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Cloud Computing Landscape in Key Emerging Markets

November 2010

Zinnov Confidential

Global IT spending is springing back after a decline last year with a strong push from BRICSS markets

2

IT Spend Growth Trend by Regions/ Countries, 2010, In Constant Currency

• Emerging markets such as Brazil, Russia, India, China, South Africa & South Korea (BRICSS) have shown tremendous growth in the IT investments over the last 12 months

• BRIC countries have been growing faster compared to others for the last few years primarily owing to faster growth of user industries in these markets

Source: Zinnov Research

Worldwide United States

Western Europe

Japan China Russia Brazil India South Africa

South Korea

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

6.0%5.0%

3.0%

0.5%

21.0%

17.0%

14.0%13.0%

8.0%6.6%

Zinnov Confidential

BRICSS nations contribute significantly towards the IT spend globally 3

BRICSS

11%

ROW89%

IT Spend Contribution by BRICSS Countries, 2010E

Split of IT Investments by Category, US$ Billion in 2010E

Worldwide IT Spend (2010E) = US$ 1.51 Trillion

Source: World Bank, Zinnov Research

China India Brazil South Korea

Russia South Africa

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$57.1

$9.5 $8.6 $3.3 $8.3 $4.1

$11.3

$2.9 $3.8$5.7

$3.2$1.8

$18.4

$9.4 $8.9$6.4 $3.9

$3.5

IT Equipment/ Hardware Software ProductsIT Services

$86.8

$21.8 $21.3$15.4 $15.4

$9.4

Zinnov Confidential

Characteristics of the BRICSS nations are unique and mandate an altogether different approach 4

Highly Demanding Market

Diversity

Poor Infrastructure

Rapidly Changing Market

Limited Income/ Revenue

Weak Distribution Network

1

3

4

2

4

6

• Most value for least price is expected• Product should enable revenue generation• No need of advanced features – work should get done• Education about consumption – user friendly

• Large base of SMBs; fast growing enterprises• Young generation make 50% of the population• Huge market for “cool” product, entertainment &

communication devices

• Limitations of climate, infrastructure and resources such as power

• Need to build infrastructure to support the business• Need to use existing infrastructure creatively

• Variance in needs based on demography/ location• Need for localization - tailor product to market needs• Attach to local brands/ channels for market acceptance

• Revenues lesser than counterparts in developed nations• Smaller/ compact models with variants preferred • Pay per use models thrive in emerging markets• Products for community/ group succeed for cost reason

• Lack of strong supply & distribution network• Lack of financing options – Microfinance required• Position smaller stores, telcos and other channels for reach

Source: Zinnov Research

Zinnov Confidential

CIO organizations’ top business and technology priorities, clearly spell out a future in cloud for the market constituents

5

Top Business Priorities for CIOs in 2010 Top Technology Priorities for CIOs in 2010

1

2

3

4

5

6

Business Process Improvement Virtualization

Reducing Enterprise Costs Cloud Computing

Increasing Use of Information/ Analytics Web 2.0

Improving Enterprise Workforce Effectiveness Networking, Voice & Data Communications

Attracting & Retaining New Customers Business Intelligence

Managing Change Initiatives Mobile Technologies

Source: Zinnov analysis of interactions with CIOs of multiple Global & local companies

While IT budgets increase at a fast pace, storage demand is growing at 20-30% and bandwidth demand is increasing at a fast pace of 30-50% in BRICSS nations, clearly mandating need for

higher cost control from the IT departments within the enterprises – cloud is the way forward

Zinnov Confidential

The cloud market in BRICSS nation is slowly starting to come out of the nascent stages 6

2008 2009 2010E$0

$100

$200

$300

$400

$500

$600

$700

$800

$207.4$302.1

$453.0$58.8

$85.8

$128.8

$44.5

$69.4

$106.2

SaaS PaaS IaaS

China36%

South Korea29%

India16%

Brazil13%

Russia4%

South Africa

3%

Evolution of Public Cloud Spending (US$ Million) in BRICSS Nations 2008-2011E

Country Wise Share of Public Cloud Spending in 2010

SaaS• Small and medium businesses are a key focus area for majority of the players looking to scale in BRICSS• The key SaaS adopting verticals in BRICSS are Telecom, Financial services, Government, Manufacturing, etc.PaaS• The PaaS/ Platform ecosystem in BRICSS is still in its early stages with very less local company participation• Most of the local developers leverage global platform providers such as Force.com, Google, Azure etc in the current landscapeIaaS• The IaaS & Hosting ecosystem in BRICSS is very nascent. The hosting market is completely dominated by the state run telecom

companies and has very few small or mid-sized hosting providers

Source: Zinnov interactions with stakeholders across the cloud computing stack across geographies

