VARs Race To The Midmarket
5:00 PM EST Fri. Jun. 13, 2008
The "M" word trumps the "R" word. That's what solution providers in growing numbers say because the recession everyone has feared simply isn't showing up in the burgeoning midmarket. As a result, solution providers once focused on the enterprise and those catering to small business are now adjusting their business models in a race to the middle.
The fight for the "M" in SMB has been brewing for a long time, but has gained momentum in the past year as major vendors realize they don't have the resources, cost structure or customer relationships to tackle the burgeoning midmarket. As a result, solution providers determined to grow their business in an uncertain economy are adjusting their business models to better cultivate relationships with midsize businesses.
"[Manufacturers] generally view the midmarket as channel led, which offers them the benefit of expanding their coverage model while lowering their selling costs," said Mark Melillo, president and CEO of Melillo Consulting, a Somerset, N.J.-based solution provider that has traditionally focused on enterprise accounts. "It is a bit of a perfect storm in that it is not competitive with the manufacturers, the volume of accounts is significant and there are strong financial incentives available to the channel partners [from the vendors]."
Melillo Consulting, with annual revenue of about $75 million, recently signed up as a partner with open source network software vendor GroundWork Open Source Inc., San Francisco, as a way to extend its reach into midmarket accounts. Melillo, which derives about 65 percent of its revenue from selling Hewlett-Packard products and related services, needed a lower-cost, less robust alternative to augment HP's network management software, said Jeff Gibson, Melillo Consulting's vice president and general manager of enterprise management and security.
"HP is by far our biggest partner and this is no way a slam against HP," said Gibson, who noted that his HP software business this year is expected to grow by more than 40 percent. "It's simply our way of extending our market reach to areas HP software can't play [in] for whatever reasons, whether they are too big, too robust, too complex or not cost-effective."
To date, GroundWork has opened up new opportunities for Melillo in education and health-care accounts and currently he has several new deals in the works. Gibson said his strategy is to use open-source software such as GroundWork to get into new accounts and then add higher functionality as needed. "[With GroundWork], we have a low entry point. It doesn't necessarily compete against HP because it's business we weren't going to necessarily win anyway."
Melillo believes his company's enterprise heritage gives it a distinct advantage in the midmarket. "Our enterprise expertise allows us to provide more robust and effective solutions scaled to customers' needs," he said. "We have a definite advantage over those moving up the value chain in situations where experience and knowledge are important to the project."
While Melillo Consulting is moving downstream to capture a greater share of the midmarket, Heartland Technologies is stepping up from the small-business space to go after midsize companies. The Harlan, Iowa-based solution provider has traditionally focused on small business, but company CEO Arlin Sorensen said Heartland is expanding into Omaha, Neb., Wichita, Kan., and Des Moines, Iowa. To go after the lucrative midsize businesses in those markets, Sorensen said Heartland would likely acquire other solution providers with midmarket skills.
"We moved into Omaha and thought that we could grow that area by organic growth but it's been a slow and painful process," he said. "Our heritage has been totally in the small space. What we are learning is that it requires us to change a whole bunch of things if we are really to be effective."
Next: Cracking The Midmarket
Sorensen said he's determined to crack the midmarket because of the higher returns compared to small businesses. He points out that because of the greater complexity of the business and the resulting demands for more sophisticated IT infrastructure, Heartland can engage more deeply with midmarket customers and thus realize greater returns. And he notes that rising fuel costs even play into his decision.
"With the cost of people and cost of fuel, moving people from location to location is a losing proposition," he said.
Vendors, too, are putting more money behind solution providers willing to pick up the midmarket mantel.
Hewlett-Packard this year vowed to up its midmarket channel funding.
"Channel investments are key," said Adrian Jones, HP's vice president and general manager, Americas Solution Partner Organization. "Last year, we paid over $350 million in PartnerOne rebates, and we plan to do more in 2008."
Jones noted that HP's SPO increased its staff by 10 percent last year to better support partners.
"The SMB market in 2008 is a $72 billion opportunity and we need [partners'] help to reach all of the buying points in the market," he said.
Jones added that storage would be a top priority for HP in 2008, with a dramatic increase in partner incentives and new product rollouts as key parts of the plan.
