales services and support.

Dubey uses a phrase that cropped up several times at the Parallels Summit at which he was speaking – providing a `white gloves’ service to customers. This can often be the key to a customer's next buying decision, and helps to make them sticky.

Verdict

For many IT vendors some of these strategies may seem a bit radical, for they have little to do with selling technology.

But for many other businesses in other markets, these suggestions are likely to seem quite straightforward.

The one trouble with the cloud is that, while there is some extremely complex and powerful technology behind it, the technology itself is all but irrelevant to what is actually being sold.

Technology companies still seem overly keen on wanting to sell technology. What is worse, the success of IT means that most of them have largely experienced being bought from, not selling to.

So as the cloud moves into the mainstream, so it becomes important that vendors learn to don the white gloves and sell services and solutions to customers, and at last leave the technology sell behind.
Abhijit Dubey was speaking at the Parallels Summit in New Orleans.

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