The midmarket melee HAS BEGUN.
Virtually all business software vendors worth their salt,and probably several that aren't,are attacking the SMB space with a vengeance, and it's not hard to see why. As the enterprise IT spending drought continues, vendors ranging from Microsoft, IBM and SAP to J.D. Edwards and Pivotal are upping the ante in the midmarket, where many companies still may be willing to spend. Others, such as Best Software's SalesLogix unit, already have staked claims in SMB territory.
Much of the renewed activity is being stirred by software kingpin Microsoft, which plans to make its formal entry into the CRM arena with the release of its Microsoft CRM (MS-CRM) product later this year.
While few solution providers are surprised by the software-vendor race into the midmarket, which has been a source of business during the economic slump, they say the prospect of new products and increased vendor focus augurs more opportunities for the channel.
"SMB has been somewhat overlooked," said Tom Wilson, president of the Osprey division of NIIT, an SAP reseller based in Charlotte, N.C. "Much of the attention has been on large opportunities in enterprise software, but a lot of those companies have already made those [buying decisions. The truth is, growing companies need a lot of those same capabilities."
That's not to say that SMBs are spending like drunken sailors, however. Those companies just represent a less saturated market, said solution providers.
"Most of them still appear to have pretty tight budgets. They are making purchases but are often looking for very aggressive pricing and asking for fixed-price arrangements," said Burley Kawasaki, CTO at Equarius, Bellevue, Wash.
As software vendors mobilize for the midmarket, they're also busy defining their target customer segments.
IBM Software Group, for example, is prepping an aggressive midmarket offensive with versions of DB2 and WebSphere and finance programs tailored to companies with between 100 and 1,000 employees (see sidebar, page 22). IBM estimates that there are 400,000 such companies worldwide, said Mark Ouellette, vice president of sales and marketing at IBM Software.
To help reach those customers, IBM in late August tapped Mark Hanny, vice president of worldwide ISV alliances and go-to-market operations, to direct the company's midmarket partner push. And where Microsoft is unleashing its own business software offerings, IBM is stressing its reliance on third-party ISVs, Hanny said.
"Unlike Microsoft, which is announcing its own CRM and ERP apps, we are 100 percent partner-led," he said. "Almost three years ago, we made the strategic decision not to be in this business [segment and are leading with skilled application developers to build solutions and connect to system integrators for downstream integration and services."
'There's this assumption in everything we do that we're going midmarket and up. The real story, now that we've done Navision and got the CRM thing, is that we're going to move down.' --Doug Burgum, Microsoft
Microsoft maintains that its software is becoming part of a higher-level platform upon which partners can customize applications. The company said it's targeting "core midmarket" and "lower midmarket" companies with its Great Plains/Navision business solutions push. Microsoft defines core midmarket companies those with 50 to 250 PCs, 100 to 500 employees and $100,000 to $500,000 IT budgets, and defines lower midmarket companies as having 25 to 49 PCs for 50 to 99 employees and IT budgets of less than $50,000.
Those calculations didn't come easy, said Doug Burgum, president of Microsoft's Business Solutions Group. "We had our taxonomy, Navision had theirs and Microsoft sales [staff had theirs," he said.
Microsoft bought Navision and its back-office applications earlier this year, and last year acquired Great Plains with its accounting and back-office software. Now Microsoft is incorporating that stable of products and MS-CRM under the Microsoft Business Solutions banner.
CRM and ERP are driving the current action in the midmarket, where traditional enterprise leaders such as SAP, Siebel Systems and PeopleSoft have jumped into the fray. Those three vendors,all Microsoft ISV partners on the enterprise front,downplay Microsoft Business Solutions but remain wary of the new unit's competitive threat to the lower end of their traditional customer base. Their chief concern: Microsoft will eventually pitch its CRM and ERP offerings to the enterprise.
But even when Microsoft has identified its target markets, no one seems to believe the company, and that's a source of consternation for Burgum. "There's this assumption in everything we do that we're going midmarket and up. The real story, now that we've done Navision and got the CRM thing, is that we're going to move down."
Burgum said Microsoft's heritage is in volume software, and to generate critical mass, an ISV has to target smaller businesses. "I don't want to be the seventh person in line sitting outside the CIO's office [to make a sale," he said.
Unlike Pivotal, Onyx or most other ISVs, Microsoft must sell a boatload of product to succeed in the business software market, Burgum said. For example, Microsoft must far exceed the 300 to 400 customers that J.D. Edwards says it adds each year, he said.
