January 31, 2008

3 Min Read
Column: Ask Steve  Rural SMB Opportunities

By Steve Hilton

Fly fishin, wide open country, clean air, starry nights, software-as-a-service (SaaS). Which one doesnt belong when you think about rural America? This month were going to look at rural SMBs and SaaS. Do these seem to be contradictory terms? Think again.

Q: I own an IT services company working in a fairly rural area. What can you tell me about rural businesses and SaaS?

Bonnie, Kahoka, Mo.

A: Let me set the stage for those city slickers out there. Yankee Group defines four geographic categories of SMBs: urban, suburban, ex-urban and rural. Three of the four are fairly obvious. The fourth, ex-urban, refers to those geographies at the very fringe of suburbs and smaller, rural towns.

Rural and ex-urban SMBs generally spend quite a bit less on applications and integration than urban and suburban SMBs. However, this doesnt mean SMBs in rural America are all two-person firms working out of their homes. In fact, SMBs in rural and ex-urban communities are similar in size (or slightly smaller) to those in urban and suburban settings.

Rural and ex-urban SMBs share the same business and technology challenges as their big city brethren keeping costs down, competing in tough environments, managing security and finding investment money. With the same types of challenges, rural SMBs are more likely to adopt five SaaS solutions HR, sales force automation (SFA), inventory management, project management and marketing applications than urban SMBs. Ex-urban SMBs are as likely to adopt most SaaS applications as urban SMBs.

With the same business challenges and less applications spending, rural SMBs pose interesting opportunities and challenges for vendors and partners hawking SaaS. A lot of SMBs turn to the indirect channel for technology advice. Educating rural SMBs about the value of SaaS solutions is difficult because application dealers, agents and resellers in rural communities are scarce. Furthermore, vendors often ignore rural markets when creating awareness campaigns.

Education issues aside, rural SMBs seem more willing to consider SaaS than their big-city counterparts. The trick becomes identifying critical business applications for rural SMBs and offering value-rich SaaS solutions. We also believe rural SMBs are willing to consider managed IT solutions like network monitoring, security and online backup and restore, as part of a more extensive IT offering.

The cost to vendors and partners of creating awareness of, selling and implementing premises-based applications in rural markets is often prohibitive. And as weve seen from data, rural SMBs do not have robust applications budgets to support premises-based application purchase, implementation and integration. SaaS provides a lower cost model for vendors and partners, and a pay-as-you-go approach that minimizes up-front capital investment for the rural SMB.

Software-as-a-service, fly fishin, wide open country, clean air, starry nights. Enjoy being an agent in the rural United States, Bonnie, and thanks for your question.

Steve Hilton is the vice president of Yankee Groups Enterprise Research Group with an expertise in converged solutions for SMBs. Hilton manages a team of analysts delivering consulting, research and programs to help vendors and service providers better serve SMBs, midmarket enterprises and large enterprises globally. Visit Yankee Group online at www.yankeegroup.com.


Yankee Group Research Inc. www.yankeegroup.com

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