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Managed/Hosted Data Services— A Snapshot of Satisfaction with Cloud and Hosting Services A Special Report by J.D. Power and Associates July 2011 A Global Marketing Information Company | businesscenter.jdpower.com

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Page 1: Managed/Hosted Data Services— A Snapshot of Satisfaction ... · Among all small, mid-size, and large enterprise businesses that use their primary data provider for cloud or hosting

Managed/Hosted Data Services— A Snapshot of Satisfaction with

Cloud and Hosting Services

A Special Report by J.D. Power and Associates

July 2011

A Global Marketing Information Company | businesscenter.jdpower.com

Page 2: Managed/Hosted Data Services— A Snapshot of Satisfaction ... · Among all small, mid-size, and large enterprise businesses that use their primary data provider for cloud or hosting

Copyright © 2011 by J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

The information contained herein has been obtained by J.D. Power and Associates from sources believed to be reliable. However, because of the possibility of human or mechanical error by these sources, J.D. Power and Associates does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or for the results obtained from use of such information.

This material is the property of J.D. Power and Associates or is licensed to J.D. Power and Associates. This material may only be reproduced, transmitted, excerpted, distributed, or commingled with other information, with the express written permission of J.D. Power and Associates. The user of this material shall not edit, modify, or alter any portion. Requests for use may be submitted to [email protected]. Any material quoted from this publication must be attributed to “Managed/Hosted Data Services—A Snapshot of Satisfaction with Cloud and Hosting Services, published by J.D. Power and Associates, © 2011 by J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.” Advertising claims cannot be based on information published in this report.

Table of ContentsIntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Satisfying High-Value Customers Is Imperative . . . . . . . . . . 1

Loyalty, Brand Advocacy Impact Financial Performance. . . . 2

The MHDS Customer Experience . . . . . . . . . . . . . . . . . . 3

Providing Efficient MHDS That Satisfies Customers . . . . 4

Impact of MHDS on Primary Data Services. . . . . . . . . . . 4

Winning Customers through Satisfaction . . . . . . . . . . . . 7

Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

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Managed/Hosted Data Services—A Snapshot of Satisfaction with Cloud and Hosting Services July 2011

© 2011 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

IntroductionAs data carriers strive to be the “one-stop shop” for telecom and IT directors at small, mid-size, and large enterprise businesses1 across the United States, J.D. Power and Associates research indicates that, collectively, these carriers need to improve the service experience if they are to make that goal a reality. J.D. Power research finds that business customer satisfaction with managed/hosted data services (MHDS) is lower when those services are provided by data carriers, compared with the experiences of business customers serviced by IT solutions providers. By providing a level of MHDS service that is a step below traditional IT solutions providers, data carriers risk losing their core telecommunications business, a portion of the data market representing upwards of $2.5 billion in annual revenue. Given the agility that managed/hosted solutions afford businesses of all sizes, the potential for rapid detection of business customers to leading solutions providers is very real. These include RackSpace and Cisco for data outsourcing, Amazon for cloud infrastructure, and Google for turn-key apps.

With the threat of data service provider churn looming, it is crucial for data carriers intending to grow their MHDS business to establish themselves as cost-effective, agile, reliable, capable of providing customizable solutions, and—most importantly—customer-centric, given the risk of half-stepping into the industry.

Satisfying High-Value Customers Is ImperativeWith nearly 3 million small, mid-size, and large enterprise businesses in the United States currently using cloud or hosting services, primary data carriers that fail to provide an exceptional customer experience will also fail to fully capitalize on this growth vehicle. Data providers, in particular, may be in danger of negatively impacting their primary business and potentially sacrificing $2.5 billion in annual revenue, according to the J.D. Power and Associates 2011 US Major Provider Business Telecommunications StudySM—Data Services.

Among all small, mid-size, and large enterprise businesses that use their primary data provider for cloud or hosting services, 4% indicate they “definitely will” switch their primary data provider within the next year. These businesses spend an average of $50,000 annually for both data services and equipment. Failing to satisfy these high-value business customers represents a significant missed opportunity. If these businesses follow through on their stated intention to switch, the lost revenue on an aggregated basis would have a profound negative financial effect on the providers they leave.

1 Small and mid-size businesses are defined as having two to 499 employees. Large enterprise businesses are defined as having 500 or more employees.

