Fellow SMB analyst Sanjeev Aggarwal and I have teamed up to bring you our top ten technology related predictions—plus three bonus predictions—for the SMB (companies with 1–1000 employees) market for 2010. Details for each prediction follow the list below.

2010 Top 10 SMB Technology Market Predictions

1. Pent Up SMB Demand Will Be There—But Wont Be Easy to Capture
2. SMBs Accelerate Their Shift to Digital Marketing Media
3. The Collaboration Battle Heats Up
4. The New Face of Small Business
5. Savvy SMB Vendors Get Strategic About Social Media Analysis
6. SMBs Drive the Mobile Internet Tsunami
7. Virtualization Boosts Cloud Computing Adoption
8. SMBs Appetite for Managed Services Grows
9. Beyond ExcelTargeted Workflow and Analytic Tools Takes Flight
10. 2009 Acquisitions Drive New Value for SMB customers in 2010

Bonus Predictions

1. Time to Get Paid for Selling a Free Lunch
2. Vendors Scramble for SMB Developer Loyaltyand New Integration Needs Arise
3. SaaS Computing Lifts Off in New Areas

Top Ten Predictions

1. Pent Up Demand Will Be There—But Wont Be Easy to Capture. In 2010, as the economy comes out of recession, SMBs will be more willing to spend again, but only for solutions that will provide demonstrable bottom and/or top line business benefits. SMBs will spend only if they believe that the investment will help them operate more profitably, grow revenues, increase productivity, save money or gain time-to-market advantages. SMBs are also evaluating and making trade-offs in areas that offer strategic, long-term advantages vs. those that meet more urgent, short-term needs. In many cases, IT investments must also be weighed against requirements for other core goods and services essential to the business.

To have any chance at making the final cut, vendors will need to redouble efforts to illuminate their value proposition in a clear and compelling manner, and provide more quantifiable evidence that their solutions will help slash costs, increase productivity and provide payback value. Time-strapped SMBs will also increasingly demand that vendors be easy to do business with—heavily favoring vendors that offer an accessible, transparent and positive sales experience from discovery through purchase.

2. SMBs Accelerate Their Shift to Digital Marketing Media. In 2010, SMB adoption of digital marketing media will accelerate, as more SMBs turn away from traditional media (yellow pages, print, direct mail, etc.) and towards social networking (e.g. Facebook and Twitter), email marketing, search engine marketing, blogs, forums, etc. As SMBs become more familiar with the basics, they will seek out solutions that help them streamline and integrate customer interactions across multiple digital venues. Prime opportunities include more specific, tailored search optimization and management services.

Examples include Lotusjump, designed to help retailers and etailers optimize organic search for hundreds or thousands of products; Yodle, aimed at helping services businesses create an integrated Web site and SEO campaign to drive foot traffic and make the phone ring; and WebVisible, which helps local businesses create more effective online marketing and advertising campaigns. Another sweet spot will be services that help SMBs manage and integrate inbound and outbound social media streams, along with more structured digital marketing tools, such as SEO, SEM and email marketing. Vendors such as Cloudprofile and Hubspot offer such capabilities now, with Salesforce.coms Chatter slated for the second half of 2010. With the market getting more crowded and noisy by the minute, however, vendors will need to avoid overloading SMBs with techno-babble, and focus instead on providing SMBs with an exceptional user experience and measurable business benefits.

3. The Collaboration Battle Heats Up. In an age of information overload, SMBs need better collaboration tools, integrated with daily workflow, to bring order to the chaos. SMB decision-makers and employees are reaping the benefits of social networking and collaboration tools like Facebook and Evite in their personal livesand asking how they can derive the same kinds of benefits in their businesses. They want to make information easier to find, share and use; extend and enhance the body of shared knowledge; and connect with people they need when they need them. In 2010, the collaboration battle will swing into full gear, as vendors introduce more integrated solutions that pull together people, tools, services and content. After all, collaboration is the only business activity that every employee engages in every dayoffering vendors an irresistible opportunity to expand their market footprints and installed base presence.

