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, maker of the popular TurboTax tax-preparation software.
Eighty-five percent of small businesses are planning to increase their spending on software in 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, 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 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, in large part, is the way many owners want to operate their nascent businesses more efficiently and often from multiple locations.
Almost 37% of small businesses are “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 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.
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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, even banks to create new products that might help them cash in on the expected surge in demand from smaller firms.
On Wednesday, Vend unveiled a partnership with Apple Inc. Vend’s 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 struck a similar deal with Xero, a cloud-based accounting software maker with more than 500,000 small-business clients.
On Monday, 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% in 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 in 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 to help ward off a security breach. “I don’t have time to be a technology expert,” she said.