With nearly 3 million small, mid-size, and large enterprise businesses in the United States currently using cloud or hosting services, primary data carriers that fail to provide an exceptional customer experience will also fail to fully capitalize on this growth vehicle.

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July 2011

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Managed/Hosted Data Services—A Snapshot of Satisfaction with Cloud and Hosting Services

© 2011 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

Financial Impact

Chart Elements Verification Timeline of Changes/Updates

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Financial Impact

Source: J.D. Power and Associates Figure 1

13.5 MILLIONUS Businesses with 5+ Employees

X% of Businesses Using MHDS with Their Primary Data Provider

4%Definitely Will Switch Their Data Provider in the Next 12 Months

$2.5 BILLIONPotential Revenue Lost

to Competitors

$50,000Annual Data Spending of Those Buying MHDS from Their Primary Data Provider

Source: J.D. Power and Associates Figure 1

Loyalty, Brand Advocacy Impact Financial PerformanceJ.D. Power has identified quantifiable links among loyalty, brand advocacy, and customer satisfaction, which clearly impact financial performance. A highly satisfying experience is paramount, as it leads to the creation of sustainable revenue and brand advocacy in either a B2C or B2B setting. This impact is measurable and further reinforces the need to create and maintain a culture in which satisfying each business customer is of the utmost importance, given the impact that the customer experience has on the bottom line.

Only 12% of business data users indicate that they have outsourced some portion of their IT operation to a third-party managed/hosted service provider (MHSP) at a remote data center. Just 8% of home-based businesses indicate they are using MHSPs and remote data centers, while 20% of small and mid-size businesses and 30% of large enterprise businesses are doing so. One-third of those using a third party indicate they are using cloud services—data and software services accessible via remote network rather than a local network. The majority of these businesses (59%) are using Software as a Service (SaaS), such as salesforce.com or netsuite.com. In addition, they also use Platform as a Service (PaaS) to build Web applications and Infrastructure as a Service (IaaS) rather than purchasing servers, networking equipment, and data center space. Hosting services are the most common application, with 76% of those using a third-party MHSP also utilizing some form of hosting service, predominantly dedicated servers or shared servers.

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Managed/Hosted Data Services—A Snapshot of Satisfaction with Cloud and Hosting Services July 2011

© 2011 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

The MHDS Customer ExperienceCloud services are integral in driving e-commerce, as more than 48% of businesses using MHDS are utilizing some form of website hosting and/or e-commerce solution. The table below illustrates usage rates of particular services offered by managed/hosted service providers. In addition to e-commerce solutions, adoption rates are high for email services, network security management, and payroll. The services utilized are dictated by business need and, as discussed further in this report, are also dependent on the capability and specialties of the MHSPs themselves.

MHDS Usage

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Source: J.D. Power and Associates 2011 US Major Provider Business Telecommunications StudySM—Data Services Figure 2

0%

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GeneralAccounting

Knowledge-BaseDevelopment

PaymentProcessing

PayrollNetwork SecurityManagement

EmailServices

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Source: J.D. Power and Associates 2011 US Major Provider Business Telecommunications StudySM—Data Services Figure 2

While some businesses employ information technology resources from companies that are data carriers (i.e., telecommunications companies providing data networks), others utilize companies more accurately characterized as IT solutions providers—both types of providers vary in size and specialization. Businesses purchasing their applications from IT solutions providers are more likely to purchase knowledge-base development and maintenance service; order processing and fulfillment; and network security management than do business customers that use data carriers. Business customers using a data carrier as their MHSP are significantly more likely to have a website that requires payment processing for orders and requests for services and products (56%). In comparison, just 36% of businesses utilizing an IT solutions provider as an MHSP have a website with payment processing requirements.

Business customers have underlying expectations, based on the services they subscribe to, and it is critical for MHSPs to deliver on these expectations. According to the 2011 US Major Provider Business Telecommunications Study—Data Services, business customers that subscribe to unified communications provide a rating for their overall experience with IT service provided of 7.58 (on a 10-point scale). Comparatively, those business customers that use an MHSP for payroll rate their experience just 6.69.