Best Software targets customers with up to 500 employees and $1 million to $6 million in revenue,a total market of 4.2 million companies, says CEO Ron Verni.
"Customer adds are really the way to separate this [market. Everyone wants to write the story about how we compete with J.D. Edwards," Burgum said. "If I add 300 or 400 customers a year, I'd be fired. I'm supposed to add tens of thousands of customers. So, by definition, we compete at a level lower than that."
Still, Burgum admits that MS-CRM and Microsoft's other midmarket-focused solutions will be considered by departments within large enterprises. "The upper limit will be where our partners want to take it," he said.
Because of Microsoft's lower price point relative to Siebel and other CRM players, more companies than ever before will find its software attractive, say some solution providers. And Microsoft has managed to ferret out a handful of CRM functions that most companies want.
"In version 1 [of MS-CRM, Microsoft will deliver a product with the CRM functionality that most customers need immediately: sales and customer service," said Long Duong, solution architect at Equarius.
While Microsoft may waffle about how its business solutions will find a home in big companies, Bo Manning, president of Pivotal, has written off those enterprise customers and doesn't hesitate to say so.
"We exclude all companies that even for a nanosecond think of spending tens of millions of dollars and taking multiple years [on CRM implementations," Manning said. "If people are willing to think that way, we can make life simple. We tell them that if they want to buy from mean people, buy from Siebel, and if they want to buy from nice people, buy from PeopleSoft. At the end of the day, regardless of their needs or requirements, they always buy the biggest products from the biggest companies."
Pivotal, Vancouver, British Columbia, targets companies with $100 million to $300 million in annual revenue, 100 to 2,500 connected users and up to 500 mobile users. Whereas an average Siebel sale might run up to $900,000 or $1 million, with services running several times that, the average deal size for Pivotal is about $100,000 for software and another $100,000 for services, Manning said.
ERP giant SAP earned its stripes in the enterprise realm, but the company has launched an initiative to push into SMB verticals. This fall, SAP kicked off a nationwide truck tour, bringing solution providers around to show off their customized SAP applications.
When it comes to market definitions, it pays to slice the segments into verticals, said Gary Fromer, SAP's vice president of SMB. "In biopharmaceuticals, a $100 million company is huge. A $250 million food packaging company is midsize to low end," he said.
For example, SAP is working with Unit, a New York-based solution provider with expertise in the commercial printing market. "They took MySAP.com and created a number of business processes and activities that printers do," Fromer said.
Printing companies typically use customized proprietary systems and, for the most part, don't have ERP systems, said Uwe Goehring, president of Unit. "SAP is the first company going after this industry," Goehring said.
Best Software, the company behind SalesLogix and Act software, isn't giving up the ghost in a market in which it already has a huge presence. CEO Ron Verni said the Irvine, Calif., company is betting that its 4 million Act customers and 6,600 midmarket channel partners will sustain it even as new vendors enter the space. Best concentrates on companies with up to 500 employees and $1 million to $6 million in annual revenue, he said.
"That's 4.2 million companies in the sweet spot, and we [already have 1.6 million of those," Verni said. "Great Plains and Navision together have 112,000 customers in the U.S. We have 2.9 million."
Despite being a relative newcomer compared to vendors like Best, Microsoft,by virtue of its status as the world's biggest software company,looms large in the business apps space. Verni, for one, said Best must keep its eye on the ball and not add channel partners indiscriminantly. To that end, the company's SalesLogix unit must ensure that it has the right partners and that they can be profitable.
"You have to make sure margins are healthy and they have enough leads," Verni said. "We've increased our investment in training to help them succeed."
And some partners say Best has succeeded in that effort. The vendor has "far and away" a better channel program,replete with seminars, training and boot camps,than Microsoft does, said Alan Hardy, a technology partner at Clifton Gunderson, a Peoria, Ill.-based solution provider. What's more, Best is now shipping SalesLogix 6, which includes an enhanced Web client, standard data engine and tighter integration with Outlook,all of which could help raise the company's profile even further, other solution providers said.
For all of its might and resources, Microsoft still faces hurdles in its business solutions push, according to industry observers. While the vendor won kudos for the aggressive financing plans it announced last month, designed to help jump-start demand for its business software, it must overcome trepidation on the part of some longtime partners, who fear that the company may make the Great Plains culture,which traditionally nurtured ISV and business partners,less channel-friendly.
"It's funny watching Microsoft take over Great Plains. It's both a good and a bad thing," said one solution provider, who requested anonymity. "You could shake a hand at Great Plains and never worry about getting stabbed in the back. I'm not sure that's true with Microsoft."