SMB SAAS Adoption: Hot Last Year, Slowing This Year

While software as a service adoption by small and midsize businesses grew at a fast clip last year—58 percent—to total 15 percent by the end of 2007, that strong growth rate may not last much longer.

That’s according to a new report from Forrester Research that said while early adopters flocked to the new delivery method in 2007, other end-user companies grew more skeptical about it, citing concerns about total cost of ownership, integration, security and application performance.

And while some of those concerns may be unwarranted, others are valid and need to be addressed by vendors and VARs.

"Security problems are more of a perception thing than a reality," Michael Speyer, senior analyst at Forrester and the author of the report, told Channel Insider. "But whether its perception or reality, vendors and VARs have to figure out how to overcome that perception."

For more on the SMB Stumbling Blocks to SAAS Adoption, click here.

But while some objections would be easy to counter because they are more perception than reality, others are real cause for concern, Speyer said. Integration and total cost of ownership fall into the serious category.

"While monthly fees may initially look less expensive, once the customer does the math in their head, they realize it will add up to a fair amount," he said.

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CIOs at SMBs are likely to look at the relative costs of both types of solutions, so VARs and marketers need to be ready. They need to develop sales strategies that acknowledge SMB concerns and then go a step further.

"[As a VAR] I want to make sure that I’m prepared to remove that objection or be able to counter that objection in a believable and substantive way," Speyer said. VARs should look to their vendors for this type of marketing assistance. And vendors should look to improve their own marketing materials.

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"Vendors’ marketing efforts currently are focused on doing air coverage rather than addressing specific customer objections," he said. "Overall I still think we are in the sort of bubble headiness of software as a service. Looking a little into the future, and supported by survey data, we could expect the headiness to be compressing over the next 12 months. Not a precipitous falling of interest and demand, but gradual."