$310.8

$457.4

$688.0

Zinnov Confidential

The BRICSS cloud ecosystem plays host to a lot of global companies across the cloud computing stack who are increasingly focusing on these markets

7

Source: Zinnov research & estimates based on preliminary interactions with key players in the market

Hardware Providers

Cloud Technology Enablers

Infrastructure as a Service (IaaS)

Platform as a Service (PaaS)

Software as a Service (SaaS)

• Salesforce.com• WebEx• NetSuite• RightNow• Oracle

• Microsoft• Citrix• Google• Yahoo• Symantec

• McAfee • Zoho• TrendMicro

• Force.com• Google• Microsoft• Zoho• Joyent

• Amazon Web Services• Power All• Rackspace

• IBM• Oracle (Incl. SUN)• Microsoft• EMC• RedHat

• HP• VMWare• NetApp• Juniper• Symantec

• IBM• Dell• Cisco• Alcatel Lucent

• HP• Huawei• Nokia Siemens Networks

Illustrative List of Key Players (non-exhaustive)

Focus of Top Global 150 Cloud Computing Companies

Focusing on One or More BRICSS Coun-tries Directly

61%

Not Focusing on BRICSS Countries

39%

Zinnov Confidential

While BFSI, Telecom & Government are the priority verticals in BRICSS, other verticals are also fast catching up

8

India China S. Korea S. Africa Brazil Russia

BFSI

Telecom

Government

IT-ITeS

Healthcare

Education

Manufacturing

Oil & Gas

Key Vertical Focus for Cloud Solutions in BRICSS Countries

Source:

Focus

Low High

Zinnov Confidential

The future of cloud market in BRICSS countries is very strong with growth rates well over 25% for the next 5 years

9

2010E 2015E$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$453.0

$2,078.7

$128.8

$675.1

$106.2

$727.0

SaaS PaaS IaaS

Growth of Public Cloud Spending in BRICSS Nations 2010-2015E

• Current cloud budget of enterprises in BRICSS countries is less than 50% of the budget of developed nations such as US & Western European countries

• More than 50% of enterprises/ SMBs in India & China are looking to increase the IT investments over the next year

• Private cloud opportunity in the immediate future to be significantly larger because of concerns around SLAs, data security and latency

• Cloud vendors across the stack would be investing heavily to address some of the challenges on demand side

Source:

$688.0

$3,480.8

CAGR = 38.3%

Zinnov Confidential

BRICSS ICT ecosystem is continuously improving on multiple fronts which is enabling increased adoption of cloud services

10

Source: Zinnov Analysis

1Governments in BRICSS are extremely active participants in the Cloud ecosystem

• The government is actively promoting cloud computing through construction of various testbeds and the launch of multiple cloud service initiatives such as e-governance, cloud grids etc.

2Telecom Service Providers are aggressively focusing on the cloud opportunity

• With fast growing subscriber base and declining Average Revenue Per User (ARPU), the Telecom Service Providers (TSPs) are looking at targeting the cloud computing opportunity

3Internet Infrastructure is increasingly gaining traction in BRICSS

• The penetration of broadband and 3G is building a promising opportunity for cloud solutions in the BRICSS nations

4Large base of cost sensitive small & medium enterprises looking for IT adoption

• A large base of SMBs (closed to 100 million in BRICSS nations alone) are looking to enhance the global competitiveness by increasing use of IT

Zinnov Confidential

Governments in BRICSS are aggressively promoting cloud computing through multiple policies and partnerships (1/2)

11

Source: Zinnov analysis of Government’s Policy Updates; Official press releases by Ministry of IT

India

• Huge investments in e-governance initiatives in India; administrators in India are trying to implement cloud computing in e-governance