For instance, IBM LotusLive and Lotus Foundations make powerful Lotus collaboration capabilities affordable and digestible for SMBs; Microsoft continues to extend SharePoint and hosted messaging capabilities; and smaller players, such as HyperOffice and Zoho, feature services built for small business from the ground up. At the same time, business solutions vendors from SAP to Salesforce.com are embedding richer collaboration capabilities into their offerings. Even networking vendors, such as Cisco are getting into the game under the unified communications umbrella.

4. The New Face of Small Business. In 2010, vendors need re-examine the evolving small business market with a new segmentation lens to better identify the composition of the small business market, and how they can create the most compelling offerings as the sands shift. Triggered by the recession, generational changes, and globalization, a tectonic shift is changing the face of small businesses. The generational shift has been underway for a while, of course: the U.S. Bureau of Labor Statistics forecasts that the number of workers between ages 33 and 44 will decline rapidly through 2020, and that more people in the labor pool are likely to be either under 30 years old or over 50. Meanwhile, more people are opting to start their own businesses: the U.S. Department of Labor notes that 650,000 new businesses started up in 2006, compared to roughly 570,000 in 2002.

Different types of entrepreneurs, small business owners and their employees have diverse requirements and expectations for technology solutions. While older workers may tend to stick with the familiar, younger new business owners and workers are unlikely to have much allegiance to existing market leaders. As baby boomers in the U.S. retire, younger Gen X and Gen Y workersand soon Millenialswill replace them. But, many retiring or laid off older workers will move on to start new businesses, out of economic necessity and/or for lifestyle preferences. In addition, persistently high unemployment will accelerate the entrepreneurial trend across all age groups. Meanwhile, globalization is fueling the need for small businesses to expand interactions beyond their traditional geographies.

5. Savvy SMB Vendors Get Strategic About Social Media Analysis. Socialmedia is becoming a mainstream way for vendors and service providers toengage with small and medium businesses. Most vendors already have asocial media presence and publish content regularly through socialmedia channels, while many have integrated social media into theircustomer service approaches and/or using tools to measure brandperformance. However, only a handful have developed an effectiveapproach to extract meaningful strategic insights from social mediaconversations, engagements and information.

In 2010, vendors will augment tactical use of social media with amore sophisticated, strategic plan to monitor and analyze broader SMBtrends and directions. By listening, synthesizing and analyzingconversations at a higher level, vendors can strengthen market insightsfor use in marketing, product planning, channel development and mergerand acquisition strategies. Coupled with more traditional research,domain expertise and analysis, this strategic perspective on socialmedia conversations will provide actionable insights and a competitiveedge.

6. SMBs Drive the Mobile Internet Tsunami. In2010, SMB adoption of smart mobile devices and services will increaseat an even faster pace, as the number of mobile applications andservices grows exponentially. SMBs with services businesses are alreadyserving up local ads in local searches delivered on iPhones andBlackberries—as evidenced by the fact that vendors providing localsearch solutions saw their revenues jump by 50% to 100% in 2009. Thingswill continue to heat up as new Google Android-based smart phonescontinue to swarm the market, Dell’s new division focused on mobile devices debuts, Apple’s iPhone AppStore expands, and vendors such as RIM and Nokia extendtheir own application stores in response to Apple’s success. Vendorsthat can go beyond devices and applications to help SMBs create moreengaging content, and develop more effective e-commerce andpermission-based strategies to reach their target customers on thesedevices can gain a significant advantage going forward.

7. Virtualization Boosts Cloud Computing Adoption.For the foreseeable future, SMBs’ will continue to take a hybridapproach to technology, combining on-premise and public cloud-basedsolutions to satisfy business requirements. In 2010, vendors will offera greater range of targeted solutions for hybrid environmentrequirements to spur SMB interest and traction. Virtual desktops,business continuity/disaster recovery, on-demand computing and storagewill feature prominently in vendors’ lineups.