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Managed/Hosted Data Services—A Snapshot of Satisfaction with Cloud and Hosting Services

© 2011 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

Providing Efficient MHDS That Satisfies CustomersJust as MHSP service offerings differ between data carriers and IT solutions providers, satisfaction levels also differ. Overall, business customers purchasing applications from an IT solutions provider are notably more satisfied with the information technology services and support provided to them than those that utilize a data carrier for these services (providing ratings of 6.64 vs. 6.34, respectively). Business customers of IT solutions providers are more satisfied in all aspects measured, with the exception of Reasonableness of contract terms. By reinforcing the value proposition and improving support systems, MHSPs may foster loyalty and dependence on the solution itself, and, ultimately, create additional sales opportunities.

Satisfaction with MHDS

  MHSP

  Data Carrier IT Solution Provider

Overall satisfaction with IT services 6.34* 6.64

Price paid for services provided 6.27* 6.40

Effectiveness of customer support services available 6.24* 6.47

Variety of applications/systems they maintain 6.32* 6.57

* Caution small sample Source: J.D. Power and Associates 2011 US Major Provider Business Telecommunications StudySM—Data Services Figure 3

Further, the data indicates that a relative strength for IT solutions providers is the breadth of services they offer, which can vary from human resources solutions to supply-chain management. Business customers using data carriers as MHSPs also provide lower ratings for Variety of applications/systems they maintain (6.32 vs. 6.57 for business customers that use IT solutions providers), highlighting the need for continued customer experience measurement. Accordingly, IT solutions providers are perceived as being more capable of delivering a customized product.

Impact of MHDS on Primary Data ServicesAnother key observation is that outsourcing IT resources to an MHSP may significantly impact customer loyalty with the primary data service provider. Reflecting the continuing migration to outsourcing, businesses using MHDS are much more likely to have switched their primary data services provider in the past year than are businesses that indicate not using an MHSP (16% vs. 9%, respectively). While 17% of business customers using hosted services have switched their primary data service provider, 25% of those using cloud services have switched providers.

Business customers using MHDS also have a higher propensity to switch from their current primary data services provider in the future. While 4% of businesses using MHDS indicate they “definitely will” switch their primary data services provider in the next 12 months, an additional 20% say they “probably will” do so. In comparison, just 2% of businesses not utilizing MHDS indicate they “definitely will” switch their provider in the next 12 months, and 17% “probably will” do so. Purchasing MHDS increases switching propensity by more than 30%. Notably, switching intent is higher among businesses that use cloud services

Just as MHSP service offerings differ between data carriers and IT solutions providers, satisfaction levels also differ.

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Managed/Hosted Data Services—A Snapshot of Satisfaction with Cloud and Hosting Services July 2011

© 2011 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

than among those that use hosting services, reflecting the agility that cloud services provide businesses. Nearly one-third (32%) of businesses using cloud services indicate they “definitely will” or “probably will” switch their primary data services provider, while 24% of businesses using hosting services are likely to do so.

Customer Intent to Switch Data Provider

Chart Elements Verification Timeline of Changes/Updates

Elements Yes Type of Deliverable (Report, White Paper, Case Study, etc.)

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Source: J.D. Power and Associates 2011 US Major Provider Business Telecommunications StudySM—Data Services Figure 4

0%

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Hosting ServicesSubscriber

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Source: J.D. Power and Associates 2011 US Major Provider Business Telecommunications StudySM—Data Services Figure 4

While business customers of MHDS services are more likely to switch their primary data services provider, working against this stated intent is that these same businesses are significantly more concerned about the possibility of losing service during a transition to another data services provider. In particular, cloud users consider service continuity or survivability a greater priority, on average. However, given the agility that cloud services afford them, businesses do not necessarily perceive much difficulty in switching. While 11% of those using cloud services indicate continuity is the main reason in staying with their current provider, in comparison, just 6% of businesses not using MHDS indicate these risks are the main factor in staying with a particular carrier. Further, 7% of businesses using cloud services indicate it would be “very difficult” to switch their primary data service” provider, compared with 11% of businesses that use MHDS in general. It is likely that businesses are realizing the level of agility afforded to them by using the cloud and may find it easier to switch primary data service providers because the cloud is accessible from any carrier, which may not necessarily be the case for hosted services.

Just 16% of businesses using cloud services indicate the main reason they would stay with their current primary data provider is because they are satisfied with the service. This proportion is not indicative of long-term customer loyalty. Cloud services users cite satisfaction with their current data service provider as a barrier to switching at half the rate of non-MHDS customers (16% vs. 31%, respectively). To understand business customer actions and future intentions, the underlying drivers of satisfaction and needs were examined.

