Posted by Paul Mah
Aug 11, 2009 3:41:15 AM

A recent report suggested that 40 percent of small and medium businesses surveyed are already adopting some aspect of Software as a Service (SaaS). Based on their study, Saugatuck Technology predicted that SMB adoption of SaaS would rise up to 65 percent in the next two years. This is somewhat higher than the 57 percent pegged by the enterprise. 

One possible reason noted for the higher up-take of SaaS in SMBs is the higher cost pressures resulting from the depressed economy. Of course, while SaaS have matured significantly from just another nice catch-phrase, what it encompasses exactly is still a growing concept. 

As an example, there is a growing trend of companies migrating their e-mail servers from server closets or even data centers to external providers. This neatly eliminates the various associated maintenance and replacement costs of owning one's own server hardware -- and is also typically categorized as a move toward SaaS. 

My point here is that we need to carefully identify the niches where SaaS adoption is beneficial. Having said that, though, what are some compelling reasons for SMBs to embrace SaaS now rather than later? 

Lower risks for SMBs 

Smaller firms will probably find it much easier to adapt SaaS in contrast to enterprises. For one, the smaller size of SMBs means that the project risk is lower when it comes to implementation. Certainly, it is much easier for a smaller firm to switch to a new SaaS-based HR system than a larger one with, say, a few thousand employees. Similarly, the SMB's smaller size generally means that even when hiccups happen, the problems will likely be more limited in scope and rectifiable. 

Opportunity for business process alignment 

The lower implementation risk for SMBs aside, I feel that the adoption of SaaS also affords fledging SMBs the perfect opportunity to align their business processes.  The truth is that many small businesses are poor in their business processes, and the groundwork needed to shift to a SaaS provider will necessarily force them to rethink this aspect of their businesses. Personally, I would compare this process to the analysis phrase of a micro-scale ERP. 

Moving ahead, you are probably curious about some practical ways that an SMB can take to adopt a SaaS approach. Well, I will be covering that in my next blog.