Gartner's SMB Vendor Ratings: IBM

by Patricia Fusco

HP, IBM, and Microsoft receive high marks for delivering IT solutions to SMBs. In the second part of a three-part series, we look at IBM's strategy for reaching the SMB market. With the power of Linux and its partners behind it, can IBM make Microsoft blink?

Hewlett-Packard, IBM and Microsoft have been cited as three of the leading suppliers of technology for small- and medium- size businesses by information technology research firm Gartner. In its first ever vendor ratings of the most powerful global technology providers serving the small- to medium-sized business market, Gartner analyzes each vendors strengths and weaknesses.

Calling IBM "a formidable player in the small and midsize business market," Gartner gave the company a "positive" ranking, but said IBM was focused primarily on the upper end of SMB market — companies with more than 500 employees.

Kevin Hooper, IBM director of worldwide SMB software sales and business development, said historically IBM has focused on enterprise-class IT services, but that's in the past.

"Over the past 18 months we've been making a certified effort to go lower into the marketplace — to penetrate medium-size businesses with 99 to 1,000 employees," Hooper said. "Opportunities abound for our Express portfolio of goods and services for the SMB market. We've released about 40 Express offerings so far — 14 Express offerings in software alone. As a result, we're gaining some traction in the space."

IBM's lineup of products and services must meet stringent criteria in order to be part of its "Express" portfolio. The products and services must be priced right and easy for SMBs to deploy and manage. IBM earned "promising" marks for its DB2 Express and WebSphere Application Server Express offerings for SMBs, but received a "caution" for its Tivoli Express Storage Manager. Hooper said IBM has plans to address Tivoli's shortcomings.

"There are parts of our portfolio that have direct relevance for the smaller guys like the processing power of DB2 Express and the on-demand capabilities of WebSphere," Hooper said. "We're doing a lot of work with Tivoli, which is all about managing IT complexity. We have plans to address that directly and make the program less challenging for smaller businesses."

In addition to expanding its lineup of "Express" offerings for SMBs, IBM has made a $500 million dollar investment in developing sales enablement programs for its business partners — independent software vendors (ISVs) that sculpt IBM's middleware into industry-specific products and value-added resellers (VARs) that sell products and services directly to the SMB market. With a little help from these types of partners, IBM is building a portfolio of solutions designed, priced, and marketed specifically to SMB customers.

"Developing relationships with ISVs and VARs is the crux of our strategy. Our software group is specifically restructuring our sales force along industry lines," Hooper said. "Since we're not in the application business, we have to partner with the ISVs and VARs that serve the SMB market. Our ISV Advantage program is essential for reaching SMBs."

Gartner agrees that IBM's initiatives in the SMB market have been reinforced through programs such as IBM Small and Medium Business Advantage. Mika Yamamoto Krammer, Gartner research vice president, complimented IBM on its relationships with IT solution providers.

"IBM relies heavily on its channel for success," Gartner's Krammer said. "Through a constantly evolving channel strategy, the company has come a long way in terms of dealing with channel conflict, simplifying communications and transactions between IBM and its channel partners."

No one disagrees that IBM is a formidable player in the global IT market. However, IBM faces some challenges related to brand perception, internal go-to-market integration, and product fit in the predominantly Windows-centric SMB market

"Our strategy is simple in concept — complex in execution," Hooper said. We're not Microsoft — we don't compete with our partners."

According to IDC, SMBs accounted for about half of global IT sales in 2003. For IBM, about 23 percent of its business comes from SMBs. Hooper said IBM is intent on closing the gap.

"We just announced we've invested a half a billion dollars in the SMB space — we're happy with our progress, but this is a journey for us," Hooper said. "We're not here for a good time — we're here for a long time."

IBM is also here to offer the mid-market an alternative to Microsoft. A new Yankee Group survey reveals that many SMBs are deeply concerned about depending too heavily on Microsoft. Approximately 43 percent of respondents (companies with 2 to 499 employees) said they were concerned about becoming overly reliant on the Microsoft's products and services. Of that group, 72 percent said that they are actively seeking other vendors in order to diversify their portfolios.

Hooper said the impetus of Linux presents an opportunity for IBM and its channel partners to serve the mid-market.

"More than 70 percent of medium-sized businesses operate in heterogeneous environments — they have more than one operating system in play," Hooper said. "The momentum of Linux in the mid-market and the ability of our partners to deliver the IT solutions SMBs need is a huge opportunity for us. We present an obvious alternative to Microsoft."

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This article was originally published on Tuesday Feb 3rd 2004
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