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| SaaS Most Popular among Low-Mid Sized SMBs [ Enterpriser ] |
| October 12, 2008 12:21 AM |
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By enterpriser staff | Oct 10, 2008 1725 hrs IST
Software-as-a- Service (SaaS) is typically promoted as a key competitive advantage for Small and Medium Businesses (SMBs) worldwide. Saugatuck's research report titled "Different Wavelengths: SMBs, Change, and SaaS Adoption" indicates that the most aggressive adopters of SaaS tend to be low-mid sized SMBs.
But, the same research also mentions that too often SaaS providers' approaches and offerings fail to resonate with SMB executives and IT buyers. The vendors tend to focus on business advantages more germane to larger firms. They tend to promote interesting, useful and exciting technological advantages or they fail to perceive important differences in SaaS awareness and buying based on key sub-categories of SMB.
At the same time, business and IT executives are increasingly caught in a pattern of aggressive SaaS adoption activity without strategic or tactical plans. They tend to implement SaaS as cost-saving point solutions for important business process needs, without developing or executing effective governance regarding SaaS acquisition or implementation.
In fact, most SMBs don't even seek SaaS solutions as part of their business software acquisition activities; they tend instead to encounter SaaS in an almost haphazard fashion. As a result, many SMBs will soon face expensive integration requirements to link disparate SaaS solutions together and with on-premise systems.
But again, not all SMBs are the same. Not all pursue and implement SaaS in the same manner. An emerging generation of SMBs are seeking out and implementing SaaS - and its close cousin, cloud computing - to enable flexible, cost-effective IT and business infrastructures that could enable them to outpace their peers.
Why is it Happening?
Based on the findings, SMB executives tend to see offerings and related positioning that assume smaller firms have smaller needs; that promote useful but not critical technologies; and/or that group all SMBs together.
Saugatuck's new research shows why these approaches often fail SaaS providers pursuing SMBs. The research firm finds three basic groups of SMBs based on current SaaS buying and usage preferences and behavior. These core differences thwart many SaaS provider sales approaches:
Small Companies: Executives from small firms tend to adopt SaaS solutions for one or two simple, important business processes, such as payroll. And they rarely look for SaaS per se. They usually find a SaaS solution, while looking for traditional software offerings, to address a business process need that can't be satisfied by existing applications.
Low Mid-sized Companies: These are the most SaaS-aggressive firms when it comes to the rate of SaaS adoption growth. Low-mids are buying and implementing SaaS at rates faster than any other size of firm, up to and including the largest mega-enterprises. And even though low-mid executives are more likely to seek SaaS, they too are focusing on specific business process needs and keeping their SaaS adoption tightly focused.
For small and low-mid sized companies, Total Cost of Ownership (TCO) is often the winning factor over traditional on premise systems especially for traditional solution categories such as payroll and core financials. TCO is a secondary factor when SaaS solutions have unique value-add that is difficult to compete against from a feature/function perspective.
High Mid-sized Companies: Contrary to conventional wisdom and most expectations, these firms are among the least-likely adopters of SaaS overall, including among SMBs. They tend to have established solid IT and business infrastructures and processes and see SaaS as a means of fleshing out their portfolios and capabilities.
Secondly, there are some core characteristics that SMBs exhibit as a group and which don't fit with many SaaS provider sales and marketing approaches. These include the following:
The manner in which SaaS solutions are acquired has changed significantly from 2007 to 2008. An increasing trend away from collaborative business-plus-IT review of SaaS acquisition cases is seen. Also, an increasing focus on IT-specific and business-specific review and approval is noticed. SMBs as a group are much more likely than larger firms to emphasize business user/executive case review and approval. For SMBs, the IT sale doesn't work.
Thirdly, research shows a small, emerging group of SMBs that test the above findings to some extent, mainly by showing that not all members of a group show all the tendencies of the group. While these emergent firms represent a very small slice of just SMBs worldwide today, they're the harbingers of change in business IT adoption within the next few years.
Labeled by Saugatuck as "The New SMB," these firms forego most if not all traditional IT and establish themselves from the start with SaaS- and cloud-based IT. They tend to be at the bleeding edge of SMB IT strategy today, but Saugatuck expects them to be the model for procurement, adoption and use of IT, SaaS and cloud computing within four years.
Market Impact:
SMB-focused marketing and sales by SaaS providers will evolve to better address size-based differences. If they don't, SaaS providers will risk losing one of their own most powerful marketing themes - the business advantages inherent in a flexible, on-demand software solution.
SaaS and cloud computing providers, with Value-added Resellers (VARs), integration- and Platform-as-a-Service (PaaS) players and Systems Integrators (SIs) will find a rapidly growing set of opportunities and demand around the integration of SaaS offerings with other SaaS offerings and with SMB on-premise systems.
Even when SaaS and cloud providers offer integration services, many - possibly most - SMB executives will still look first to their trusted VARs and SIs, with whom they've developed relationships. This should emphasize the importance of channel strategies for SaaS and cloud providers when it comes to reaching SMBs.
The emergence of "The New SMB" will help fragment SaaS positioning, sales and marketing. These SMBs basing their entire business and IT infrastructure on SaaS and cloud computing will be at one end of the spectrum; meanwhile, at least through 2012, traditional SMBs buying and using one or two simple SaaS applications will continue to exist and thrive, and will tend to resist being upgraded to more complex and costly services by their SaaS providers. This will affect SaaS provider business strategies, channel strategies, and margins.
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