"Storage is a top priority for us and we want to grow that to be No. 1 in the market," he said. "Our investments in storage this year will be unprecedented." He noted that HP increased its solution-provider incentives for storage sales by 38 percent in 2007 and will double that in 2008.
Don Richie, CEO of Sequel Data Systems Inc., an exclusive HP partner in Austin, Texas, said his HP storage business was down last year but that the additional investments in the business should help. "HP's new EVA 4400 is a great product for the midmarket and even the low end," he said.
Armonk, N.Y.-based IBM Corp., too, is making a $100 million investment in the midmarket this year, and channel partners stand to gain much of the benefit.
Rich Michos, vice president of worldwide business partner strategy for IBM, said this year the vendor would be investing $100 million in marketing, all in an effort to drive leads in the midmarket. "With some assistance from IBM.com, we're going to satisfy our midmarket objective almost uniquely through business partners," Michos said. "That's a profound shift."
Michos said solution providers that think IBM is too big or too difficult to work with should give the vendor a second look.
"If you're not working with us, now's the best time," Michos said.
Solution providers said they have recently seen IBM increasing its channel focus.
"In the past year or so, I've seen IBM really stepping up to engage partners," said Ryan Yu, president of Daly Computers Inc., an IBM solution provider in Clarksburg, Md.
Michos said several efforts are under way to help partners sell IBM into the midmarket. For example, the vendor's new Lead Pass Decision Engine is a lead development tool that aims to provide better leads to a larger number of IBM partners, he said.
Michos also pointed to IBM's BladeCenter S, where the "S" stands for SMB.
Heartland Technology's Sorensen added that it's important for solution providers to increase their midmarket presence if they hope to incorporate such hot technologies.
"You can't sell blades into a 10-user environment," he said.
—Jennifer Hagendorf Follett contributed to this report.
Next: The Midmarket List
The Midmarket List
Vendor offerings that concentrate on the channel's success in the midmarket
||HOT MIDMARKET PRODUCT
| Adtran Inc.
||MIDMARKET STRATEGY: Sells to midmarket customers exclusively through channel partners.
ADVANTAGE: Low product points.
CHALLENGE: Fighting for share against dominant market leader Cisco.
| Advanced Micro Devices Inc.
||Business Class Platform
||MIDMARKET STRATEGY: Pushes advantages of Opteron server chips to the data center.
ADVANTAGE: 'Native' client and server core micro-architecture delivers energy efficiency, dynamic power management and significant investment protection across CPU product line.
CHALLENGE: Disasterous recent financial performance and major product delays hinder AMD's already difficult task of consistently competing with chip goliath Intel.
| Apple Computer Inc.
||MIDMARKET STRATEGY: Typically hush-hush about channel plans but releases more business-friendly products every year.
ADVANTAGE: The popularity of its iPhone and iPod products is helping it make inroads into the business world.
CHALLENGE: Most business software is still designed for Microsoft Windows.
| Avaya Inc.
||MIDMARKET STRATEGY: Positions its midmarket solutions as an extension of its enterprise-class offerings.
ADVANTAGE: Recent research from Frost & Sullivan found that avaya leads the North American voice and unified messaging market in revenue and shipments.
CHALLENGE: Accelerating its time-to-market and training the channel to sell packaged solutions.
| Cisco Systems Inc.
||Cisco Unified Communications Manager, Business Edition
||MIDMARKET STRATEGY: Pushes 100 percent of midmarket sales through channel partners.
ADVANTAGE: Broad portfolio of integrated products encourages many channel partners to recommend end-to-end Cisco solutions.
CHALLENGE: Premium pricing strategy leaves Cisco open to attack from lower-cost rivals.
| Citrix Systems Inc.
||MIDMARKET STRATEGY: Creates packaging, pricing andtraining and makes marketing deciscions from a channel-first standpoint.
ADVANTAGE: Has broad vision of branching out beyond servers and into the desktop virtualization market.
CHALLENGE: Overshadowed by rival VMware.
||MIDMARKET STRATEGY: Sells software both as a licensed application and as a technology to let channel partners offer online data protection as a service.
ADVANTAGE: Consistent channel program and lower product prices.
CHALLENGE: Less well-known and much smaller than competitors such as Symantec and EMC.
| Compellent Technologies Inc.
||Storage Center Array
||MIDMARKET STRATEGY: 100 percent channel appraoch to marketing a relatively low-cost storage array with many typical enterprise-class features.
