This article excerpts the executive summary for an upcoming LSA report. Stay tuned for more on the report’s release.
Local is expanding. The media and tech sector dedicated to localized audience targeting has for decades primarily focused on small business (SMB) advertising as a source of monetization. But adjacent areas of SMB needs are starting to be explored as a source of revenue diversification and growth.
These areas are separate from, but often synergistic with, SMB advertising and marketing. They go beyond advertising to fulfill SMBs’ multi-stage operational needs such as payment processing, appointment scheduling, payroll, and customer relationship management (CRM) among others.
Given this greater breadth of SMB support and its range of operational functions, we’ve begun to refer to its collective set of products as SMB SaaS. It could be the next paradigm in serving local businesses, and an important set of new recurring revenue that’s congruent with the virtues of enterprise SaaS.
This important subsector of local commerce is also developing in ways that resonate with SMBs. For example, cloud-based Saas delivery (monthly priced) is cash-flow friendly versus large upfront software purchases. And bundling different components can create “one-stop-shop” ease in both billing and use.
In fact, 55 percent of U.S. small businesses report adopting SMB SaaS tools according to the Local Search Association’s Modern Commerce Monitor with Thrive Analytics. This is up 180 percent since 2016, and is projected to grow to 75 percent SMB adoption by 2021 – a 20 percentage point lift.
Moreover, it’s a natural handoff from advertising and marketing to these operational tools, which makes SMB SaaS a logical extension of media and advertising. Just as advertising’s function is to acquire customers, operational tools help them serve — and ultimately keep — those customers.
This makes SMB SaaS a natural area of extension for legacy local advertising players. In fact, bundling SMB SaaS with existing local ad offerings can deepen SMB relationships. That can mean a lock-in effect due to operational reliance, thus mitigating local advertising’s longstanding churn problems.
But the biggest advantage is perhaps how SMB SaaS grows the “local” addressable market. Local advertising revenues in the U.S. are roughly $150 billion, according to LSA data, and represent a mature market. SMB SaaS is conversely a much larger market that we’re in the process of quantifying.
Its size is due to the fact that it reaches into so many different functional areas of SMB operations. We’re talking everything from payment processing to payroll to delivery fulfillment. This comes about when Amazon-like logistics are being democratized by players in emerging categories like “retail as a service.”
In addition to innovative startups, big players loom large with investments that signal further opportunity in SMB SaaS. They include Amazon, Facebook, Google and Salesforce. For example, the latter has realized that its signature enterprise software can extend down market to the opportune SMB segment.
But what are SMB SaaS drivers? advantages? shortcomings? gaps? And ultimately, what are implications and opportunities for media companies and startups in the local advertising world? This report seeks to answer those questions and uncover dynamics of the emerging SMB Saas opportunity.
Stay tuned for more.