SMBs Are Embracing Enterprise Software

A growing number of small and medium-sized businesses (SMBs) are waking up to the benefits of enterprise software, according to a new study by AMI-Partners. The study shows that enterprise adopters--Tier 1 SMBs who view the use of technology solutions as a strategic means to drive growth--are significantly more likely to use enterprise software solutions than are SMBs in other tiers. The study, entitled "2006-2007 U.S. SMB Business Applications and Solutions Segmentation Report," categorizes SMBs into four distinct tiers based on their use of technology: adoption; needs and attitudes for customer targeting; product positioning; and focused offerings.

• TIER 1 Enterprise adopters embrace new solutions similarly to large enterprise counterparts and drive the lion's share of technology spending.
• TIER 2 Early adopters embrace new solutions to optimize productivity, but lack the resources needed to deploy full-scale solutions.
• TIER 3 Value adopters implement solutions after others have done so with a relentless focus on costs.
• TIER 4 Needs-help adopters employ solutions only at the threat of losing customers or suppliers.

While Tier 1 SMBs make up just over 6 percent of the SMB market, they spend 10 times more on technology, and twice as much on CRM and ERP solutions, as their Tier 4 brethren, according to the study. "Even though Tier 1 SMBs account for the smallest percentage of the overall SMB universe, they're dramatically outspending Tier 3 and Tier 4 SMBs on IT," says Sau Lam, a research analyst at AMI-Partners, and author of the report. When broken down into small businesses (SBs) and medium-sized businesses (MBs), the gap is even more pronounced. Among the MBs, Tier 1s spend four times more on CRM and ERP solutions than Tier 4s do. The study also shows that the top two Tiers account for almost three-quarters of SB spending on CRM and ERP solutions, and more than three-quarters of similar spending in the MB segment. Lam says enterprise and midmarket software vendors should heed these statistics, as Tier 1 and Tier 2 SMBs view this software the same way enterprises do: as strategic assets critical to growth. "Enterprise-solution vendors must understand the different needs and sophistication levels of these segments, and must craft go-to-market strategies with products, marketing, channels, and pricing aligned to the needs of each segment," Lam says. One factor driving this increased appetite is software-as-a-service (SaaS), as spending on this delivery model is expected to increase. Forty-one percent of Tier 1 SBs and 33 percent of Tier 2s expect to increase SaaS spending over the coming year, and Tier 2 MBs are most likely (46 percent) to expect to spend more on SaaS. At least one-third of every other tier is also expected to increase SaaS spending, according to the study. Other findings include the fact that Tier 1 and 2 SBs are more likely to buy software directly from packaged-software vendors, while Tier 3 and 4 SBs are more likely to do so from regional or national retail chains, underscoring the smaller size and limited technology budget inherent to the space. While Tier 1 and 2 SMBs have bigger technology budgets and are more likely to invest in high-end solutions, vendors shouldn't overlook Tiers 3 and 4: They're the prime target for solutions that are easy to use, manage, and implement, the solutions designed for smaller budgets, Lam says. "Understanding the similarities and differences among these four segments of the SMB market will help vendors better tailor their solutions to meet the requirements and needs of a fragmented SMB marketplace," he adds. Related articles: Database and Storage Markets Keep Growing Two reports detail the strong growth in SMBs looking to host heterogeneous technology environments. SMBs Showing Increased Appetite for Converged Communications SMBs enjoy an expanding IP communications and managed services market, but no dominant players have yet emerged. Beyond Office 2007 Despite a strong market, small businesses are still warming up to the idea of online personal productivity software. SaaS Is a Four-Letter Word for SMBs Adoption by SMBs continues to increase, but many smaller companies remain wary of the software-as-a-service concept. SMBs Find Commonalities and Differences Small and medium businesses have similar broad needs when it comes to technology, but considering them one group may be a mistake.