ADVANTAGE: Full-featured product with a loyal base of solution providers.
CHALLENGE:Small size and lack of brand recognition.
| CA Inc.
||MIDMARKET STRATEGY: Created a new business unit to sell storage and recovery management software for the midmarket exclusively through the channel.
ADVANTAGE: Has been putting more emphasis on the channel lately and backing it up with products packaged specifically for midmarket customers.
CHALLENGE: Must dispel its reputation as a supplier of mainframe-focused products sold by abd agressive direct-sales force.
| Dell Inc.
||Dell EqualLogic PS5000 Series
||MIDMARKET STRATEGY: Aims to deliver best price-performance in midmarket with a full portfolio of products.
ADVANTAGE: Uses its Wal-Mart-like purchasing power to deliver best-value midmarket products.
CHALLENGE: Lacks channel and services muscle of No. 1 rival HP. Must prove its new channel initiative is more than just talk.
| eCopy Inc.
||MIDMARKET STRATEGY: Solution stack is built so companies can choose a starting point that best fits their business and then add more features as needed.
ADVANTAGE: Provides a standard document- imaging platform supported by every major multifunction peripheral manufacturer.
CHALLENGE: Needs to expand its channel ecosystem to tap into fast-growth mid-market applications.
| EMC Corp.
||MIDMARKET STRATEGY: Continues to develop its entry-level and midrange Clariion line of storage appliances while building a managed services platform that will be available through its solution providers.
ADVANTAGE: Strong channel-friendly program for small and midmarket business customers, along with a well-known storage brand in larger midmarket businesses.
CHALLENGE: History and long memories of the days when it was known as an aggressive enemy of the channel, plus not as well-known among smaller business customers.
| Google Inc.
||Google Search Appliance
||MIDMARKET STRATEGY: To penetrate midmarket accounts with Google Search Appliance, Google Mini, Salesforce For Google Apps, and Postini hosted e-mail and messaging offerings.
ADVANTAGE: Reputation for creative and innovative technology for free or at bargain- basement prices.
CHALLENGE: Small midmarket footprint and a low channel IQ despite a much- publicized distribution agreement with Ingram Micro.
| Hewlett-Packard Co.
||HP BladeSystem c3000
||MIDMARKET STRATEGY: Strategy is to cede virtually the entire midmarket to solution providers while its direct- sales force handles its largest named enterprise accounts.
ADVANTAGE: Breadth of HP's product portfolio is greater than any other IT company.
CHALLENGE: Must fight to keep its direct-sales force away from midmarket accounts and focused on its named enterprise customers.
| Hitachi Data Systems
||MIDMARKET STRATEGY: Sells through the channel and through system vendors.
ADVANTAGE: Loyal partner base, plus many reseller arrangements with system vendors such as Sun Microsystems and SGI.
CHALLENGE: Still a relatively unknown brand in the U.S. combined with what many solution providers say is little or no marketing activities.
| IBM Corp.
||IBM System Storage n3600
||MIDMARKET STRATEGY: Its platform, called Blue Business Platform, includes APIs to enable partners' solutions to work with each other.
ADVANTAGE: Huge base of technology, services and solution providers, coupled with IBM's own technology, along with experience in packaging solutions for midmarket customers.
CHALLENGE: Has gotten rid of its commodity product lines, especially PCs and components, and is moving away from low-end servers, potentially alienating many of its smaller partners.
| Intel Corp.
||Intel Modular Server
||MIDMARKET STRATEGY: Relentless 'tick-tock-driven' product refresh cycle that gives OEM and system builder partners more powerful, dynamic and energy-efficient silicon with metronomic consistency.
ADVANTAGE: Brand awareness, marketing heft, top-to-bottom server offerings, and fruitful relationship with its system builder channel.
CHALLENGE: Main x86 rival AMD's launch of its first commercial desktop and notebook platforms this year, the possibility of prolonged economic downturn affecting product sales.
||MIDMARKET STRATEGY: To provide end-to-end systems management and deployment capabilities via affordable and easy-to-use appliances.
ADVANTAGE: Focuses on product sets that are intuitive and easy to use, so no additional staff is needed to manage them.
