Harvesting the Green

Large developers look to small, midsize businesses for more revenues.

With large enterprises cutting IT spending, large software vendors are working to reap more revenues from small and midsize businesses.

Some large vendors, such as IBM, are doing it through specially targeted products and services. Others, such as Citrix Systems Inc., are doing it through partnerships with targeted resellers and more flexible licensing plans.

As they aim to augment revenues from large enterprises, these and many other vendors are finding they can apply the knowledge gained in developing and deploying applications for larger companies to small and midsize companies.

The profit margin on sales to small and midsize businesses, often called SMBs, is no smaller than sales to large companies, analysts say, but because the per-transaction size of each deal is so small, it takes a lot of deals to make a dent in a vendors bottom line. Thats why many are trying to expand sales through the reseller channel.

Citrix, of Fort Lauderdale, Fla., last week launched a program that provides support and new incentives to VARs that sell the companys server-based applications and portal technology. The hope is that since the resellers are usually closer to the small-business customer—physically and in the sense that they have business relationships—they will improve the satisfaction of those customers and bring in repeat business.

Citrix next quarter will offer to resellers and their customers a new electronic licensing option that aims to simplify the way they manage SMB customer licenses.

IBM is also using resellers to reach SMBs, but it is doing some development to tweak its offerings for that size customers needs. The Armonk, N.Y., companys Start Now program creates partnerships with application developers and small systems integrators to provide software and hardware bundles for SMBs. The centerpiece of these bundles is IBM middleware, principally the WebSphere Application Server, WebSphere Commerce Server, DB2 Universal Database and related data management products, the Lotus divisions Domino and related collaboration products, and Tivoli management software.

Earlier this summer, IBM expanded Start Now with bundles that encompass business intelligence, collaboration, content management, e-commerce, backbone infrastructure, infrastructure management and wireless computing.

This fall, IBM will begin shipping a special version of its WebSphere Commerce Server that will be lower priced—$2,000—and support many of the functions that an enterprise resource planning solution would for a small or midsize business, according to Mark Hanny, vice president of the IBM software groups worldwide SMB and channel marketing.

There is little argument that small-business managers dont have the time or resources to operate a complex IT infrastructure. But they need to move as fast as large enterprises to be successful.

That is why they welcome bundles, such as IBMs Start Now packages, said Elan Seidenman, president of Sky Solutions, a systems integrator in Saddle Brook, N.J. Seidenmans company used IBM Start Now packages to get Jewelry.com up and running in two months. "It is easier to market if you can say, Here is the whole technology stack, rather than sell it piecemeal," Seidenman said.

For small businesses that dont want to bother with software and hardware maintenance, IBM Global Services in June launched its Manage It For Me program, which consists of 20 hosted applications that let businesses with fewer than 1,000 employees outsource much of their computer operations to the IBM services unit. The offerings fall roughly into three groups. Application Hosting and Management Services are targeted to help small businesses manage their Web sites. A second group, called Assurance Services, focuses on security.

The final group, Infrastructure Management Services, helps administrators manage a small companys PCs, servers, networks and storage devices.

Hosting applications for SMBs is not new. Oracle Corp., of Redwood Shores, Calif., has been selling a hosted version of its enterprise applications to small businesses for several years. Last month, it introduced the latest upgrade of that suite: Oracle Small Business Suite Version 8.

The SMB pie is not small. Access Marketers International Partners Inc. last month reported that sales of business automation software to small and midsize businesses reached $1.3 billion in the last 12 months—a 21 percent increase over the preceding year. Some 48 percent of small businesses plan to increase IT spending next year, according to new research from Gartner Inc.

With this incentive, many large software developers are pushing sales through resellers, but they need to be sure their message is appropriate, said Mika Yamamoto Krammer, an analyst with Gartner, of Stamford, Conn. IBM and Microsoft Corp., which in the past 18 months has bought two developers of applications for SMBs (Great Plains Software Inc. and Navision A/S), are learning how to do that, but they have more work ahead, Krammer said.

"They are starting to recognize they need more of a vertical approach," Krammer said. "They are starting to develop [reseller] and distributor relationships. They need more value-add relationships, not just" someone to sell the software on its own.