SMEs and SaaS

Everyone is talking about the Small and Medium Enterprise (SME) and the Software as a Service (SaaS) space today. But is there enough understanding on what IT means for the SMEs and more importantly, if the market is really that huge, then why aren’t we seeing enough SaaS adoption in this space already?

For consistency’s sake, we need to define what a SME in India is given that there is no legal definition in the country to this yet. Let’s assume this to be an entity that has a turnover of under 1 billion (100 crores) INR. SMEs then by this definition contribute in terms of value to over 50% of the county’s total exports and account for over 95% of industrial units.  Secondly, they are growing in leaps and bounds across all sectors and have been instrumental to India’s growth story. Conservative estimates have put annual growth in the SME space at over 20% across all sectors for the last 2 years.

To serve this space means to play the volumes game. The typical client will require about 11-15 licenses of the software in question. Next, the SME requires a complete pay-as-you- go model with minimal upfront investment, minimal installation time, minimal training and a solution that is completely outsourced and managed by the software provider.  They don’t want the overhead of managing an IT department. Additionally the software should be able to integrate with third party customer software as required and data migration (both in-out and out-in) should be extremely simple.

Not enough IT players understand the SMB sector completely and therefore this also makes this an underserved market.  This is mainly because most players today don’t have a SME version of their software. Their version of software is the enterprise type that is traditionally heavyweight, expensive with large upfront fees and requires a try-to-implement-forever approach.  Also what is lacking is the SME’s ability to prioritize & understand what IT can do to facilitate their growth.  Therefore there is some amount of educating required in this space.