As SMBs contemplate Windows 7 migrationstrategies, they will more closely evaluate the total cost of ownership(TCO) of cloud delivered virtual desktop solutions vs. deploying newWindows 7 desktops/laptops—as well as the added benefits aroundsecurity, backups, updates, etc. that virtual desktops provide. Growingadoption of virtualization will also open the door for SMBs to considerhigh availability and disaster recovery solutions, which until now,have been highly desirable, but largely unfeasible for smallercompanies. Look for VMware to lead the way, with others, such as Citrix and Microsoft playing catch up.

8. SMBs’ Appetite for Managed Services Grows. SMBbusiness requirements continue to become more complex, and theirreliance on technology is increasing. But most lack the resources tokeep IT infrastructure up and running at peak performance. Increasingbusiness reliance on IT infrastructure will fuel rising demand formanaged services providers (MSPs) to increase performance, reliability,availability and service levels—but at reduced or at least neutralcosts.

Although demand for point services (for things like backup andrecovery, security and virus protection) will remain healthy, more SMBswill seek out comprehensive managed services offerings in order to freeup resources to focus on core business requirements and get thebenefits of “one throat to choke.” By coupling cost-effective, roundthe clock remote management services with onsite support, vendors willmake managed services more affordable and accessible for SMBs. Examplesinclude Dell’s ProManage Managed Services,which combines the advantages of remote management services with ascalable network operating center along with a team of local Dell andpartner support professionals around the globe that provide onsitesupport; Mindshift, whichoffers horizontal managed services, as well as vertical managedservices solutions for industries such as legal, healthcare andprofessional services; and HP, which is approaching the SMB managedservices segment through its HP Smart Management Services for SMBs and Total Care Business Solutions.

9. Beyond Excel—Targeted Workflow and Analytic Tools Takes Flight. SMBsoften rely on disjointed, ad hoc methods to manage many tasks andworkflows, such as spend management, expense management, salescompensation and corporate performance management—to name a few. Forthe most part, they tackle these and other jobs with Excel spreadsheetsand a messy mix of emails, paper documents and manual processing.Besides being a headache for everyone involved, this cumbersomeapproach has many other drawbacks, such as limited reporting abilities,high error rates, a lack of real-time visibility and collaborationcapabilities, and limited flexibility.Until recently, most solutions tohelp manage these processes were too expensive and cumbersome for thetypical SMB customer.

However, the rise of cloud computing has given wings to manysoftware-as-a-service (SaaS) solutions that give SMBs purpose-builttools that help streamline workflow and provide critical intelligenceto help improve top and bottom line performance. In 2010, vendors’mid-market offerings in areas such as corporate performance management(CPM), with vendors such Adaptive Planning and Clarity Systems; sales compensation management, with players such as Xactly; and spend management, with entrants such as Rosslyn Analytics, which recently launched RA.Pid, a free self-service solution for SMBs. Meanwhile, traditional enterprise BI players, such as IBM Cognos and SAP Business Objectswill continue to carve out more digestible BI offerings for themid-market, offering up solutions and/or end-to-end on demand businessprocess services to customers.

