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SaaS and the Small Business

March 15, 2006

With Manvinder Saraon, vice president of marketing and business development for Homestead Technologies [www.homestead.com], a provider of easy-to-use Web site creation and online marketing products and services to small businesses that wish to establish or enhance their presence online. More than 12 million people have used Homestead's design, marketing, ecommerce and hosting capabilities to create Web sites.

Question: All of the major vendors (Microsoft, SAP, et al) appear to be making efforts to win the business of SMBs by creating software-as-a-service models. What are their key challenges in conquering this market?

Saraon: There are four key challenges that I feel major technology companies will have to overcome in order to win over SMBs: 1) Small businesses are often resistant to change, which is particularly true for existing small and medium-sized business users of licensed software. Although small businesses might not be using the most optimal solution, they'll often say that it "works for them." 2) Vendors need to allay any security concerns regarding companies having their data hosted elsewhere. 3) The applications need to be customizable — each small business thinks of their business as unique. 4) The vendors need to emphasize and deliver on the hand-holding required by the small business and set them up for success.

Homestead has tried to avoid the "everything to everyone" model, by offering what we feel are essential and customizable online marketing products and services. Our QuickSites product, for example, offers a fully customizable, pre-built, professionally designed Web site that includes relevant copy, navigation, features and images specific to hundreds of different types of businesses. The key is developing a flexible solution that allows your customer to tailor your service to the unique needs of their small businesses.

Question: How do SMB requirements for SaaS vendors differ from those of their larger peers?

Saraon: Their larger peers are very ROI-driven and tend to focus on cost structure improvements — reducing IT costs, for example. SMBs, on the other hand, focus on getting affordable access to new tools to improve their opportunity to grow and succeed. Being "affordable" is table stakes.

Question: Is it possible for companies to make apples-to-apples comparisons of products from vendors like Microsoft to corresponding products from companies like Salesforce.com? Why or why not?

Saraon: It's hard to make apples-to-apples comparisons, for two reasons: 1) It's hard to compare a standalone application that excels in one functional area with a suite of applications that hit multiple areas. Very often, SMBs have some existing licensed software applications and will supplement with SaaS applications. 2) Every vendor has their own definition of small and medium business, and very often "small" for one is "big" for the other. That causes some confusion for SMBs in terms of suitability for the size and complexity of their business.