• Government is making headway into the cloud computing space by conducting various awareness programs for its IT departments

• UID Authority is creating a platform (identify, authentication and payment) onto which they would like to get solution providers and startups

China

• Stimulus package of US$ 39 Bn to positively impact the IT spending of various industry verticals

• Specific focus on cloud computing in the 12th five year plan

• E-governance spending on a fast pace in China with a strong focus on cloud; 12 large golden shine projects towards e-governance initiatives

South Korea

• The Korean government plans to invest about US$ 540 Mn till 2014 to stimulate the domestic cloud computing market

• Key goals of the government are to globally increase the Korean cloud market share to 10% and reduce cost of public ICT infrastructure by 50%

• Initiatives across public sector IaaS, cloud computing test beds, facilitating private sector services, and policy regulations/ standards implementation

Zinnov Confidential

Governments in BRICSS are aggressively promoting cloud computing through multiple policies and partnerships (2/2)

12

Source: Zinnov analysis of Government’s Policy Updates; Official press releases by Ministry of IT

South Africa

• Starting to consider projects involving cloud computing technology by hosting services online. IT is moving from paper-based ledgers to state-of-the-art systems

• Advanced public service agencies such as SARS are running cloud based technologies in their environments

• The Department of Home Affairs (DHA) has announced that it will spend more than SAR500 Mn on IT projects in the current financial year

Russia

• Government is trying to diversify the Russian economy by reducing its dependence on oil and gas exports. It has made developing hi-tech sectors and encouraging research the focal point of the economic agenda

• Expansive projects like "Electronic Russia" and "Electronic Government“

• Government is currently developing a modern center for R&D near Moscow and the first innovation project is a cloud computing based project worth US$29 million

Brazil

• Huge investments in the national broadband plan to triple access to broadband services by 2014

• Similar to India’s UID project, the government of Brazil has a civil digital identification project with projected investments of approximately US$800mn

• As a part of its ongoing Growth Acceleration Plan – 2, the government plans to spend US$23 billion on science and technology with a focus on cloud computing

Zinnov Confidential

Mobile & 3G subscribers have grown significantly in the BRICSS nations 13

Source: Zinnov Analysis of Statistics from Telecom Providers in Each Country

Mobile Subscribers & 3G Users in BRICSS Nations (Millions)

India China Brazil Russia South Korea

South Africa

670

833

192 214

47 461.0

28.1

13.0 13.0

38.3

4.7

Mobile Subscribers 3G Users

• BRICSS nations are going through a mobile revolution – rapidly growing subscriber base. India alone adds 20 Mn new subscribers every month (fastest in the world)

• BRICSS nations are jumping the technology curve – moving directly to wireless instead of wire line. Aggressive focus by government in BRICSS to build the 3G infrastructure

Zinnov Confidential

Rapid growth of internet users provide promising opportunities for cloud based solutions in the BRICSS nations

14

Internet Users in BRICSS Nations (Millions)

Source: Zinnov Analysis of Statistics from Internet services Providers in Each Country; Zinnov research

China India Brazil Russia South Korea

South Africa

425.0

81.0 75.9 59.939.5

5.3

31.8%

6.9%

37.8%42.8%

81.1%

10.8%

Active Internet Users Internet Penetration

• BRICSS nations are witnessing a rapid penetration of internet over the last 5 years – Government & industry are aggressively focusing on providing internet in rural areas as well

• Newer form factors such as mobile devices, touch pads & net books are slowly giving way to the desktops & laptops in these markets

Zinnov Confidential

Small & mid sized businesses (SMBs) form an important part of the economy in these countries and present a huge opportunity for cloud adoption

15

Source: World bank; Zinnov research

China India Brazil Russia South Korea

South Africa

42.0

35.0

5.9 6.9 5.6

2.9

Small & Medium Sized Businesses (SMBs) in BRICSS (Millions)

• Large base of small & medium enterprises – close to 100 million in BRICSS nations• SMBs account for close to 40% of exports and output in both India & China; accounts for 97%

of the total enterprises in the country• While SMBs are slowly gearing up towards IT adoption to enhance competitiveness, cost

constraints and lack of budget planning are the restraints to IT adoption

Zinnov Confidential

• Due to the lack of in-house sales bandwidth, companies are increasingly relying on reseller partnerships

