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Identifying and monetising cloud computing's five customer types

Sustainable and profitable growth in cloud computing will depend on focused offerings that are tailored to these five customer types.

By Michael Heric and Abdulrahman Addas

First published on Μαΐου 07, 2012
min read


For all the noise about cloud computing, many companies that sell cloud-based products and services still struggle to answer fundamental questions about how they will make money. To gain a foothold, providers have launched offers that appeal to the earliest adopters. Profitable growth has taken a backseat to being first to market. But the market is in transition. Companies that have waited on the side-lines are now entering the marketplace. Compared with the earliest adopters, later entrants have a much wider range of business needs, IT priorities and views on cloud computing. That's why the most effective providers are developing targeted offerings, marketing messages and sales approaches to address the emerging customer landscape. Thanks to the cloud, businesses are using and administering their IT infrastructure more efficiently. The economics of cloud computing have also become more attractive. In the next three years, we see a 30% to 40% price advantage opening up between the costs of deploying a public cloud and an on-premise server. As providers create real value for customers, some players have at last begun to turn a profit. In response, customers now have confidence that emerging providers will be around for the long term, and buyers are more comfortable placing critical systems in their hands. The result: We expect business spending on cloud computing to grow fivefold by 2020, expanding from $30 billion to $150 billion, according to some estimates, and accounting for one-fifth of all growth in technology industry profits over this period. Substantial barriers to cloud adoption remain Of course, the field still faces many challenges. From security concerns to high-profile outages, substantial barriers to customer adoption remain. Even under the most optimistic growth projections, cloud computing will not displace existing technologies any time soon. Cloud services will represent less than 10% of total enterprise technology spending by 2020, for instance. But the customers that have fuelled growth to date will not be the same as those that fuel growth in the future. Over the next three years, nearly 65% of the growth will come from companies that make little or no use of the cloud today. Industries like retail, transportation, industrials and financial services will demand more private and hybrid cloud offerings. To help providers navigate their way through this market transition, Bain surveyed nearly 500 North American CIOs and IT decision makers and spoke with more than 25 cloud providers. Through this research, we identified five clusters of companies with common approaches to cloud computing. The key to sustainable and profitable growth over the coming years will be to develop focused offerings that are better tailored to these customers. The five customer types in cloud computing Transformational: These early adopters already use cloud computing heavily, with on average of more than 40% of their IT environments relying on cloud models. Heterogeneous: These companies have an exceptionally diverse mix of legacy systems and newer technologies. While they have on average just 13% of their environment in the cloud today, that share is poised to rapidly expand to more than 40% by 2013. Safety-conscious: These companies are particularly concerned with the security and reliability of their IT environments. They understand the value proposition, but are willing to compromise to ensure that their environment is secure. Private cloud and hybrid public-private cloud models have the most appeal. Price-conscious: These bottom-line focused companies purchase cloud technologies and services primarily for the cost savings. Slow and steady: These companies, for a range of reasons, are not yet ready to adopt cloud computing in a meaningful way, although they express interest in exploring offerings if a provider can slowly and steadily take them down the migration path. They represent the largest group of customers. Each customer segment will move to the cloud in different ways. While Transformational customers have the highest adoption rates today, Heterogeneous customers will nearly match them within three years. Safety-conscious customers will adopt more slowly, but at twice the size, this segment will cause a significant increase in spending growth. For Price-conscious customers, adoption will nearly quadruple as prices come down. Finally, Slow and Steady customers, who have barely begun to experiment, will see meaningful adoption over the next three years. The segment represents a sizable opportunity. Preferences for private, public and hybrid cloud offerings vary substantially across the segments. Safety-conscious and Slow-and-Steady customers prefer more secure private and hybrid offerings. Transformational, Heterogeneous and Price-conscious customers show three times the likelihood to adopt the public cloud. Demand for cloud offerings also depends on the workloads they address. Transformational and Heterogeneous customers will soon begin to look at moving more complex workloads to the cloud, such as ERP and supply chain management. Price-conscious customers will be among the earliest to consider the massive spending on licenses for office productivity applications. Providers who understand how their offerings appeal to different segments will have the best chance of sustaining profitable growth. They will either focus on where demand is naturally greatest or make the necessary changes to adequately address a more diverse set of customers.