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Managed/Hosted Data Services—A Snapshot of Satisfaction with Cloud and Hosting Services

© 2011 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

Overall, purchasing MHDS does not have a significant impact on perceived difficulty of switching the primary data service provider. Indeed, 54% of business customers state that switching their current data provider would be “somewhat difficult.” Of note is the stickiness created when solutions are provided by a data carrier. Those business customers using a data carrier are twice as likely to say it would be “very difficult” to switch their primary data provider as those that purchase third-party services from an IT solutions provider (16% vs. 7%, respectively).

In general, whether or not businesses subscribe to MHDS has a significant impact on satisfaction with the primary data services provider. Overall satisfaction with the business data provider is 613 (on a 1,000-point scale) among those not subscribing to any MHDS, and is 598 among those subscribing to some form of MHDS. The 2011 US Major Provider Business Telecommunications Study—Data Services measures satisfaction in six factors, four of which are used in this analysis. While cloud users are, on average, more satisfied than the industry overall in the Offerings and Promotions and Cost of Service factors, there is room for improvement with regard to customer “touch points.”

Differences are prominent at the Customer Service factor level: those using MHDS have lower satisfaction than do those that do not use MHDS (559 vs. 607, respectively). Satisfaction with this customer support aspect is significantly lower among business customers subscribing to cloud services (560). Customer Service satisfaction among businesses subscribing to MHDS products from a data carrier is just 459 (caution: small sample size), compared with 580 among businesses that have service with an IT solutions provider. Similarly, scores for the Sales Representatives and Account Executives factor are negatively impacted when businesses subscribe to hosting services—the score is just 614 among those that purchase a hosting service, compared with 633 among those not using MHDS.

Primary Data Provider—Satisfaction Scores

  MHSP Type of MHDS  

  Data Carrier

IT Solutions Provider

Cloud Services Subscriber

Hosting Non-MHDS Users

Overall Satisfaction Index 592 600 621 606 613

Customer Service Index 459* 580 560 574 607

Sales Reps and Account Exec Index 595 647 622 614 633

* Caution small sample Scores shown on 1,000-point scale Source: J.D. Power and Associates 2011 US Major Provider Business Telecommunications StudySM—Data Services Figure 5

J.D. Power forecasts an explosion in the near future in the number of business solutions applications available, and applications are likely to grow more diverse in nature. Because MHSPs offer a wider range of products, end-user self-service may grow more difficult. As a result, MHSPs may need to step up service systems, increase training, and increase the number of single points of contact for business customers in mid-size and large enterprise businesses. If customer support is non-existent or lacks depth, it could signify major difficulties ahead for data carriers in particular.

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© 2011 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

As might be expected, businesses in all segment sizes that subscribe to MHDS spend significantly more on their primary data services than do businesses that do not subscribe to MHDS. For example, among small and mid-size businesses, average monthly spending on primary data services among those that use MHDS is more than 50% higher than among those that do not use MHDS. Further, these same businesses that purchase MHDS spend twice as much on monthly equipment needs than do those businesses that haven’t outsourced any of their IT resources.

Providing a particularly satisfying experience with MHDS may drive even more revenue. In general, J.D. Power and Associates finds that highly satisfied telecommunications services business customers are more likely to purchase additional products and are more willing to pay a premium for high levels of service quality. Likewise, a satisfying experience with MHDS reduces intentions to switch primary data service providers in the future. Among those business customers that provide a rating of 10 (on a 10-point scale) for the overall experience with their MHDS provider, just 10% say they are likely to switch their primary data provider. This churn rate balloons to 25% among business customers that provide ratings of 1-4 for their MHDS experience.

Clearly, managed/hosted data services are a growth opportunity for telecommunications companies. They can also serve as a growth engine for the businesses that use them. In a recovering economy, predictable costs and efficiencies realized by MHSPs can be very attractive to businesses. In fact, businesses that are forecasting growth are 50% more likely to be currently purchasing MHDS than those businesses that are either stagnant or trending downward.

Much has been written about the need for carriers to provide MHDS. However, in this market, a “bad” launch is worse than a failure to launch. It is clear that IT personnel want a provider that makes Infrastructure as a Service (IaaS) as low-risk as possible. Aside from IT outsourcing powerhouses AT&T and Verizon, carriers such as CenturyLink2 and Windstream3 appear to be reacting to the demands of the market, as evidenced by their latest acquisitions in this area. The risk is apparent: carriers that don’t get this right could damage their core business—the direct opposite of their strategic intentions.