• Majority of the companies do not have a clearly defined reseller strategy to cater to the market. In many cases the reseller is also engaged in promotion of a competing cloud or on-premise product which also hampers the adoption

• Low proliferation of English and regional dialects hamper the adoption• Also, the nature of business in BRICSS is

predominantly relationship based• The cloud products/ services do not account

for these nuances which impact their uptake

• Majority of the global cloud companies selling in BRICSS are offering the services at the global price points, with the exception of a few players

• The global price points significantly overshoot the buying power of enterprises in BRICSS

• Most of the Cloud services firms operating in BRICSS are aggressively SMB focused and they lack the sales bandwidth to effectively cater to the large base SMBs distributed across the country• Most of the sales efforts of the companies

are focused toward the metro areas

While the ecosystem is evolving, BRICSS nations by the virtue of large size, distributed SMB base and highly localized requirements poses unique challenges to cloud providers

16

Source: Zinnov analysis of Interviews with multiple senior stakeholders from the cloud ecosystem

Cloud Service Provider Challenges in BRICSS Countries

Lack of Scale

ProductLocalization

Pricing

ResellerLeverage

Zinnov Confidential

From the demand perspective – Security and Integration are the top concerns with using public cloud services

17

Public Cloud Service Concerns of CIOs, 2010

Data security and reliability

Integration with existing systems and loss of control

Lack of maturity and service level agreements

Legal or regulatory ambiguity

Compliance with legal, regulatory and auditing requirements

• The CIO organizations are more cautious about data confidentiality & security• There is a strong skepticism around business continuity for cloud deployments

• The seamless integration is crucial for leveraging cloud technology to the maximum. In the current scenario, the compatibility issues hinder the integration• The loss of control on the business processes is another concern which slows down the cloud adoption

• The cloud computing market is in nascent stage. The ecosystem of academia, enterprises and government is essential to facilitate the cloud adoption• There is lack of service level agreements and guarantees by the providers which adds to the user skepticism

• The regulations and policies are not very well defined. Also, the industry lacks standardization frameworks• More clear regulations are needed to increase service providers’ accountability to gain consumer trust

• The government poses stringent regulations and auditing requirements in some of the BRICSS countries. This makes the potential customers hesitant and inhibits the cloud adoption

Source: Zinnov analysis of Interviews with multiple senior stakeholders from the cloud ecosystem

Zinnov Confidential

Cloud service providers have adopted unique and differentiating approaches to succeed in some of these fast growth BRICSS countries

18

Source: Zinnov analysis of Interviews with multiple senior stakeholders from the cloud ecosystem

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7

8

9

10

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1 Go Local – Language & Pricing localization for better market penetration – SuccessFactors, Salesforce.com

2 Local Infrastructure Presence – To showcase market commitment & remove latency issues – Salesforce.com, Amazon AWS

3 Local R&D Presence – For better market understanding & acceptance – IBM, Dell, HP, Microsoft, SuccessFactors

4 Aligning Strategy to Government Policy – For better revenue realization – IBM

5 SMEs Penetration – Extremely critical for scaling in the market – HP, Microsoft, Salesforce.com

High Touch, Local Field Sales Team Essential – For better market reach – Microsoft, Salesforce.com

Special Economic Zones/ IT Parks – To enable conducting business easier & market acceptance – Joyent, IBM, Google

University Partnerships – For local product innovation & ecosystem development – Google, EMC, IBM

Telecom Service Providers – For gaining immediate market foothold– Leading Telecom Providers in BRICSS

Increasing Private Cloud Adoption – To leverage legacy investments & mitigate security risk – Dell, IBM, HP

Alliances – Critical to operate in the market & reach out to potential customers – IBM, Dell, Oracle, Microsoft

Zinnov Confidential

In a market with close to 3 billion population, partnerships – both strategic and operational, are extremely critical

19

Re-Branding & LocalizationSMB AccessVertical AccessDirect Customer/

Channel Access

Complimenting Capabilities Government

Operational Partnerships

Strategic Partnerships

1 2 3 4

5 6

Source: Zinnov analysis of Interviews with multiple senior stakeholders from the cloud ecosystem

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