SaaS adoption is rising steadily among U.S. small (SBs, 1-99 employees) and medium businesses (MBs, 100-999 employees), according to a study by AMI-Partners. The study finds 21 percent of SBs and 31 percent of MBs currently use SaaS solutions, which is double the percentage of adoption in 2004.

The analysts say SaaS growth is due in part to SMB needs for easy to use, implement and maintain IT solutions. Drivers also include SMB limited infrastructure and IT resources, and the growing choice and solution availability.

According to the AMI-Partners study, SaaS penetration and spending in the MB sector is significantly outpacing penetration among SBs. Across the board, MBs spend an average of six times more than SBs on SaaS annually, and are twice as likely as SBs to report a planned increase in SaaS spending for the next twelve months. The largest MBs -- those with 500-999 employees -- report the highest in annual SaaS spending among all SMB size segments.

While SaaS is growing among SMBs, it has yet to reach the mainstream. “The recent growth in SaaS is partly due to the growing number and variety of SaaS offerings both established IT vendors such as Microsoft, SAP, IBM, Google and saleforce.com, which underscores the viability of SaaS,” said Sau Lam, Business Applications & Solutions Analyst at AMI-Partners. In addition, a bevy of newer SaaS vendors, such as NetBooks, Longjump and Coghead, are creating more solutions designed specifically for SMBs.

“But, more work is required to propel SaaS to the next level of growth. SaaS vendors need to intensify campaigns to educate and spark interest among SMBs that are not yet considering SaaS, identify other needs that existing customers have and develop and partner to extend their offerings to increase share of wallet. In addition, they need to build channel programs with partners that can persuade SMBs that are not yet considering SaaS to give it a serious look.”

As part of a comprehensive view of SMB business application and solution adoption patterns and plans, this report also examines other key SaaS trends, such as differences in the types of SaaS applications that SMBs are adopting and plan to adopt in the next twelve months. For example, the top three SaaS applications currently used by SBs include banking/finance, instant messaging (IM) and payroll processing, while payroll processing, banking/finance and human resources management lead in the MB segment. Meanwhile, both SMBs show strongest interest in using SaaS for collaborative and business intelligence solutions in the next 12 months.

About this study

Based on AMI’s 2007-2008 U.S. Small and Medium Business end-user surveys, the 2008 U.S. Small and Medium Business Applications & Solutions Market Overview, authored by Sau Lam, Industry Analyst, and Laurie McCabe, VP, SMB Insights and Solutions, details these and other major trends and spending forecasts across a spectrum of business solution areas -- including accounting, CRM and ERP/SCM -- and for related areas, including Internet solutions, and IT and business process outsourcing services. In addition, the report provides key related data, such as SMB demographics and attitudes, and trends in channels and purchasing behaviors. Findings are presented granularly, with data broken out by employee size (1-4, 5-9, 10-19, 20-49, 50-99, 100-249, 250-499, and 500-999), and by vertical industries (AMTUC, Manufacturing, Wholesale, Retail, FIRE, Professional Business Services and Other Services).

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