The small- and medium-sized business (SMB) market has been an elusive target for technology vendors. The market is worth $404 billion, according to research firm IDC's numbers, and that makes it a tempting one to tap.
The problem is that SMBs, companies with fewer than 1,000 employees, defy typical marketing strategies; they exist in every market and every industry, making it a challenge for vendors to tailor their products and messages to that target.
As a result, SMB offerings have often been poorly designed and marketed. Recently, however, vendors have shown signs that they may have found a way to address this market successfully.
Earlier, Business Objects announced a new strategy for the mid-market that combines savvy merchandising with a new channel approach.
The company has created application templates and modules, as well as a graduated pricing strategy that allows customers to add more functionality to their business-intelligence packages incrementally. But the key, said Todd Rowe, president of worldwide mid-market business at Business Objects, is that the products have been specifically designed for the mid-market.
"They're not just dumbed-down versions of enterprise applications," he said.
Judith Hurwitz, whose firm, Hurwitz & Associates, specializes in research on enterprise software, noted that SMBs have the same technology needs as enterprises; they simply can't afford to pay as much. And, she said, they're savvy enough to know when they're being sold a bill of goods. However, "a lot of vendors have not yet been successful in unwrapping the key to this potential," Hurwitz said.
One way of reducing the cost of enterprise software without diluting its value is by offering products that they can install without spending a lot of time and money getting started. "It has to be affordable and the implementation has to be done with one consultant, as opposed to an army of consultants," she said.
Walldorf, Germany-based software vendor SAP also seems to have understood that much. Earlier this year, the company said it would launch a new product line, code-named A1S, which is intended for the SMB market.
Henning Kagermann, CEO of SAP, told analysts during the company's earnings call that the product will be so easy to install, customers won't need to hire any consultants.
Kagermann didn't offer many specifics but said the company's new approach will "bring down the cost of ownership by a factor of 10" because SAP has changed "the entire business model of how software is sold, distributed and maintained."
There is more to cracking the SMB market than making an affordable product. There is also getting the product into the hands of potential buyers. Thus, the other aspect of Business Objects' plan has to do with its channel partners.
Rowe explained that Business Objects will let integrated software vendors and other resellers keep all the revenue from maintenance and service contracts they get from SMB customers in order to win their loyalty.
IDC analyst Ray Boggs said the approach was "innovative," but noted that Business Objects is not alone in thinking this way. He said that IBM sends mid-market customers to its channel partners rather than dealing with them directly. "They're very generous in providing you leads. It's a good way to get an unfair share of [partners'] attention," he told said.
IBM, which introduced its Express line of applications for the SMB market in late 2003, has now been aggressively courting other software vendors to get its product into the market. The global software vendor, based in Armonk, N.Y., signed a partnership agreement with Lawson Software last week that effectively makes Lawson its vassal in the SMB space.
"By doing that, we're going to further enhance the value our customers already see in our products by being able to implement them easier, faster and simpler," Brig Serman, vice president of strategic alliances with IBM's global solutions unit, said. "They're going to get their return on investment as quickly as possible."
Serman said that while IBM has entered into this type of arrangement with other companies, "it's the first time we're doing this with a company whose primary focus is the mid-market." Both companies also benefit from the brand identity of the other. Lawson brings the IBM brand to market, and in doing so shield Big Blue from the perception that it is too big to care about the small fry.
Boggs said that IBM is "fighting that perception through its partners." IBM has further refined its approach by limiting the agreement to vertical markets where Lawson is already considered a strong player.
"This is a very good way to hit the ground running by going into sub-segments in manufacturing where we're very competitive," said Brian Sterrett, vice president of channels and partners for Lawson. The companies said they might expand the agreement to other verticals in the future.
But by placing limits on the relationship, IBM is being careful to make sure it is addressing the needs of potential customers in a small group of markets before expanding to other niches. Hurwitz noted that, "IBM has done a lot in terms of partnering with companies that provide packaged value in vertical industries." IBM's partners tend to be satisfied with the arrangements, she said. "It gives them the safety net to say IBM is behind us."
Adapted from Internetnews.com.
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