Found an article on the SAP site which talks about SME's and specifically their interest in SME's. Below are excerpts from the same:

On-demand software applications are in growing demand by small and medium-size enterprises (SMEs) - motivated by the combination of financial constraints and business needs.

"IT Spending is heating up, but I wouldn't call it red-hot," says Steve Hilton, director, Global Business Communication Strategies, for the Yankee Group in Boston, Massachusetts. "SMBs generally believe if it ain't broke, don't fix it. So expecting massive increases in IT spending in any single year is unreasonable." For 2006 Hilton predicts SME IT spending increases of 7 to 10 percent, in a trend he calls "continued positive, rational growth." He says hardware is expected to be a top IT spending priority for SMEs this year, followed by infrastructure software and other technologies. Security and disaster recovery solutions are in demand because they protect SMEs from risks that threaten their businesses, he notes.

Forrester predicts that SME spending will rise 7.2 percent this year, compared to a rise of 4.8 percent last year. "The top IT initiatives for 2006 include upgrading applications, which will contribute to server spending; upgrading the security environment - a perennial hot issue -; and Internet and e-commerce activities," writes Forrester analyst Michael Speyer in "2006 IT Spending in the SMB Sector."

Forrester - "2006 IT Spending in the SMB Sector." This report says that 55 percent of SMEs surveyed plan to increase spending on personal computers, 51 percent plan to increase spending on networking equipment, and 48 percent plan to increase spending on servers. As far as software, the report says 50 percent of SMEs plan to increase spending on security software and 42 percent plan to increase spending on Web applications. Twenty-nine percent will increase spending on outsourced maintenance, development and support of applications. The report notes that SMEs are likely to turn to local and regional consultants and resellers for those needs. Regarding the types of on-demand software SMEs are buying, Hilton notes that SMEs are showing greatest interest in payroll, Merchant services, human resources and customer relationship management (CRM) solutions.

SME interest in on-demand varies from industry to industry. Companies in the financial services, professional services, wholesale/distribution and IT services industries have the greatest interest

"SaaS may be the only option for some SMBs, whereas large enterprises may have the luxury of more choices if they have a large amount of IT resources available to them," says Robert Bois, research director at Boston, Massachusetts-based AMR Research.

On-demand software tends to be less expensive to get up and running than enterprise software while offering similar capabilities, plus it can be ramped up faster. "SMBs tend to have more limited IT infrastructure, resources, and funding than their larger counterparts. However, their business processes are no less complex than larger organizations,"

SaaS brings SMBs enterprise-class applications with much lower risk and startup costs, and requires less care and feeding from the IT department." Licensing for on-demand software may require an annual commitment and relatively low upfront fees.

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Prashanth Rai