The Right SaaS Pitch For SMBs

"If traditional midmarket VARs don't change to meet the demand for cloud computing solutions," he said, "they will go out of business."

Is he right? With the poor economy driving businesses to find IT alternatives that require less capital spending, worldwide SaaS sales surged 17.7 percent in 2009 to $7.5 billion from $6.4 billion in 2008, according to market research firm Gartner. Nearly two-thirds of that revenue came from on-demand CRM applications and content, communications and collaboration software. By 2013, SaaS application sales worldwide are projected to exceed $14 billion.

While those figures include SaaS sales to companies of all sizes, SMBs account for a disproportionate share of SaaS software subscriptions. "In the seven years we've been in this, most of the business has been among SMBs," said Steve Jones, co-founder and CEO of Explore Consulting, a Bellevue, Wash.-based solution provider that resells NetSuite's SaaS ERP, CRM and e-commerce applications.

"I think they're ahead of the curve," agreed Todd Fitzwater, principal with Demand Solutions Group, speaking about SMB adoption of SaaS in comparison to larger companies. Demand Solutions, a Los Gatos, Calif.-based solution provider, resells on-demand applications from a range of vendors, including Salesforce. com, NetSuite, Intacct, PivotLink and Adaptive Planning.

A recent CompTIA survey of 400 SMBs in the U.S. found that 30 percent planned to implement SaaS solutions in 2010, up from 22 percent in 2009 and 14 percent in 2008.

The subscription pay-as-you-go model of SaaS, which reduces the need for up-front capital spending is certainly what makes SaaS so appealing. Thirty-six percent of SMBs surveyed by analyst firm Freeform Dynamics for Microsoft's annual SMB IT and Hosted IT Index said they found the pay-as-you-go model of cloud computing attractive.

Demand Solutions' Fitzwater said the cost savings of SaaS applications can range from between 25 percent and 50 percent, given the reduced need for IT infrastructure hardware and software and savings on maintenance and upgrade costs. "We fully believe it is the only way people should be buying software today," he said.

Looking ahead, IDC predicts that the top five SaaS applications businesses are likely to pursue this year are collaboration applications, Web applications and Web serving software, cloud backup systems, business applications (ERP, CRM and human resource management), and personal productivity applications.

SMB solution providers, however, still have their work cut out for them. An AMIPartners study concluded that some SMBs remain confused about the value proposition of SaaS and the proliferation of SaaS offerings.

"Small businesses in particular will require extra hand-holding in 2010 to fully understand the specifics of how their businesses can benefit from flexible payment terms, scalable solutions, and other inherent benefits, amplifying the need for channel partners to clearly communicate their value proposition and continue efforts to educate SMB customers," the report said.

Fitzwater has experienced that firsthand. "The less technically savvy the SMB is, the more resistance there will be to SaaS," he said.

Another tip from AMI-Partners: Business managers are playing a bigger role today in IT purchase decisions. That applies all the more to SaaS, given its emphasis on business functionality rather than IT speeds and feeds. Solution providers who have made their living selling technology to IT managers will have to change their sales pitch.

BACKTALK: Reach Rick Whiting via e-mail at [email protected].