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1/28/2009
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What Will It Take For Smaller Businesses To Convert To SaaS?

Software-as-a-Service (SaaS) sure gets a lot of buzz, but that doesn't mean businesses are switching over from traditional, licensed software. What will it take to convince those smaller companies?

Software-as-a-Service (SaaS) sure gets a lot of buzz, but that doesn't mean businesses are switching over from traditional, licensed software. What will it take to convince those smaller companies?SaaS seems like the perfect solution for small and midsize companies -- the pros include low and predictable costs, rapid deployment, and no in-house IT support. But while one recent study found that 65 percent of smaller businesses are open to the idea of SaaS, only 26 percent of small businesses and 33 percent of midsize companies actually use or are planning to adopt SaaS.

Serguei Sofinski

On Tuesday a dozen journalists, public-relations folks, and Intermedia employees gathered over lunch in San Francisco to discuss a number of questions relating to SaaS.

Intermedia, our host, provides e-mail to the small- and midsize-business market. The New York City-based company believes that SaaS is already set to be redefined into its second phase -- Saas 2.0, as it separates from being lumped into cloud computing. But wait -- what about the companies that haven't even bitten into SaaS 1.0 yet?

The usual reasons were batted around for why smaller companies haven't yet drunk the SaaS Kool-Aid:

  • Security concerns: Intermedia's director of marketing, Danny Essner, and I agreed that the smaller businesses have a concern about an outside company ensuring their information's security -- yet these same businesses don't necessarily know how to handle security themselves.
  • If it ain't broke, why fix it? Getting any business to make a switch in this recession is going to be a challenge, even if it can be shown that SaaS is cost-effective.
  • Education. Not everyone is aware of what SaaS is and is still considered the same as cloud computing. Yet our group was pretty convinced that they are two separate technologies. Essner said he's heard SaaS defined as Systems-as-a-Service, which is more encompassing of the two ideas, yet we discussed that cloud computing is more of the philosophical concept, and SaaS is the actual service.

Ultimately, education and awareness are what we decided are going to be the drivers toward adoption of SaaS. As one journalist put it, vendors can't expect reactivity from the small and midsize market simply because of their own productivity. His analogy was this: Companies like Intermedia are trains -- they're going about everything the right way, including developing a product, ensuring it works and is secure, and marketing that product. The small and midsize businesses are the train station, and the train just needs to catch up to them. In other words, in time, those potential clients will have read up on SaaS and have their fears swayed, and when the SaaS train arrives, they will likely be ready to get on board.

SaaS is here, and it's likely not a fly-by-night trend. As Intermedia CEO Serguei Sofinski and I discussed, in this recession, it doesn't pay to be overstaffed. A smaller business can be more cost-effective by outsourcing its IT department. Particularly for start-ups, which need to be nimble in order to prevent imploding, small and midsize companies should pay attention to all the layoffs going on these days and see where they can cut corners. And when we get out of this recession in a year or two, the whole business playing field is going to look a lot different.

More From bMighty: Luring Big-Time Customers With SaaS

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