Despite an unclear business outlook, SMEs (companies with less than 2,000 employees) will continue to invest in business applications and SaaS, with key areas of investment including CRM, analytics, mobility, and industry-specific software. PAC expects the SME market for business application and SaaS to grow to over £2.1bn by 2015, which is a faster rate than in the large enterprise segment.
Fast-growing start-ups, enterprises expanding overseas, and subsidiaries of international companies expanding into the UK, will present the strongest opportunities for business applications and SaaS suppliers. However, there are big differences in terms of customer needs and level of IT complexities within the SME marketplace. PAC has divided the market into five different categories to assess their specific IT requirements and position the suppliers that address them.
The SME market is entering into a major phase of transformation as buyers are increasingly attracted to cloud-based services which enable them to access enterprise-class functionality on affordable and flexible commercial terms. Growing at a little under 30% annually for the next three years, PAC expects the SaaS market for SMEs in the UK will more than double its size by 2015 to over £500m.
Most SaaS vendors reported strong double-digit growth in 2011. In the horizontal apps segment, CRM and sales force automation have experienced the fastest adoption, and vendors like Salesforce.com continued to capitalize on the market, given their mature SaaS offering.
In more conservative areas such as finance & accounting, small enterprises (those with less than 100 employees) provide strong opportunities for native SaaS vendors such as KashFlow, Liquid Accounts, Aqilla, FreeAgent, Xero. These companies are attacking the installed base of well-established vendors in the small enterprise segment, such as Sage and IRIS Software.
However, SaaS remains a work in progress for many ISVs, with established players wary of cannibalizing existing revenue streams. Of the top 20 applications vendors servicing the UK SME sector, PAC rates only Salesforce.com and Fidessa as currently having a mature SaaS proposition.
The majority of traditional business apps vendors continue to work out their SaaS strategy. SAP works to ramp up its Business ByDesign more aggressively in 2012, following a fairly promising 2011 in the UK with good adoption especially in the professional services sector. Other players such as Unit4, Epicor, Infor or Sanderson have also put in place an early piecemeal SaaS offering.
The most common tactic is to gradually move clients to cloud delivery firstly through a specific SaaS module, then incorporating a broader suite. For this reason, the approach to SaaS tends to be focused on a particular application functionality set, rather than a holistic/ application-wide approach, re-writing the whole application module.
As well as identifying key areas of spending on business applications and Software-as-a-Service (SaaS) by SMEs, PAC’s report ‘Business Applications & SaaS in the UK SME Sector – Identifying Hot-Spots and Mapping the Vendor Landscape’ assesses the impact of SaaS on the strategies of vendors addressing the SME market and evaluates SaaS adoption rates among small businesses in the UK.
About the author...
George is a Senior Analyst at PAC UK
George's role includes engagement in broad areas of the strategic marketing and market research domains, e.g. strategic positioning, portfolio assessment and calibration, partnership strategy. His expertise has been covering both region-specific and industry-wide trends and standings.