Small Businesses Reluctant To Move To Software-As-Service

A new AMI-Partners report "Software-as-Services: Moving On Demand To In Demand With SMBs" found that although interest in and acceptance of software-as-service (SAS) is increasing, adoption has yet to reach the "tipping point." "SaS vendors have run into many of the same obstacles that other technology vendors have faced in selling to the sprawling and highly fragmented SMB market," said Laurie McCabe, vice president SMB Insights and Business Solutions at AMI-Partners.

IMI predicts that worldwide spending for SaS will increase at a 40 percent CAGR over the next four years. But although adoption is on the rise, the majority of small businesses at this time have no plans to adopt SaS solutions, largely because of a lack of awareness and education about SaS vendors and products.

One of the more surprising findings was that that small businesses are wary of SaS for cost reasons. McCabe says this is due to a lack of education about all the "soft" costs of software. "Obviously a big advantage of the model is that it reduces the upfront cost of the software and extends it out over time," said McCabe. "But a lot of small businesses take that monthly per-use cost—whether $10 or $50—multiply it by the number of users and the number of months in the year, and then compare that to the cost of a low-end desktop software package." There are several reasons that type of analysis is less than credible, most notably that it doesn't take into account all the costs involved in implementing, maintaining, and managing the software. In addition, most of the SaS vendors offer a much greater breadth of capability, not only with regard to features, but also in the ways that their services allow employees to communicate and collaborate with each other.

Another of the chief arguments for SaS is that internal IT resources are scarce. The typical small business averages a .60 full-time IT headcount, while the average medium business has five full-time IT staff members. "The SaS model makes a lot of sense because it doesn't take a lot of skilled people to maintain," said McCabe.

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The sheer numbers of potential vendors is also bewildering to small businesses, said McCabe. "There are a ton of vendors and it takes some digging to identify the major credible players," she said. Consolidation is going to take care of this to some extent, but the SaS vendors themselves need to do a better job of informing and educating the market. "SaS vendors have convinced us, the press and the analyst community, of the financial benefits of the model, but they still need to do a lot more education with regard to customers."