SMB Software Market to Resume Positive Growth in 2010

Software spending among small and midsize businesses is now expected to grow at an annual rate of 6 percent during the next five years -- with software-as-a-service leading the charge.
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AMI-Partners has some good news for the enterprise software market. In a little over a year, the research firm predicts that software spending by small-to-midsize businesses (SMBs) will return to positive growth. In fact, AMI reveals that spending will sprout to a 6 percent compound annual growth rate (CAGR) over the next five years.

SMBs will be ready to spend, says Helen Rosen, an AMI-Partners analyst, with the majority of interest resting in service-based and virtualization models. Her report states that, by 2013, the market for application software and services will reach $35 billion.

Rosen says that one goal with AMI's research was to determine and better understand if software-as-a-service (SaaS) or virtualization-based delivery models were gaining momentum due to service disruptions or macro issues in the market. The economy appears to be driving interest in alternative models at an accelerated rate, Rosen says. AMI predicts double-digit growth for SaaS over the next five years, but only single-digit growth for traditional on-premises software. "With SaaS, she explains, "there are direct cost savings for a company, particularly a smaller company that is looking for a lower-cost model, something without a recurring licencing fee, and something they can scale."

Not all of the reports findings were rosy, at least for the short term. Rosen anticipates that on-premises software spending will continue to drop -- for the remainder of this year and throughout 2010. "From a vendor's perspective, if you want to play in that space, the near-term impact will be a big drop in revenue if you are traditional player," she says. "In time, there will be a slower build-up." However, she says, a portion of the budget historically spent on on-premises software will dissipate -- and some of that spend will shift toward the SaaS market.

Findings varied by market size, as well. Generally, Rosen says, "uptakes by the midmarket were stronger than I had expected." She adds, "What's happening with the midmarket is even more interesting and is important because it's part of a broader trend around virtualization."

Another trend noted in the report is the bundling of products by vendors. Suites are attractive to SMBs for two key reasons, she says:

1. A suite helps ensure that applications are knitted together and interoperable; and
2. most small organizations don't have dedicated technology support, raising the value of applications that operate seamlessly or can be managed remotely.

"[Vendors] that have principally service-based models and strong recurring revenues are poised to do well," Rosen notes, adding that the case for spending on CRM software is strengthened by the heightened recessionary focus on customer retention. Also, she says, cases for business intelligence are promising as even small organizations look to leverage existing solutions and customer data.

Every silver lining comes with a dark cloud, though: The opportunity for growth outlined by AMI's findings reveals a lack of deep penetration: Not even half of all midsize businesses -- and not even a quarter of small businesses -- have deployed ERP, CRM, and collaboration software in their organizations.

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BY Lauren McKay
Source：destination CRM

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