Vendors to crank up SaaS offerings to SMBs next year

Small and medium-sized businesses will outpace enterprises when it comes to IT spending in 2007 -- and vendors will delve deeper into SaaS to reach them.

Small and medium-sized businesses are expected to have a little bit more to spend next year than this year, say experts. As a result, enterprise vendors are wooing SMBs with Software as a Service (SaaS) rather than scaled-down versions of their enterprise products.

That prediction comes courtesy of Framingham, Mass.-based consultancy IDC, which has just released its predictions for 2007, "Prospering in an Era of Hyper-Disruption."

Frank Gens, IDC senior vice president of research, said worldwide IT spending will grow by 6.6% next year, but SMB IT spending will grow by 8.4%

Gens said SMBs will represent between 50% and 70% of the potential market for IT vendors in 2007, presenting a challenge.

"It's extremely difficult traditionally for IT vendors to reach SMBs," he said. "Just the cost of marketing to them, selling to them, servicing them, has been challenging."

SaaS products are subscription-based, online enterprise tools that are cheaper and easier for SMBs to acquire and manage. While many enterprise-class IT vendors, such as IBM, have attempted to reach SMBs with scaled-down, traditionally licensed versions of their enterprise software products, major vendors are going to expand their SaaS portfolio to reach deeper into the market. Gens said IBM, in particular, will have to "crank up" its SaaS offerings in 2007.

"Last year at this time, neither SAP nor Microsoft had SaaS offerings," Gens said. "We predicted that by the end of 2006 they would step into the pool. And SAP announced CRM on-demand and then a month or two later Microsoft announced Dynamics Live CRM. Microsoft and SAP and other major players are not just going to let Salesforce.com and other SaaS companies take a lead or grab too much of a lead in that market."

Gens said the expansion of SaaS offerings does not mean major vendors will abandon trying to reach SMBs with licensed software products.

"The temptation is to look at this as black and white, with everything as a service. I don't really believe that," he said. "SaaS, that's going to be one piece of a portfolio of different offerings that it's going to take to be successful in an SMB sector. The focus for on-premise [licensed] software is to simplify those technologies and to make it easier for channel partners to get into those companies."

Microsoft and SAP and other major players are not just going to let Salesforce.com and other SaaS companies take a lead.

Frank Gens, senior vice president of research, IDC

SMBs will also be investing in "service as a software" in 2007. "A lot of the players will cut right to the chase. Salesforce.com has brought sales force automation as a service. But what if you were not just to take sales force automation online, but you had lead-generation services and marketing services online. Not just the software, but the services that support your sales force. We will see that more of these online software providers are going to see if they can be more about online business services."

Gens said the market is seeing this already. In August, Automated Data Processing Inc., a payroll processing firm, bought Employease Inc., a provider of online, on-demand human resources and benefits management services.

The expansion of on-demand business services will allow SMBs to focus on their core competencies, Gens said.

Jim Jones, a network administrator at WTC Communications Inc., a small, Wamego, Kan.-based telecommunications company, said his IT budget is actually shrinking this year.

Jones said the decline in his budget isn't due to a lack of new investments. His company virtualized its servers a couple of years ago, which has dramatically driven down the demand for new infrastructure.

"Our budget is shrinking next year, but that is because virtualization has made everything so easy," Jones said. "We're not spending as much money on hardware. We're not having to buy new servers, but we're not even figuring any power or cooling increases next year. So [the budget] this year is probably going to be half of what it usually is."

He said his company is looking at adding storage capacity in 2007 to accommodate some new services it plans to offer customers. He said his company has no plans to buy SaaS products in 2007.

Let us know what you think about the story; email editor@searchcio-midmarket.com.

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