Midmarket: The Holy Grail


VARs focused on this segment could be the industry's salvation


Do you know you stand on sacred ground? That's right, for the average solution provider that serves small and midsize customers, you could turn out to be the industry's salvation depending on the severity and length of the coming recession—if there is one, that is. Here's the reason: Vendors that sell to consumers via retail outlets or other consumer-focused channels have seen their sales through that sector slow or are bracing for a pullback. In the meantime, IT vendors that have long focused on enterprise customers have finally come to the realization that to sustain their growth rates or to meet their sales forecasts for 2008 they must penetrate what has become known as the midmarket, a community of organizations that employ between 100 and 1,000 workers. Some industry researchers put the total number of companies in this community at around 100,000.

Believe it or not, the midmarket sector is slightly more valuable than the small-business sector, which has a population in the millions, because of its diversity and scope—along with its history of being more elusive than a World Series has been for the Chicago Cubs.

I am no economist, but IT vendors are acting like we are heading into a recession. And as they encounter these economic challenges they start making all the obvious statements companies toss out when they run into headwinds. Suddenly, the indirect channel—and partners in particular—has become a very important topic for your average high-tech CEO.

The top executives of companies like IBM, Oracle, Cisco, CA and many others are paying closer attention to hundreds of thousands of companies in the midmarket than ever before and, in doing so, solution providers that serve those customers are becoming valuable commodities.

The reason is summed up by a Goldman Sachs report published this month that surveyed CIOs about their plans to spend on data networking. It contained this passage about Cisco's share gain in small- and medium-business markets. "This share gain combined with our view that SMB spending will not be impacted by economic slowing to the same degree as large corporations keep us positive on the outlook for this customer group."

The report went on to say that Cisco can grow its SMB business 20 percent year over year. Not bad. And guess what? Cisco cannot get at that market without the channel because its account managers or the direct-sales force of any vendor mentioned don't have the time or money to sell to small or midsize customers.

So if you serve midsize customers, you stand on sacred ground. If your customer base lacks such customers, maybe 2008 is the year in which to focus your sales efforts on this sector. Perhaps some of the companies mentioned in our annual review of alternative vendors can help you penetrate the market.

It does seem like the channel is moving in the right direction, however. When we asked VARs which customer markets they plan to focus on more this year, the midsize-business sector came up big. For VARs with revenue of between $5 million and $20 million, the market for companies employing between 500 and 999 workers was their No. 1 target followed closely by the lower end of the
midsize-business market (100 to 499 employees). The No. 1 market for VARs with sales between $1 million and $5 million was also the lower-midsize market. The opportunity was not lost on the small VARs either—those shops with sales of $1 million or less were sharply focused on the midmarket as well.

So as solution providers, take the time to realize how valuable your position is, and make sure that your vendor partners understand it as well.

Do you have a midmarket story to tell?

Robert C. DeMarzo (rdemarzo@cmp.com is vice president and editorial director of CMP Channel.