Software-as-a-service (SaaS) adoption by small and medium-size businesses (SMBs) increased by 58 percent to 15 percent from 2006 to 2007, according to Forrester Research, as the market’s early adopters flocked to the SaaS siren song of lower costs, quick
deployment times and mitigating IT staff constraints.

During that same period, however, nonusers’ skepticism widened, with increasing concerns about total cost of ownership (TCO), integration, safety measure and application performance. “To ensure that SMB SaaS adoption glides smoothly into the early majority phase, marketers will need to address skeptics’ concerns head-on,” says Forrester’s Michael Speyer. “Marketers will need to clearly demonstrate the TCO advantages of SaaS, ensure that their products have well-defined documents integration and conversion procedures, show price transparency, and have well-articulated protection and data-protection stories.

In 2007, Forrester estimates that SaaS adoption in the U.S. SMB sector jumped 58 percent — from 9 percent in 2006 to 15 percent in 2007. Although the 12-month pipeline for future

SaaS purchases looks thin, Speyer explains, “SMBs are likely to jump directly from being ‘very interested’ to using, bypassing the pilot phases that enterprise buyers prefer.

“As SMB SaaS adoption exits its early adoption phase, SaaS marketers will run into a broader majority of SMBs that aren’t buying the SaaS hype. These SMBs are more risk averse and are firmly grounded in an on-premise world.”

To obtain insight into that mindset, a Forrester survey found that:

SMBs favor on-premise solutions by a wide margin. With only 4 percent of SMBs preferring a SaaS solution and 63 percent preferring packaged or customized applications, the SMB market has its feet solidly planted in the on-premise software world.

Overall concerns around SaaS have become more widespread. amoung 2006 and 2007, the number of respondents citing TCO, integration, protection or application performance as adoption issues increased significantly. SaaS marketers now face more…

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