Winning Customers through SatisfactionTo adapt to industry changes, continue providing customer value, and increase customer satisfaction, J.D. Power and Associates recommends that MHDS providers undertake the following actions:

• Implement post-transaction tracking programs. Findings of the 2011 US Major Provider Business Telecommunications Study—Data Services show that business customers of MHSPs consistently rate their customer support experiences low, compared with ratings provided by business customers without hosting and cloud services. While businesses may subscribe to MHDS from their data provider in order to simplify their experience, they may find that having more products or services with their data carrier makes problem resolution even more complicated. It is crucial that carriers ensure that business customer needs are still being met in the days and weeks following purchases of additional services and upgrades, as new technology may pose new challenges for some businesses. Offering single-point-of-contact support and training,

2 CenturyLink to Acquire Savvis for $40 Per Share in Cash and Stock Transaction, CenturyLink Press Release, 4/27/11

3 Windstream Completes Acquisition of Web Host, Hosted Solutions; WebHosting News, 12/2/10

In general, J.D. Power and Associates finds that highly satisfied telecommunications business services customers are more likely to purchase additional products and are more willing to pay a premium for high levels of service quality.

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as well as soliciting feedback regarding the transition, in the weeks following service initiation and upgrades may instill business customers’ confidence in their IT investment, reduce escalated customer service contacts, and foster long-term customer loyalty.

• Understand the drivers of satisfaction and provide a distinct, consistent value to customers. Value is not purely a function of providing service and support at low cost. Value can be recognized in the price, product, or people with whom business customers interact. Business customers may be willing to pay a premium for an outstanding product and support team when they recognize the value in doing so. However, identifying competitive strengths and redefining or reinforcing the value proposition is an unending endeavor. More importantly, understanding what drives value and satisfaction will lay the foundation for improved lifetime business customer value and advocacy.

• Consistently provide an exceptional customer experience with MHDS. Given the impact of loyalty, brand advocacy, and customer satisfaction on financial performance, it is crucial for MHSPs to establish themselves as not only providers of custom IT solutions, but also as providers of products and services that are well supported, adaptable, and function seamlessly.

In a market characterized by intense competition for business customers, demand for innovation, and reduced equipment and service fees, future growth and profitability will depend on each data and IT solutions provider’s ability to satisfy their existing business customers and foster brand loyalty. To be successful, providers must commit their entire organization to measuring, promoting, and enhancing the business customer experience.

J.D. Power and Associates will continue to track satisfaction with the overall experience and the factors that provide the greatest impact, which will allow data and IT solutions providers to more accurately target marketing plans and measure performance diagnostics. As well, usage metrics and business profile data will be measured to track business customer intentions. Over time, these results may be used to create predictive models.

Authors

Steve KirkebyExecutive Director of Telecommunications Practice

Frank PerazziniDirector of Telecommunications

Ross Gagnon Research Manager

For more information, please contact

Steve Kirkeby ([email protected]), Frank Perazzini ([email protected]), or Ross Gagnon ([email protected]).

Alternatively, visit the company’s website: businesscenter.jdpower.com

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São Paulo, BrazilJ.D. Power do BrasilAve. Brigadeiro Faria Lima201-18° andarPinheiros, São Paulo - SP 05426-100BrazilPhone +55-11-3039-9777Fax +55-11-3039-9701

Mexico City, MexicoProl. P. de la Reforma 1015 Torre A Piso 17Col. Desarrollo Santa FeC.P. 01376 – Álvaro Obregón México, D.F.Phone +52-55-1500-5100 Fax +52-55-1500-5101

Global Offices

Europe

London, EnglandThe Surrey Research Park10-12 Frederick Sanger RoadGuildford, Surrey, GU2 7YD, EnglandPhone +44 1483 207600Fax +44 1483 457644

Oxford, EnglandJ.D. Power Automotive Forecasting60 St AldatesOxford, OX1 1ST, EnglandPhone +44 1865 207040Fax +44 1865 791252

München, GermanyOskar-von-Miller Ring 180333 MünchenPhone +49 89 288 0366 0Fax +49 89 288 0366 10

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