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SMBs Do Software Differently

New research reveals that small and midsize companies use and buy software differently than enterprises do. Check your plans against your peers to make sure you're following best practices.


Surprise! for small and midsize companies isn't just a scaled down version of enterprise applications. While large and small companies share many concerns, SMBs are more innovative, more optimistic, and more likely to buy than build.

These conclusions come out of a recent Research report The State Of SMB Software: 2009 and data from Forrester's Enterprise and SMB Software Survey: Enterprise Versus SMB: Who Influences Your Software Purchasing Decisions? And Software Budget Outlook And Preferred Purchasing Channels By Company Size: 2008 To 2009.

By far the biggest hoopla coming out of these studies is the idea that companies large and small are still worried about the security of open source source software. But bMighty open source blogger Matthew McKenzie has debunked that notion as sensationalism.

But I'm not interested in rehashing that question. I'm interested in how small and midsize companies use and think about software differently than larger companies, and how owners and IT folks can leverage those differences for competitive advantage.

According to the study, application integration and cost cutting are SMBs top goals, followed by boosting innovation. But relatively few SMBs are focusing on expanding the use of SaaS or moving applications off-premise. That makes sense to me, because those are essentially tactics, not goals. At the same time, though, concerns about SaaS is dropping dramatically, the report said in many cases by half or two-thirds, which should lead to greater adoption even if it's not a specific goal for most SMBs. The most popular SaaS apps are CRM--can you say, Web 2.0 technologies are also starting to show up. Other popular initiatives resemble enterprise choices, including updating key legacy apps and increasing use of collaboration technologies. Surprisingly, Unified Communications was the top software of interest to SMBs, even though only 25 percent have either implemented it or are about to do so. Another 10 percent are piloting UC apps, and 30 percent are looking into it. Other top choices include the following, in descending order of importance:

  • Unified communication
  • Open source software
  • Mobile development tools and middleware
  • (BPM)
  • Business activity management
  • Information as a Service
  • Event-driven applications
  • Platform as as Service (PaaS)
  • Contract life-cycle management
  • Information life-cycle management (ILM)
  • Business rules engines
  • Application life-cycle management (ALM)
  • Complex event processing
  • Enterprise service bus (ESB)

Among packaged applications and information and knowledge management, human capital management software is the most widely implemented (23 percent) but ERP will attract the most growth (19 percent).

Many SMBs are still unsure about platform software and SOA. Only a quarter of SMBs are either using or will pursue SOA in the next 12 months. Of those, internal integration is by far the most popular use.

On the infrastructure side, database software leads platform and infrastructure software activity, implemented at 32 percent of SMBs, with another 28 percent planning to expand. Portal server software (8 percent) and enterprise collaboration software (8 percent) are mostly in pilot phases. Other technologies SMBs are considering include SOA and Web services management, application servers and platform software, and business process management (BPM) software.

And despite the hype, Web 2.0 tools such as discussion forums, blogs, social networking, and wikis have only a relatively small following among SMBs, though interest is rising overall.

Perhaps thats because most SMBs still prefer to deploy on-premise packaged applications, and the Web 2.0 tools are ofen a less-discrete purchase.

But it turns out that the differences start even before businesses get the software. As shown in the Enterprise and SMB Software Survey, business leaders (CEOs, presidents, CFOs, etc.) make the big decisions at smaller companies. At SMBs, they have complete authority to purchase software about a third of the time, and are very influential in another third of companies. At enteprises, the total is less than 50 percent. That doesn't mean that IT folks don't count at SMBs, though, as 64 percent are very influential and another 16 percent have complete control, only slightly less than the totals at enterprises.

Surprisingly, however, VARs, software integrators and other resellers had about the same influence on software purchasing in large and small companies, with only 1 percent giving them complete authority, and 8 to 9 percent considering them very influential. And while 49 percent of enterprises considered the channel somewhat influential, only 46 percent of SMBs did so. That flies in the face of conventional wisdom about SMB technology purchasing being driven by the channel.

Interestingly, vendors were about as influential for both sizes of businesses, with only minor differences. And while industry analysts didn't have much say for SMBs, almost half of enterprises considered them somewhat influential (vs. just 37 percent for SMBs). Some 12 percent of enterprises considered analysts very influentual or had complete authority, versus 10 percent for SMBs.

The bottom line is functionality, with 74 percent of SMBs citing it as very important, followed by integration with other systems (63 percent). Brand and recommendations (13 percent) can't compare. According to the report, "more SMBs consider functionality to be a very important criterion for purchasing than enterprises, although it is the top criterion for enterprises as well."

If business leaders are the key to SMB purchasing, they seem to be making less pessimistic decisions than their IT counterparts at larger companies. A whopping 59 percent of Global 2000 companies expect economic conditions to curtail IT spending for the next year, while 31% say they'll manage to keep spending flat. But for companies under 1,000 employees, only 35 to 40 percent plan to cut IT spending and 15 to 18 percent actually plan to boost their outlays.

Where does that money go? SMBs tend to invest more cash to software licenses, devoting more than a third of their software budgets to new licenses and software depreciation. Not surprisingly, larger companies spent a greater proportion on software development, both internal and outsourced. After all, larger companies often have proprietary processes to support and the resources to do custom development.

Earlier I said that defying conventional wisdom, SMBs don't let VARs choose what software they buy. But it turns out that SMBs are in fact more likely to buy their software from resellers, and less likely to buy direct from the vendor (though direct purchases can still account for up to half or more their purchases).

So, how do SMBs choose their VARs? For companies with 6 to 99 employees, experience in implementing the app was the most important factor, followed by complete solutions, vertical industry expertise, vendor certifications, and references from other customers. That last one somewhat contradicts the State of SMB Software report, which says "peers and colleagues (word of mouth) (62 percent) are the most relied upon sources of offline information for informing purchasing decisions, followed by technology or business publications and magazines (42 percent)." Online "vendor, industry trade, or professional websites are . . . considered important by 50 percent of SMBs, followed by technology or business publication and magazine Web sites (45 percent)."

In terms of what kinds of actual software they buy, the reports found few dramatic differences between enterprises and SMBs. That plays into the notion that SMBs have similar technology needs to enterprises, they just can't afford the same kinds of solutions.

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