A new report says that the North American SMB market for application software is set to grow to $35 billion in the next five years. The compound annual growth rate (CAGR) is predicted to expand at 6 percent per year to reach this amount by 2013, though the downturn should be keeping the CAGR at below 1 percent growth through the rest of 2009.

The above findings came about as a result of a study titled "2009 Overview of the Business & Enterprise Application Software and Services Market," conducted by New York-based consulting firm AMI-Partners. One point that caught my attention was the findings by AMI that small and medium-sized businesses continue to invest in solutions with an eye towards delivering cost-effectiveness, business efficiencies and also "customer intimacy."

This makes sense to me because SMBs are in a unique position compared to larger organizations. For one, projects are far less likely to spiral out of control, be it in terms of cost or in timely delivery. This is not to say that it is not possible to bungle an SMB project implementation; just that the smaller number of workstations translates directly to a lower complexity - and a higher success rate.

In addition, the amount of computerization in an SMB is also likely to be lower, given that consultants and sales managers have generally targeted the lucrative enterprise market first. As such, average SMBs have much to gain from implementing solutions such as ERP, CRM or even business intelligence.

From the report, it is clear that IT vendors are continuing to wake up to the huge and generally untapped market that SMBs represent. This is good news for small and medium-sized businesses indeed, since they can expect to see a proliferation of offerings specially tailored and priced towards them in the near future.

In fact, Microsoft itself has unveiled its Windows Server 2008 Foundation earlier this month.  While it is a rather extreme example of a small business offering - the licenses max out at just 15 CALs, I believe that similar products will soon be offered by other vendors.

In the meantime, SMBs should simply keep their options open, and spend the money where it makes sense. Do not splurge without considering the ROI, but don't fall into the trap of being penny wise but pound foolish, either.