CHALLENGE: Faces name-recognition issues when up against competitors such as Microsoft, Altiris and LANDesk.
| Kaspersky Lab
||Kaspersky Open Space Security
||MIDMARKET STRATEGY: Hosted security services targeted at midmarket customers.
ADVANTAGE: 100-percent channel focused.
CHALLENGE: Antivirus focus only.
| Lefthand Networks Inc.
||NSM 2120 Security SaaS with Business Continuity
||MIDMARKET STRATEGY: Stays close to the channel with solid and focused product line.
ADVANTAGE: Offers both physical (hardware-based) and virtual versions of its iSCSI storage appliances.
CHALLENGE: Dell's acquisition of EqualLogic could put pressure on LeftHand and on all iSCSI-focused vendors.
| McAfee Inc.
||Total Encryption for Protection for Data
||MIDMARKET STRATEGY: Focuses on delivering products that leverage enterprise-class technology but are easy to install, manage and maintain.
ADVANTAGE: Has product family that delivers a comprehensive compliance infrastructure.
CHALLENGE: Educating customers on the company's midmarket strategy.
| Microsoft Corp.
||Essentials Business Server
||MIDMARKET STRATEGY: Strategy is all about taking enterprise-level features and functionality and tuning them for midsize companies, both in terms of product design and pricing.
ADVANTAGE: Has legions of devoted channel partners who've long sang the praises of Small Business Server, and they're excited about getting their hands on Windows Essentials Business Server (EBS).
CHALLENGE: Must educate the market on EBS' value proposition that and clarify that it's not just scaled-down version of Windows Server. This includes pointing out the ability for EBS to manage end-user licensing.
| NetGear Inc.
||ProSafe 48-port Gigabit Smart Switch, aka GS748TR
||MIDMARKET STRATEGY: Recently released several products across its typically SMB-focused portfolio to target businesses of that size.
ADVANTAGE: Offers = ProSafe Lifetime Warranty, which few vendors targeting the midmarket offer.
CHALLENGE: Many of Netgear's customers want to go with a one-size-fits- all approach, often resulting in their choosing an enterprise vendor based on brand recognition.
| NetSuite Inc.
||MIDMARKET STRATEGY: Offers integrated business applications for midsize companies and delivers them over the Internet using SAP-like infrastructure.
ADVANTAGE: More cost-effective alternative to much more expensive products being pushed by competitors.
CHALLENGE: Fragmentation of the market, and the reality that it's tougher to sell ERP than CRM could slow the company's progress.
| Novell Inc.
||Novell SUSE Linux Enterprise
||MIDMARKET STRATEGY: Optimized SUSE Linux Enterprise Server for mid-market customers through alliances such as the recent deal with SAP.
ADVANTAGE: Huge installed base of NetWare customers.
CHALLENGE: NetWare sales declining. Customer base being targeted by competitors such as Microsoft and Red Hat.
| Oracle Corp.
||Oracle Database 11G Standard Edition
||MIDMARKET STRATEGY: Under Oracle Accelerate initiative, company provides pre-configured bundles of applications tailored for SMBs in vertical industries.
ADVANTAGE: Few competitors can match its broad lineup of database, middleware and application software.
CHALLENGE: Has to step carefully to support all its acquired products while developing its next-generation Fusion applications.
| Progress Software Corp.
||MIDMARKET STRATEGY: Working to expand sales of its application integration and management products to midsize companies.
ADVANTAGE: Has stable of more than 1,500 ISV partners, covering numerous vertical industries and broad geographic areas.
CHALLENGE: Pushing into SOA infrastructure, integration and messaging software market, where technologies are evolving rapidly.
| Sage Software
||MIDMARKET STRATEGY: Longtime focus on SMBs, relies heavily on the channel to reach them.
ADVANTAGE: Broad range of products, many targeted squarely at midmarket customers. Consistently gets high grades from solution providers for its channel programs and support.
CHALLENGE: Broad, sometimes overlapping product lines can be confusing. Recent channel management team shakeup.
||Salesforce Partners (PRM)
||MIDMARKET STRATEGY: Offers broad range of features and functionality.
ADVANTAGE: Maintained a leading position by expanding its portfolio beyond CRM and adding channel- friendly initiatives like AppExchange, a directory of add-ons developed by Salesforce partners.
