Original URL: http://www.theregister.co.uk/2007/04/04/rackspace_2020/

Most SMBs will be virtual by 2020

Reality is overrated, says Rackspace report

By Bryan Betts

Posted in Small Biz, 4th April 2007 08:42 GMT

Outsourced business services and hosted applications will be the norm for small and mid-sized businesses (SMBs) by the year 2020, according to a report by the Social Issues Research Centre.

While 2020's always-on Generation C – C for content, connectivity, creativity, collaboration and/or communication, says SIRC - will be more able to communicate with a wider cross-section of people, virtual businesses will be outsourcing the majority of business functions, the report claims.

While that will sound good to a hosting company or outsourcing provider, it raises the question of what those virtual SMBs will be doing to justify their existence. The answer is adding value, selling and developing software apps that can sold as online services, said Rackspace, the company that sponsored the SIRC study.

The study (here) predicts that purchased and locally installed software will be replaced by Software as a Service (SaaS), accessed over the internet.

"Currently, many businesses are opting for SaaS providers to implement customer relationship management (CRM) solutions, but 2020 will see SaaS solutions across a range of business areas - supply chain management, financial management, sourcing and procurement management, and product lifestyle management," said SIRC's Dr Peter Marsh.

Rackspace said SIRC's findings tied in with a survey which discovered that more than half of its customers already use SaaS. The company added that it also hosts an increasing number of SaaS providers.

"The internet hasn't killed off SMBs, although it has created severe price erosion," said Rackspace channel alliance manager Brian Garvey. "But the falling cost of broadband means you can now run business applications at home or on the move, so the support requirement is 24x7 and most IT groups aren't set up for that. Also, the advent of online banking and webmail means people trust the internet more and know it can be secure."

Garvey said this brave new world of virtual businesses will present challenges at both ends of the connection. While software companies must adapt to annuity-based revenue models, IT staff in SMBs will find their roles changing dramatically – if they still have jobs, they will be more consultative and advisory.

"If I was an IT director, I'd want my staff focused on delivering value to the business, not patching servers," he noted. "For example, with the hosting provider now doing security, the security team's job is as custodians, not fire-fighters."

He added that software providers need to network with each other in a business sense, and look at how they can get together as communities to help and recommend each other. "The open source community already does this, with the potential for super-communities," he said. ®