10. 2009 Acquisitions Drive New Value for SMB customers in 2010.In 2009, many deals were struck that portend great impact on the SMBmarket, channel and competitive landscape. Among the most notable were HP’s acquisition of 3Com,which gives HP the ability to provide a full complement of networkingand connectivity solutions for SMB customers. In a market longdominated by Cisco, the HP-3Com combination gives SMBs a strongalternative, with attractively priced, competitive networking productsand services with a compelling value proposition. Intuit’s acquisitionsof PayCycle, Mint.com and BooRahcontinue to build and refresh the vendor’s portfolio of services forit’s core small business and consumer segments—which often overlap inthe “prosumer” category. Intuit will likely continue on an aggressiveacquisition trajectory in 2010. Avaya’s acquisition of Nortel Enterprise Solutionsmakes Avaya the runaway market share leader in voice and unifiedcommunications in the SMB market, with roughly twice the market shareof Cisco. But at the same time, Cisco’s pending acquisition of Tandbergwill enable it to bring cost effective, standards based videoconferencing solutions to SMBs, creating new awareness and interest inthe SMB video conferencing market. We also expect 2010 to spawn a newround of acquisition activity as vendors converge collaboration, socialmedia and business solutions.

Bonus Predictions:

1. Time to Get Paid for Selling a Free Lunch. Theremay be no such thing as a free lunch in the physical world, but thereis an abundance of free and very low-cost software-as-a-service (SaaS)tools for everything from personal productivity and collaborationapplications (such as Google Apps, Zoho and Dimdim) to financial management (including Freshbooks, Sage BillingBoss and Workingpoint)for small businesses. With more people starting their ownbusinesses—often on a very tight budget—use of these services willcontinue to rise. But in 2010, vendors with this model will startfeeling the pressure to scale.

The business models for these services are predicated on theassumption that a small percentage (usually in the range of 5% to 10%)of customers will convert to a premium paid offering. Many vendors alsoget advertising revenues, and some see data aggregation services asanother way to generate income. To profitably scale their businesses,these vendors need to stimulate rapid viral adoption (which enablesboth advertising and data aggregation sales) and achieve theirconversion rate goals for premium services. But the combination ofrapid, high volume viral growth and paid conversions is a to tough codeto crack. While Google may not need to worry about cracking the codeanytime soon, smaller, venture-backed vendors have a much shorter timehorizon to make it work. Many will not be able to, and will need toeither get acquired or shut their doors. However, some will get theformula right—with good odds on FreshBooks and Zoho.

2. Vendors Scramble for SMB Developer Loyalty—and New Integration Needs Arise. Cloudinfrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS) aregiving SMB application developers lower cost, lower risk options todevelop and bring new solutions to market. In 2010, both traditionalplatform vendors, such as Microsoft and IBM, along with newer PaaS and IaaS types such as Salesforce, Intuit and Amazon,will need to fight tooth and nail to get both commercial SMB developersand end-user customers to create applications for their environments.Meanwhile, since its highly unlikely that most customers will only wantsolutions from one of these ecosystems, vendors that provideintegration solutions, such as Pervasive, Boomi, and Cast Iron, have a whole new market opportunity ahead of them—integration between these different platforms and ecosystems.

3. SaaS Computing Lifts Off in New Areas. Cloudposter child Salesforce.com celebrated its 10th birthday and hit the $1billion in annual revenues mark in 2009—and software-as-a-service(SaaS) CRM is now a mainstream—even preferred–choice for SMBs. SaaS isalso gaining a solid foothold in HR, marketing and content managementare other areas in which SaaS is gaining a solid foothold. In 2010, therate and pace of cloud computing adoption among SMBs will continue itsupswing.

Key areas to watch include the historically elusive SaaS financialsmarket. Smaller companies are showing a good appetite for self-serviceonline accounting solutions such as Intuit QuickBooks Online Edition and Workingpoint, and point solutions for things such as invoicing, from vendors such as Freshbooks and Sage Billingboss, and others. Moving upmarket, firms such as NetSuite, Intacct, FinancialForce—and after a hiatus, SAP Business By Design–shouldenjoy good growth spurts in midsize companies, especially in those thatare faced with a costly upgrade of a legacy packaged financialssolution. Both internal IT and business decision-makers move to cutupgrade, maintenance and application management costs, while alsospeeding time to solution value. This momentum will be further fueledas SaaS vendors make progress in bringing integrators, VARs and CPAs onboard to amplify marketing and sales capabilities.