According to IT research firm AMI’s latest worldwide SMB Cloud Services Practice, there are roughly 750,000 (12 percent) small businesses and 20,000 (24 percent) medium-size businesses already using software as a service (SAAS). In addition, the survey found by looking at today’s SAAS users, 78 percent of small businesses and 31 percent of midsized businesses are leveraging a SAAS plus on-premises mix (or hybrid model), while approximately only a third of SAAS users are using an actual pure-SAAS product.
With an anticipated growth of up to $95 billion in global SMB cloud-related spending by 2014, the firm said it isn’t a surprise to see over half of U.S. SMBs looking into SAAS as a potential solution. Approximately one in five U.S. SMBs plan to use SAAS. However, AMI said it believes that SMBs are easing into the concept of local plus cloud-based computing rather than leapfrogging into a pure-play platform.
This opens up a big opportunity for SaaS providers. This trend will ensure that SaaS adoption goes beyond standard applications which are popular in SaaS model today. To seize this opportunity, traditional ISVs need to make adjustment to their business model. They need to be more flexible in pricing and more agile in competing with pure play SaaS vendors. Their SaaS offerings can not merely be an on demand version of their traditional software, but need to be customized for SMB needs. In pricing front they need to come-out with feature based pricing and smaller user bundles. From technology standpoint, they also need to address the integration needs.
For SaaS vendors, this is another opportunity to consolidate their position and make further innovation in product & business model fronts. Anyway, with agile business processes and new age products, they are better positioned to leverage this new SMB trend and grow further. Few challenges that this opportunity would bring are: customer relationship management (they will have more small customers), increased cost of sales, higher operational cost, etc. On the technology front they need to scale up their infrastructure, increase spend on product quality, and add more features faster than ever. Since there would be more tenants, performance will become a key for success. This can become an inflection point for many SaaS vendors and force them to reorganize their operations model. To become a mature player, many SaaS vendors needs to scale up their operations. This will also bring a cost pressure as cost would go high to support a larger operation. inital revenue offtake may be lower than the increase in R&D budget. There are two things that SaaS vendors can do in this situation to achieve higher return on investment are , offer their product on cloud platform, this will enable them to reduce fixed infrastructure cost, and outsourced part of their product engineering work to a partner. SaaS vendors, who are not using outsourcing partner today, should consider outsourcing of some non core activities like Testing, Infrastructure management, build & release management, customer support to third party. This will help them to reduce the cost per each user and overall fixed cost. SaaS vendors may consider to get engaged with an outsourcing partner in collaborative mode for product development work also. For this they should also consider low risks model like outcome based models, feature based pricing, etc. This will help the SaaS vendors to be more competitive without increasing risks.
With data from: AMI, eWeek.com