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SMBs flock to Web-based HR trend

Vendors are finally catering to SMBs clamoring for Web-based HR software that larger companies love.

If you haven't gotten a call from a vendor trying to sell you on-demand software for your human resource services, wait a few seconds. The race is on to convert small and midsized businesses to fans of Web-based human resources software services, according to AMI-Partners Inc. The New York-based research firm reports that niche vendors, such as Employease, Spectrum, Softscape and SmartOnline, are targeting the SMB space as the next growth market for software-as-a-service human resource solutions. And SMBs are opening their wallets and are preparing to spend.

Several trends are fueling their enthusiasm.

"Small and medium businesses can't afford to spend a lot on outsourcing human resource services," said

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AMI analyst Sau Lam, author of the study. On-premise HR applications can be just as costly and too time-consuming for most SMBs to deploy and manage. At the same time, SMBs need sophisticated human resource functions to compete for, train and keep employees, as well as to meet increasingly complex regulatory requirements, Lam said.

About 34% of midmarket companies already use Internet-based HR services, according to AMI. AMI defines medium businesses as companies with 100 to 999 employees, smaller businesses with fewer than 100 employees, have been slower to latch on to Web-based solutions, with 21% currently using hosted or on-demand applications for HR. Those numbers are expected to grow, Lam said, as vendors do a better job of tailoring the software packages to SMB needs and pocketbooks.

"We've seen a steady increase," Lam said. It's not surprising that smart SMB managers want Internet-based HR apps. The "schocker," Lam said, is that vendors have finally figured it out.

To tap into a ready and willing SMB customer base, vendors must be prepared to offer a flexible services mix, or "one that provides choice plus an ability to integrate with other related offerings from other SaaS providers, packaged software vendors and business process outsourcers," Lam said.

SMBs want the best practices expertise of larger companies, and a rented software model gives them access to that without a large upfront investment, said Christopher Faust, vice president of global strategy for Softscape Inc., a provider of human resource software. While Fortune 500 companies continue to be its bread and butter, the Wayland, Mass., provider has turned to midmarket companies to drive future growth.

"Most of these companies are dealing with paper. They need something fast to write up all the Word and Excel files that are going via e-mail. On-demand can be deployed in a matter of days," he said. "They have complex problems, but they want to simplify."

Five years ago, Faust said, the conversation was fundamentally different, with midmarket companies and small businesses reluctant to take a chance on the hosted on-demand model and concerned about security issues. "The technology has grown up," he said. "And at the same time, customers recognize that guys like us have a secure hosting facility and besides we can save them money."

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