Tier 1 SMBs lead in enterprise software adoption

NEW YORK, NY: A new AMI-Partners study, "2006-2007 U.S. SMB Business Applications and Solutions Segmentation Report," applies AMI's proprietary segmentation methodology to provide fresh insights on small and medium business (SMB) solutions adoption, plans and spending. The study shows that enterprise adopters, or Tier 1 SMBs, who view the use of IT solutions as a strategic way to drive growth, are significantly more likely to use enterprise software solutions than SMBs in other tiers.

"Tier 1 SMBs account for the smallest percentage of the overall SMB universe," says Sau Lam, New York-based Research Analyst at AMI-Partners. "But, in general, they outspend Tier 3 and 4 SMBs on IT. In the enterprise software arena, this gap is even more pronounced."

For example, the study shows that Tier 1 and 2 SBs account for almost three-quarters of SB spending on CRM and ERP solutions, while Tier 1 and 2 MBs account for more than three-quarters of the CRM and ERP investments in the MB market. "Enterprise solutions vendors must understand the different needs and sophistication levels of these segments, and must craft go-to-market strategies with products, marketing, channels and pricing aligned to the needs of each segment," says Lam.

AMI-Partners' proprietary segmentation model categorizes and analyzes SBs and MBs in four distinct tiers, based on IT behavior, adoption, needs and attitudes for customer targeting, product positioning and focused offerings. By viewing SMB IT adoption through this lens, vendors can gain new insights into the buying propensity of each tier for different types of IT solutions and services. The four tiers include:

Tier 1 (Enterprise Adopters) - View IT solutions similarly to large enterprise counterparts. IT is an integrated part of their company strategy and they use IT solutions to drive growth. They account for the smallest proportion of the SMB universe, but they drive the lion's share of IT spending.

Tier 2 (Early Adopters) - Embrace new IT solutions to optimize productivity, but lack resources needed to deploy full-scale solutions. They tend to opt for less costly options or point solutions. They account for less than one fifth of the total SMBs.

Tier 3 (Value Adopters) - Implement IT solutions after others have done so, with a relentless focus on costs. They need to be educated on the business benefits of IT solutions, and are a pragmatic, economically driven target for IT vendors. They account for slightly more than a quarter of the total SMB universe.

Tier 4 (Needs Help Adopters) - Employ IT solutions only at the threat of losing customers or suppliers. As laggards, they view IT as a support tool for business functions, rather than a growth driver. They comprise almost half of the total SMB universe.

The report highlights that while Tier 1 and 2 SMBs have bigger IT budgets and are more likely to invest in technology solutions, vendors shouldn't overlook Tier 3 and 4 SMBs, who are prime targets for solutions that are easy to use, manage and implement, and designed for smaller budgets. Understanding the similarities and differences among these four segments of the SMB market will help vendors better tailor their solutions to meet the requirements and needs of a fragmented SMB marketplace.

CIOL Bureau