UK SMEs to spend 500 million on SaaS by 2015

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New research from Pierre Audoin Consultants (PAC) has found that UK SMEs are rapidly adopting Software-as-a-Service, although the supplier community is struggling to keep pace.

Small and medium-sized businesses (SMEs) spent almost 1.6bn on business application software and SaaS in 2011, according to a new report from Pierre Audoin Consultants (PAC).

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.

George Mironescu, Senior Consultant at PAC says: "There are significant differences in the positioning of vendors by company size. Although Sage is the undisputed giant of the UK SME market, it is not as strong in the Upper Mid-Market and faces tough competition from the likes of IRIS Software in the SOHO segment.

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. PAC expects the SaaS market in the UK will more than double its size by 2015 to well over 500m.

However, SaaS is 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 and Fidessa as currently having a mature SaaS proposition.

PAC's report 'Business Applications & SaaS in the UK SME Sector - Identifying Hot-Spots and Mapping the Vendor Landscape', is the latest in a new UK local research programme. The report analyses the positioning of key application vendors in the SME space in the UK, and provides an overview of how various application vendors are directing their strategies to tackle the move towards SaaS.

The report also includes data on the current and future scale of application software and SaaS spending in the SME market, as well as a detailed breakdown of the supplier landscape by company size.

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