SMBs to spend more on hosted software

Projected spending increase suggests small and midsize businesses across the globe are putting more faith in online business applications.

Small and midsize businesses (SMB) are on track to spend more on hosted software in 2007, a new study reveals.

According to a new study by research company AMI-Partners, SMBs worldwide are expected to spend US$2.44 billion in on-demand CRM (customer relationship management) and ERP (enterprise resource planning) next year, up some 17 percent over 2006.

The strongest demand for CRM software will come from Britain, France, the U.S. and Germany. Together, these countries are set to increase their hosted CRM spending to US$674 million in 2007, up 23 percent year-on-year.

AMI analyst Spencer Richardson said in a statement that hosted software already accounts for 4 percent of the total global software spending by SMBs, and is expected to increase in the coming years.

"Hosted/SaaS (software-as-a-service) CRM and ERP are gaining market share over packaged software, as more SMBs opt for these hosted services for mission-critical applications," Richardson noted.

Globally, AMI noted that Canada, France and Sweden may become the next largest buyers of hosted software, with a compound annual growth rate of 15 percent over the next five years. The U.S. is also likely to maintain its dominant market share of global on-demand software market.

"SMBs in the U.S. spent more than US$1 billion on their hosted CRM and ERP software in 2006, accounting for 52 percent of the overall US$2 billion global investment in hosted software," Richardson said.

"Germany was second with US$179 million, or about 9 percent of the global hosted spend. Japan, Britain and France round up the top five with a combined investment of US$318 million in 2006," he added.

CRM has also seen the highest growth in the past year among hosted software products. Outside the U.S, spending in on-demand CRM rose 22 percent, from US$182 million in 2005, to US$235 million this year.

Blueprint Global Services, a Singapore-based IT services company, signed up with SaaS provider NetSuite after having difficulties locating customer data in its previous patchwork system of Excel spreadsheets and Peachtree accounting software.

According to Blueprint Global Services CEO Bhavesh Shah, NetSuite's on-demand software, which melds financials and CRM into a single hosted package, has allowed Blueprint to have real-time overview of his business. "We're able to get information in one place, rather than from disparate systems," he told ZDNet Asia in a phone interview.

"The overall experience has been good," Shah noted. "As an SMB, buying software as a service also allows your cash flow to be better managed."

Shah, however, lamented about the high support costs for his on-demand software. He noted that many markets in the Asia tend to be price-sensitive, and SaaS vendors need to take that into consideration if they want to be successful in Asia.

He also pointed out other challenges for the on-demand software market in Asia, such as the low broadband penetration in some developing markets, and data security concerns among larger Asian companies.