The Last Bastion of Hope

While research firms continue to trumpet a rebound in big-ticket tech purchases, the latest offerings from tech vendors seem to paint a slightly di...
Norm AlsterOctober 21, 2003

Recently, IBM rolled out a new suite of products and services developed and priced specifically for midsize businesses. Ditto for Big Blue’s Lotus subsidiary. And Hewlett-Packard. And Microsoft. And J.D. Edwards, and Oracle, and Net-Ledger—and just about every other IT vendor on the planet.

What gives? Mika Krammer, a research vice president at Gartner, says that because of the economic slowdown, the lack of a “next big thing,” and saturation in large enterprises, all vendors are looking down market. Or, as a recent IT research report from Harte-Hanks puts it: “The small and medium business space is a bastion of hope.”

Suffering Succotash

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The lumping together of small and midsize businesses (SMBs) makes sense. SMBs, a hard-to-define segment that includes mom-and-pop operations as well as marquee companies, share certain traits—including small IT budgets and ambitions. Typically, SMBs make technology purchases in hopes of lowering costs or solving immediate problems. These ad hoc solutions are often strained to capacity as companies get bigger. That, in turn, can force a wrenching upgrade to new systems.

As a rule, executives at SMBs look to avoid wrenching. Take Clif Bar Inc., a $100 million maker of energy bars. Director of finance Rich Boragno says that finding an IT director well versed in J.D. Edwards software (the ERP program the company uses) wasn’t easy, especially since Clif Bar wanted a strong general manager as well. Swapping out the software wasn’t an option, however: Boragno says that would cost “well over $1 million” in new expenses, plus a disruptive “cultural change,” including staff retraining.

Those sorts of constraints are typical for SMBs. Hence, executives at many smaller companies have resigned themselves to limping along on what Katherine Jones, a managing director at Aberdeen Group, calls “a succotash” of underpowered systems.

Not surprisingly, problems of integration and migration have led many SMBs to embrace outsourcing. “In theory, you can outsource everything,” says Brian V. Turner, CFO of Coinstar Inc., which owns and operates a network of coin-counting machines at supermarkets. “If it’s cheaper to outsource, we do it.”

Outsourcing comes with its own snares, however. At Mykrolis Corp., a Billerica, Mass.-based maker of industrial-filtration devices, CFO Bertrand Loy says he contemplated outsourcing some of the company’s IT functions, but he felt the major vendors “have a one-size-fits-all approach that’s too expensive. They came up with a Cadillac solution, which we didn’t want to pay for.” The lack of flexibility was also a big issue.

That’s been a complaint levied by plenty of finance chiefs. This time, however, vendors are saying they’ll get it right. IBM, for one, has added the word “Express” to an entire portfolio of SMB products and services. Notably, IBM’s new program includes servers and other technologies that take advantage of Linux, the open-source operating system.

In theory, Linux-based offerings should appeal to SMBs—Linux is freeware, after all. But Linux tends to require advanced IT skills, the kind of skills that SMBs often lack.

For technology sellers, that means any products pitched to small companies—Linux-based or not—will have to be easy to install and maintain. Still, vendors should have ample incentive to make sure their latest SMB products are not bears to deploy. According to Tom Eckstrom, director for channels and small-medium business for the Americas at IBM Global Financing, SMBs comprise a $100 billion selling opportunity. Down market never looked so good.