CHALLENGE: Bigger competitors such as Microsoft and Oracle are all moving into on-demand CRM space, and their influence could eat away at Salesforce's margins.
||460 DXN Digital Display
||MIDMARKET STRATEGY: Shook up channel programs last year to help grow midmarket business.
ADVANTAGE: Has wide range of products and is putting resources behind digital signage and ultramobile PCs in the midmarket.
CHALLENGE: Beefing up line of printers but will have tough competition from longtime leaders HP and Xerox.
| SAP AG
||MIDMARKET STRATEGY: Targets mid-market customers through the channel with Business All-in-One application package and Business ByDesign on-demand applications.
ADVANTAGE: Thanks to industry consolidation, SAP has become one of the dominant players in ERP software.
CHALLENGE: Still working on the best ways of selling, running and delivering on-demand applications.
| SAS Institute Inc.
||SAS Analytics Pro for Midsize Business
||MIDMARKET STRATEGY: Launched Alliance reseller program in late 2006 to expand sales to SMBs using pre-configured bundles of its business intelligence software.
ADVANTAGE: Well-known for sophisticated data management and analysis applications.
CHALLENGE: Continues to search for right mix of products and tactics for its nascent channel efforts to reach SMB customers.
| ShoreTel Inc.
||ShorePhone IP 565g
||MIDMARKET STRATEGY: Focuses on building quality VoIP products at value prices, driving 100 percent of its business through channel partners.
ADVANTAGE: Has loyal channel following because of its high product quality and strong partner margins.
CHALLENGE: Competes against Cisco, a market-leading, deep-pocketed rival.
| SonicWall Inc.
||NSA 3500, 4500, 5000
||MIDMARKET STRATEGY: Expanding its footprint to the midsize and enterprise markets.
ADVANTAGE: Has products designed specifically for companies with shortage of IT personnel.
CHALLENGE: With current economy, challenge will be to enable its 10,000 partners to sustain level of profitability.
| Sun Microsystems Inc.
||Sun Fire X4500 Thumper hybrid sever/storage appliance
||MIDMARKET STRATEGY: Revamped product line in past couple of years to focus on midmarket, including series of high-performance, low-cost x86-based systems.
ADVANTAGE: Strong server and operating system offerings and one of the strongest supporters of the open-source community.
CHALLENGE: Inconsistent channel programs, failed storage strategy (with some strong exceptions), and a brand name associated with either "enterprise" or "stodgy old computers" or "the dot in dot-com."
| Symantec Corp.
||Backup Exec 12
||MIDMARKET STRATEGY: Offers combination of affordable solutions that help fully protect mixed OS environment.
ADVANTAGE: Has comprehensive range of products.
CHALLENGE: Faces stiff competition from newer vendors entering its space with innovative technologies often at significantly reduced price points.
| Trend Micro Inc.
||MIDMARKET STRATEGY: Strategy incorporates targeting businesses with array of on-premise and hosted security solutions that provide multilayer, multithreat protection.
ADVANTAGE: Focused offerings both designed and packaged specifically to help midmarket customers resolve complex security issues more easily.
CHALLENGE: Getting mind-share of the overworked mid-market IT administrator who has limited, or dwindling, staff, time and resources.
| Verizon Wireless
||Various mobility products
||MIDMARKET STRATEGY: Focuses on network reliability.
ADVANTAGE: Quality of its network.
CHALLENGE: Operates in aggressive, competitive market.
| VMware Inc.
||MIDMARKET STRATEGY: Created variety of Acceleration Kits, packages of software and/or training aimed specifically at midmarket and smaller customers.
ADVANTAGE: Has broad product line.
CHALLENGE: Driving awareness of its offerings.
| Webroot Software Inc.
||Webroot Email Security with Business Continuity
||MIDMARKET STRATEGY: 100 percent channel-only model.
ADVANTAGE: Service solution eliminates huge infrastructure capital investment midmarket accounts must make to protect their business.
CHALLENGE: Battling myth that data in the data center is more secure than data in the cloud.
| Xerox Corp.
||Phaser 8860 multifunction printer
||MIDMARKET STRATEGY: Relying on broad product line and offerings like PagePack managed print service to help grow midmarket business.
ADVANTAGE: Updated Peak Partner Program last year and has been gaining ground in the channel, winning high marks from VARs for product quality and reliability.
CHALLENGE: With long copier heritage, Xerox still isn't the first name that comes to mind when you're looking for a printer.