Because of the reduced need for up-front capital investment, SMBs have been even quicker than their enterprise counterparts to embrace software-as-a-service.
According to IDC, SaaS is "intuitively appealing" to SMBs, which appreciate not only the cost model but also the ease of adding new users and the reduced need for IT management.
SaaS also makes it possible for SMBs to consider newer technologies that would be too costly for them to implement using more traditional on-premise software, such as business intelligence and service-oriented architecture.
Despite the obvious advantages, not all SMBs are rushing to board the SaaS bandwagon. As reported in ComputerWeekly.com, a recent Gartner survey found that just 17 percent of the SMBs it surveyed would consider SaaS as it became more mainstream.
A Gartner analyst attributes this reticence to SMBs' "control freak" tendencies. "They have less applications and less data. That's their lifeline, and they don't want someone else messing up their data," the analyst says.
The VP of an Ohio jewelry manufacturer interviewed in the story says he switched from a SaaS ERP solution to an on-premise product because the on-premise software was easier to customize and he believes will ultimately be cheaper.
Still, analysts like IDC and Gartner expect increased SaaS adoption among SMBs. IDC notes that some 5 percent of small firms and15 percent of mid-size companies said they plan to implement a SaaS solution in 2007.
SMBs are more inclined to use SaaS for front-office applications like CRM than for ERP and core financials, according to IDC. This could be due to security concerns, which Gartner says was mentioned by 45 percent of its SMB survey respondents.