Open SME
You don?t have to be Ali Baba to get into the SME market, but as yet only a few dealers have successfully entered this treasure trove. Sean Hallahan reports
In IT marketing terms, the small to medium enterprise (SME) market is sandwiched between giant corporates and small business and home users.
The term SME requires some definition since different suppliers apply different criteria to categorise the sector. As a rough rule of thumb, an SME is a company with a turnover of #5 million and from 50 to 500 employees. Some firms take only the turnover as a guide while others, such as Compaq, base their categorisation on number of employees. In Compaq?s view, a business with one to nine employees is micro sized, 10 to 99 is small, 100 to 499 medium and 500 plus a large account.
There is a further complication, according to Peter Blampied, Compaq commercial marketing manager responsible for small business. Once a company has 300 or more employees it tends to regard itself as a corporate customer and adopt the buying patterns of the larger companies.
?We find that our larger established dealers, those that have been selling systems for the past 11 years, target the medium to large accounts, offering project management, networking, cabling and other services,? he says.
?But when you look at the small business sector, they generally buy from smaller dealers which see themselves as solution providers. They tend to be more Var-like and more focused on vertical markets.?
While most manufacturers, software developers and resellers will claim their target market is the corporate sector, and that those selling to the SoHo sector are mere box-shifters, the truth is that for many it is SMEs that provide the bread and butter.
The SME market is also potentially huge. Compaq carried out a survey last year which found that only 25 per cent of companies in the small business sectors had PCs. Last month, the firm underlined its commitment to the SME market by launching a range of file and print servers aimed specifically at the small business and priced at under #1,000.
The corporate market is a jungle, not just because of the tendency to buy larger quantities of products, but because every company wants to have at least one corporate customer as a reference site. Dealers please note: BT does not count as a reference site because its research laboratories traditionally buy at least one of everything.
For many resellers the dream of capturing a share of the corporate market will never become a reality because the major manufacturers reserve The Times Top 500 companies for their direct salesforce.
Some vendors and distributors have products and divisions devoted to targeting SMEs. But the SME market is still significant for many resellers because it allows them to add considerable value to their products. While the corporate users have an in-house IT department to write applications or customise packages and take care of hardware and software maintenance, SME customers do not usually have this luxury.
There is a huge opportunity for Vars and dealers to provide hardware and software support to their customers who may be inexperienced in the finer points of IT. Such support is vital, given the growing complexity of networking. SME firms are just as vulnerable as their corporate brethren to system failure which can lead to a loss of business.
But the SME market is by no means easy to sell into, says Rob Wirszycz, director general of the Computing Services and Software Association (CSSA).
?The SME market is difficult to target. Smaller companies tend to change very rapidly, have very exacting requirements and do not have a lot of money. The reason that so many dealers and Vars go for the corporate market is that, although they are tougher on price, they know what they want and have the money to pay for it.?
The CSSA believes the number of SMEs is growing again following the recession when many went out of business.
?A lot of SMEs are started by people who came out of larger companies and are used to an IT infrastructure. A lot of dealers are making money out of selling accounting packages like Sage and Pegasus and sales and marketing software. There is also a requirement for the customisation of standard packages,? says Wirszycz.
Some dealers and distributors believe there is increasing interest in selling into the SME market. ?It is difficult to put a figure on it but I would say that the SME market is the bread and butter of our business,? says Mark Walker, product manager for PCs at distributor Ideal Hardware. He concedes that while most small dealers still have aspirations to sell into the corporate market, many now recognise that it is an uphill struggle to compete with the larger resellers.
?A couple of years ago everybody would say that they were going for The Times Top 500 companies, but there is a growing realisation that an SME?s money is as good as anyone else?s,? he says.
In any case, Walker does not necessarily believe that the corporate market is necessarily the best target for small Vars and dealers to aim at. With the price of hardware continually falling, profit margins are being eroded: to make any reasonable profit, a dealer must add value and offer services to its customers.
