By Angus Loten
Owners of small businesses, from clothing retailers to
restaurants, are increasingly signing up for subscriptions to
cloud-based software, representing a fundamental shift in the way
they use technology.
Businesses with fewer than 20 employees last year spent about
$630 on software, up from $590 in 2013, a 7% increase, according to
Intuit, the maker of the popular TurboTax tax-preparation
software.
Eighty-five percent of small businesses are planning to increase
their spending on software over the next five years, Intuit
added.
Until recently, most small businesses' outlays on technology
tended to be to acquire software outright to store on in-house
computers. But, rather than sitting in a backroom office, many
owners today such as Christina Ruiz often prefer to access business
data from mobile devices, wherever they go--from sales trips and
client meetings, to a day at the beach.
A 34-year-old former bartender in San Francisco who started
selling women's clothes out of a truck three years ago, Ms. Ruiz,
said she is often "on the move, literally mobile." To launch and
run her business from the truck, she subscribed to a $30-a-month
cloud-based application that helps her business, TopShelf Style,
process payments and keep tabs on an inventory of such items as $30
silk tops and $138 rayon rompers.
Although she sold the truck in May, having moved into a small
brick-and-mortar location last year, she said cloud-based
applications from Vend, a New Zealand software startup, have
allowed her to integrate customer and sales data between her store
and her own website, which is set up for e-commerce.
TopShelf Style generated $200,000 in revenue last year, and Ms.
Ruiz hired two employees. She has found that shoppers can come from
anywhere--from locals walking into her store to online searches
from customers around the world. "It helped that I was in the cloud
from the start," she said, referring to the earliest days of her
business venture.
The last time the average small business made significant
upgrades in technology was five years ago, when the economic
recovery began, according to Tim Harmon, a principal analyst at
Forrester Research Inc.
But at that time, he said, many business owners remained "wary
of cloud technology" and "merely upgraded existing systems," he
added. What's changed now, in large part, is the way many owners
now want to operate their nascent businesses more efficiently, and
often from multiple locations.
Almost 37% of small businesses are currently "fully adapted" to
cloud-based applications, said Steve King, a partner at Emergent
Research, which tracks technology use by small firms. He expects
that to increase to 78% of small businesses by 2020.
One reason small firms thus far have been wary of cloud
applications: Small firms are less likely than larger employers to
have a dedicated technology team. That often means they are left to
figure out their business tech needs on their own.
Some fear security breaches. For instance, half of 675 small
businesses said their business data was breached because of a
cyberattack within the past five years, according to the National
Small Business Association, a Washington lobby group that fielded
the survey between December and January. The average estimated cost
of these attacks in 2014 was $20,750 for a small firm, compared
with $8,699 in 2013.
Mr. Harmon, the Forrester analyst, said he expects those
security concerns to fade as more small businesses begin to
understand that their business data in the end may be safer on the
cloud-based servers of a technology vendor, than "on a hard drive
in the back of your store."
Most vendors, he added, have their own security experts on
hand--while many small-business owners do not.
Sensing a boom, providers of cloud-computing services--typically
third-party networks that store data and host applications--are
teaming up with enterprise application makers, technology firms,
and even banks, to create new products that might help them to cash
in on the expected surge in demand from smaller firms.
On Wednesday, Apple Inc. unveiled a partnership with Vend, whose
cloud-based point-of-sale tool turns laptops and tablets into
portable cash registers that track sales and inventory for small
retailers, for monthly fees ranging from $59 to $169. Under the
deal, Apple will promote Vend at its stores world-wide. Apple
announced a similar deal with Xero, a cloud-based accounting
software maker with more than 500,000 small-business clients.
On June 1, BMO Bank of Montreal teamed up with FreshBooks, an
accounting software vendor, to provide the bank's small-business
clients with cloud-based tools to manage invoices, timesheets and
online payments, among other business data. And U. K-based
financial software firm Sage struck a deal last month with
Salesforce.com, a global cloud-computing firm based in San
Francisco, to offer its small-business accounting and financial
tools in the cloud to customers world-wide.
Last fall, Intuit Inc. announced a deal with online
document-sharing firm Box to create a document-sharing tool inside
QuickBooks, Intuit's small-business accounting app, that leverages
the "small business cloud, " the companies said in a joint
statement at the time. Microsoft Corp. and Salesforce also unveiled
a customer relationship management platform for Microsoft Office
aimed at helping business owners "do more from the cloud with their
mobile devices," Microsoft CEO Satya Nadella said at the time.
Overall, the global cloud-based enterprise application
market--also known as Software as a Service, or SaaS--is expected
to reach $50.8 billion by 2018, up from $22.3 billion in 2013,
representing an annual growth rate of nearly 18% over five years,
according to IDC, a New York-based market research firm. By
contrast, sales of traditional on-premise enterprise software are
forecast to grow by 3.1% a year over the same period.
"There's a very high learning curve when you're starting out,"
as a new business owner, said Ms. Ruiz, who said she actively
changes the passwords that she uses to access the cloud-based
applications in hopes of helping to ward off a security breach. "I
don't have time to be a technology expert," she said.
Write to Angus Loten at angus.loten@wsj.com
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