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July 18, 2003

The Intelligent SMB: Opportunity Knocks

With leading strategic application solution providers pinning hopes for growth on small- to medium-sized businesses, companies have a golden opportunity to create competitive advantages with IT

by David Stodder

Continued from Page 1

Infrastructure First

Strategic business applications in the SMB sector depend on key enabling developments going on under the hood: that is, in the packaging of IT infrastructure. In a recent Harvard Business Review article, Nicholas G. Carr caused a stir by writing that "the core functions of IT — data storage, data processing, and data transport — have become available and affordable to all" and therefore "IT doesn't matter." Alas, this is news to most SMBs.

However, the IT engine may have matured to where the main issues are packaging, pricing, and delivery. In June, IBM made good on its promise to bundle key IT infrastructure software — including DB2 Universal Database (UDB), WebSphere, Tivoli, and Lotus Notes — into a package aimed at the SMB sector. SAP (with Business One), J.D. Edwards, and a range of other independent software vendors are bundling IBM's Express package with their offerings.

Much of this activity comes in response to Microsoft's rapidly unfolding presence in the SMB sector. While the ultimate vision of .Net Web services may be a way off, the company is wasting no time in establishing Microsoft Business Solutions as a default choice for small but growing businesses. According to IDC, Microsoft, with its enormous cash reserves, is "moving into the position of a finance company" through its suite of Open Value licensing and payment options tailored to SMB concerns. A key issue for Microsoft is to make it easier and more enticing to upgrade from older platforms to Windows XP and Windows 2003 — especially before users take a longer look at Linux and open source.

With Windows 2003 and the galaxy of software solutions surrounding it, including SQL Server and its BI and analytic services, Microsoft is undeniably gunning to become the ubiquitous SMB provider of scalable IT infrastructure. Will Linux stunt its progress? In the SMB sector, Linux and open source software don't appear to be the competitive factors they might be in the larger corporate market. SMBs "are all about cost containment and risk," says Jeff Read, PeopleSoft's vice president and general manager of PeopleSoft Mid-market. "They don't have time to cobble together solutions; they want industrial strength out of the box. Midsize companies want to focus on their business."

Anything But Accounting

The dominating vendor in the "small" part of SMB is Intuit, with QuickBooks and related products. Sporting a forms-based approach, "we're focused on people who wear many hats and don't want to have much to do with debit/credit," says Ravi Bellur, QuickBooks product manager. "We focus on ease and speed because while finances are important, that's not the typical small business owner's passion. He or she wants to get it done as fast as possible." The product offers more than 120 preset reports and some decision tools.

Intuit, Best Software, and others are rapidly developing solutions to push into the next level, which Intuit sees as businesses with 20 to 250 employees. Microsoft, of course, is putting pressure on these vendors, especially as they encroach on its turf. Some players may find themselves "squeezed into smaller, less lucrative niches," according to AMR Research. NetLedger, backed by Oracle, provides a hosted solution and could follow the end-around path blazed successfully by Salesforce.com

The leap from the low medium to true medium-sized business is big. "The challenge is that many of these companies are making a strategic technology decision for the first time," says PeopleSoft's Read. "They've thrown money at reporting and accounting systems but now they're trying to do something to accelerate good decisions and succeed with business objectives."

SAP and others have learned, however, that stripped, "dumbed-down" versions of their enterprise applications won't cut it. "Vendors found out that it was impossible to identify a single, dumbed-down feature set that would fit all SMBs," says Henry Morris, IDC vice president, Applications and Information Access. "Medium-sized businesses didn't start as big companies dumbed-down; why should vendors approach them as if that were the case?"

"Growing SMBs want applications in easily consumable steps," offers Lenley Hensarling, group vice president of Product Management with J.D. Edwards. "However, they don't want increasing levels of complexity that a larger organization customer is more willing to handle. We have modified our whole sales and consulting process so that we can deliver a value delivery system that solves SMB customer needs in terms of their business processes."