For all the noise about cloud computing, many companies that sell cloud-based products and services still struggle to answer fundamental questions about how they will make money. To gain a foothold, providers have launched offers that appeal to the earliest adopters. Profitable growth has taken a backseat to being first to market.

But the market is in transition. Companies that have waited on the side-lines are now entering the marketplace. Compared with the earliest adopters, later entrants have a much wider range of business needs, IT priorities and views on cloud computing. That's why the most effective providers are developing targeted offerings, marketing messages and sales approaches to address the emerging customer landscape.

Thanks to the cloud, businesses are using and administering their IT infrastructure more efficiently. The economics of cloud computing have also become more attractive. In the next three years, we see a 30% to 40% price advantage opening up between the costs of deploying a public cloud and an on-premise server.

As providers create real value for customers, some players have at last begun to turn a profit. In response, customers now have confidence that emerging providers will be around for the long term, and buyers are more comfortable placing critical systems in their hands. The result: We expect business spending on cloud computing to grow fivefold by 2020, expanding from $30 billion to $150 billion, according to some estimates, and accounting for one-fifth of all growth in technology industry profits over this period.

Substantial barriers to cloud adoption remain

Of course, the field still faces many challenges. From security concerns to high-profile outages, substantial barriers to customer adoption remain. Even under the most optimistic growth projections, cloud computing will not displace existing technologies any time soon. Cloud services will represent less than 10% of total enterprise technology spending by 2020, for instance.

But the customers that have fuelled growth to date will not be the same as those that fuel growth in the future. Over the next three years, nearly 65% of the growth will come from companies that make little or no use of the cloud today. Industries like retail, transportation, industrials and financial services will demand more private and hybrid cloud offerings.

To help providers navigate their way through this market transition, Bain surveyed nearly 500 North American CIOs and IT decision makers and spoke with more than 25 cloud providers. Through this research, we identified five clusters of companies with common approaches to cloud computing. The key to sustainable and profitable growth over the coming years will be to develop focused offerings that are better tailored to these customers.

The five customer types in cloud computing

Transformational: These early adopters already use cloud computing heavily, with on average of more than 40% of their IT environments relying on cloud models.

Heterogeneous: These companies have an exceptionally diverse mix of legacy systems and newer technologies. While they have on average just 13% of their environment in the cloud today, that share is poised to rapidly expand to more than 40% by 2013.

Safety-conscious: These companies are particularly concerned with the security and reliability of their IT environments. They understand the value proposition, but are willing to compromise to ensure that their environment is secure. Private cloud and hybrid public-private cloud models have the most appeal.

Price-conscious: These bottom-line focused companies purchase cloud technologies and services primarily for the cost savings.

Slow and steady: These companies, for a range of reasons, are not yet ready to adopt cloud computing in a meaningful way, although they express interest in exploring offerings if a provider can slowly and steadily take them down the migration path.

They represent the largest group of customers.

Each customer segment will move to the cloud in different ways. While Transformational customers have the highest adoption rates today, Heterogeneous customers will nearly match them within three years. Safety-conscious customers will adopt more slowly, but at twice the size, this segment will cause a significant increase in spending growth. For Price-conscious customers, adoption will nearly quadruple as prices come down. Finally, Slow and Steady customers, who have barely begun to experiment, will see meaningful adoption over the next three years. The segment represents a sizable opportunity.

Preferences for private, public and hybrid cloud offerings vary substantially across the segments. Safety-conscious and Slow-and-Steady customers prefer more secure private and hybrid offerings. Transformational, Heterogeneous and Price-conscious customers show three times the likelihood to adopt the public cloud.

Demand for cloud offerings also depends on the workloads they address. Transformational and Heterogeneous customers will soon begin to look at moving more complex workloads to the cloud, such as ERP and supply chain management. Price-conscious customers will be among the earliest to consider the massive spending on licenses for office productivity applications.

Providers who understand how their offerings appeal to different segments will have the best chance of sustaining profitable growth. They will either focus on where demand is naturally greatest or make the necessary changes to adequately address a more diverse set of customers.