?Frankly, it is more difficult for a dealer to charge for services in The Times Top 500 companies because they already have a well-defined IT infrastructure and so much in-house expertise,? he says.
Consultancy Bloor Research, in its report, Corporate Strategy: The Desktop, identifies what it calls three waves of organisations. The first wave is large organisations with mainframes, minicomputers and PCs; the second wave comprises medium to large organisations with minicomputers and PCs; and the third wave consists of small to medium organisations with PCs and PC Lans.
?This is only a rough model and there are many varieties of mixes possible,? says the report.
In the third wave ? in effect the SME market ? customers do not generally have an IT staff, although some users will have familiarised themselves with the hardware and software. In general, they rely on the channel to provide both pre-sales and post-sales support, which means the dealer must have the necessary skills on board.
?It is an issue of understanding and education. In smaller firms there has been a great deal of disappointment about IT and what it has failed to deliver. They are really in the position that larger companies were in the mid 80s.
?I would argue that what you see is a higher proportion of unbranded products. The smaller firms look at the magazines and realise they need a 133MHz Pentium, but are put off by the price. They tend to go to companies that will knock them up a PC, but when they install it they find they have problems.?
In short, small firms are more inclined to buy on price.
Nick Brown, general manager of Tplc, believes that service is the key differentiator between products at the higher end of the SME business. ?Everybody is chasing the SME market with differing degrees of success to keep up market share,? he says.
?In the medium sector our telesales operation has been successful, but support is the key issue. We have a support package called Carefree, which offers a three-year on-site warranty free of charge, which we introduced 12 months ago. We negotiated an agreement with Toshiba and our sales increased by 60 per cent in one month.?
Brown credits Dell as the first company to offer a real post-sales service free of charge and believes that Compaq and IBM have been slow to follow suit.
?Compaq and IBM, coming down from the corporate market, are going to have to understand that they cannot beat Dell on price alone, which is what they seem to be trying to do at the moment, but are going to have to offer similar services,? he says.
Blampied offers some evidence that after-sales service is becoming more critical to users by quoting Department of Trade and Industry figures suggesting 65 per cent of IT projects in small businesses fail. The main problems manufacturers and their resellers face is convincing customers that to install a PC or even a mid-range system like an RS/6000, AS/ 400, Alpha or Hewlett Packard system is a ?silver bullet? solution to their problems.
Terry Schraider, channel marketing manager at Bull, says: ?We take the SME business seriously and sell mainly through our partners to which we pass leads. We encourage them to sell a system that will not only meet the customer?s requirements but exceed them.?
Bull has a partner helpdesk staffed by technicians who can offer configuration and other technical advice. ?The temptation for small firms is to go for the least-cost solution, but we encourage our partners to point out the cost of failure of a system if the customer is buying purely on price,? Schraider says.
He admits this makes selling systems harder because it increases competition. But he believes that the Bull partners that have survived are those that adopt this approach.
Schraider cites the example of a customer who wanted a machine to control a retail outlet, but wanted a return-to-base maintenance agreement. Bull?s partner pointed out that the business would become dependent on the system and that at the very least the customer would need a standby machine in the event that the first system had to be sent away for repair.
If, as Compaq?s figures suggest, 75 per cent of small business have no IT infrastructure, then the SME market represents a virtual greenfield site for vendors and resellers. The growing saturation of PCs in the corporate market, concerns about the cost of ownership of PC networks, the return to centralised computing predicted by some analysts and the birth of the network computer mean that large firms are not the cash cows they once were.
But small companies tend to have cash-flow problems, and price plays a major part in the selection of a system. The fact that many suppliers are now offering a free three-year on-site warranty means many dealers will not have the opportunity to sell their own services unless, like Tplc, they have concluded a deal with the manufacturers.
The battle for a share of the corporate market is now over. SMEs represent the opening of a second front in which education and the level of service the reseller can offer will be the deciding factors in the bid to win customers.