Vendors must educate companies about cost-savings regarding software as a service and open source technologies.
Posted Apr 19, 2005
Many SMBs don't know enough about software-as-a-service (SaaS) solutions to adopt them, and those that do worry about costs, according to an AMI-Partners study released today. Demand for SaaS is on the rise, however, and big players like IBM and Microsoft may be the ones to convince SMBs it's time for a change.
"Software-as-Services: Moving On Demand To In Demand with SMBs" examines the strategies taken by leading vendors like Salesforce.com, Intuit, and Employease to speed up adoption of such services by smaller businesses. AMI forecasts that worldwide spending for SaaS will increase at more than 40 percent CAGR between 2004 and 2009. If they want a share of this potential revenue, however, vendors must expand their products and marketing models to align with the different ways smaller businesses purchase and use business solutions. "We do see adoption occurring in the SMB market for these services, but it hasn't reached that tipping point," says Laurie McCabe, vice president of SMB insights and business solutions at AMI-Partners, and the report's author. Although the people who are using it are happier and rarely go back to using software, she says, "it is still a really fragmented market."
One of the biggest challenges for SaaS vendors is branding, according to McCabe. Most of the 13 vendors interviewed for this study are smaller names, so referrals and word-of-mouth, or viral marketing, may help them gain customers. Once IBM or Microsoft comes out with an offering, it will be the catalyst that propels SaaS into the public's eye, likely within the next year to 18 months, according to McCabe. IBM is working on a software solution package and Microsoft has hinted at working on a similar platform. McCabe suggests a wild card like ebay may just surprise the market with an offering of its own. Either way, it will have to be a name small business professionals have come to recognize and trust enough to try something new with them.
Other problems are cost and lack of education. Many of the SMBs that already use SaaS wanted it because it reduces upfront costs. On the flip side, the people who don't want it say it's too expensive. "People are looking at the sticker price and not the soft costs," McCabe says. While purchasing software looks cheaper at fist glance, companies aren't taking into account upgrade costs and the price of in-house IT staff.
If SaaS vendors want to tap into the more cost-conscious SMB market, they need to do a better job of crystallizing the cost equation for customers and focus on ease-of-use. "Some people are using these services and they don't even realize it," McCabe says. "They probably think they're just using business processes."
Helping SMBs realize ROI remains a hurdle for vendors as SMBs constantly look to keep costs in check. AMI-Partners today released another report that reveals SMBs showing an affinity for Linux, perhaps threatening installations of older Windows servers. "U.S. SMB Linux Adopter Profile," shows companies with 100 to 249 employees are more likely to use Linux and open source in the face of tight IT budgets. SMBs owning or planning to own Linux desktops or servers in the next year have twice the number of employees and twice the annual revenue of those that don't. Those owning Linux exhibit three times the IT spending of those that don't and are more aggressive in upgrading PCs and servers, the report shows.
The ultimate step for SaaS vendors would be to find ways to combine SaaS with business processes for even deeper integration. "These applications that are delivered as services," McCabe says, "make sense in a lot of cases."
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