A new report out earlier this month finds that small and
medium-sized businesses are diving deep into the Software as a
Service (SaaS) market. But on its heels is a report from another
major research firm suggesting that SMBs may be kicking the tires,
but they're not buying.
 | | | | | SMBs are control freaks. That's
their lifeline and they don't want someone else messing up their
data.
James Browning
vice president and research directorGartner
Inc. |
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So which is it? Boom or bust? It really depends on which side of
the fence you're standing, said experts. It's a delivery model that
has everything to lure SMBs -- easy installation, low cost. But
some SMBs say they still have issues with security and
flexibility.
According to
Saugatuck Technology Inc., a Westport,
Conn.-based research firm, the percentage of businesses with one or
more SaaS applications in place increased from 11% in 2006 to 26%
in 2007. Growth among SMBs, defined as businesses with less than $1
billion in revenue, was even more dramatic: SMB adoption rose from
9% in 2006 to 27% in 2007.
William McNee, founder and CEO of Saugatuck, said SaaS, a
subscription-based, online software delivery model, is moving
beyond adoption by line-of-business managers as IT organizations
start investing in SaaS products with higher levels of
customization, collaboration and personalized workflow.
"SaaS will be moving from the edges of the business portfolio to
the core over time, and increasingly it will move into
mission-critical business service functionality," McNee said. "We
are forecasting that by 2011, a good 30% of all software deployed
in businesses will be SaaS."
There are plenty of proponents of SaaS for SMBs, including
Stamford, Conn.-based Gartner Inc., which recently published a survey
on SMB 2007 IT spending plans. But the poll shows that SMBs have
some doubts about SaaS.
According to Gartner, 45% of 307 U.S. SMBs said they don't trust
their data to third parties such as SaaS vendors. Only 7% of SMBs
strongly believed that SaaS was suitable for their organizations,
and only 17% said they would consider SaaS when its adoption became
more widespread.
"SMBs are control freaks," Gartner Vice President and Research
Director James Browning said. "They don't like giving up control
more so than large enterprises. It's just the culture. They have
less applications and less data. That's their lifeline, and they
don't want someone else messing up their data."
Despite his firm's findings, Browning said he is seeing SMBs
"kick the tires" on SaaS applications such as online backup. But,
he said, they are shying away from mission-critical
applications.
Bradley Gross, vice president of Diamond Design Inc., a small
diamond jewelry manufacturer in Akron, Ohio, said he prefers
traditional on-premise software to SaaS.
Gross once used a SaaS ERP solution from San Mateo, Calif.-based
NetSuite Inc.
"I was not happy with the performance of NetSuite when I was
online using it two years ago. Maybe it's improved since then, but
I didn't like the feel of it. The screen was always flickering. And
when I would pull down a drop-down menu, if you didn't click what
you needed right away the menu disappeared."
Gross has since switched to an enterprise resource planning
(ERP) product from Everest Software Inc. in Dulles, Va. He said he
prefers the level of customization he can get from an ERP vendor
who focuses on SMBs, as Everest does.
Gross also said he believes on-premise software is ultimately
cheaper than SaaS. He said he can expense out the initial capital
investment in the software license over time as it depreciates. He
estimates that once the license cost is fully depreciated, his
annual expense for Everest's software will be $2,500 for
maintenance, versus the $1,300 he would pay monthly to subscribe to
a SaaS ERP technology.
Everest Software CEO Edwin Miller said his company has offered a
SaaS version of its ERP product, but most SMB prospects prefer the
on-premise software.
"It's just still early," Miller said. "These companies want it
their way. They want to integrate this software. My customers are
saying, 'I want my software here. I need to integrate it.'"
Despite some voices of doubt about SaaS, clearly major vendors
believe there is a market to exploit. And they believe SaaS is an
excellent way to reach the SMB market. Last month Symantec Corp.,
one of the world's largest security vendors, announced its entry
into the SaaS market, with the
Symantec Protection Network.
Other research firms, such as Framingham, Mass.-based IDC, have
found
interest in SaaS among SMBs, with 5.1% of small firms and 15.2%
of medium-sized firms planning to adopt a SaaS offering this
year.
"There are more laggard categories, in particular core
financials and ERP. This is an area that is more laggard relative
to front office applications like CRM and sales force automation,"
McNee said.
McNee agreed that security has been a concern for SMBs with
SaaS, but he believes security concerns will fade.
"We anticipate that to change. A lot of it is just awareness and
overcoming some rather rudimentary business and technology
objections. At the end of the day, SaaS is as secure if not more
secure than on-premise solutions."
Let us know what you think about the story; email:
Shamus McGillicuddy,
News Writer