Microsoft Stakes Out the Middle

When it comes to studying customers and their buying habits, Microsoft president and CEO Steve Ballmer has examined it all, from Fortune 500s to the smallest mom-and-pop shops.

But it's those companies that fall in between, the mythical midmarket, that have--by his own admission--captivated Ballmer for the better part of his tenure at Microsoft.

Today, the midmarket's estimated 1.2 million businesses represent the next major target for Microsoft and, Ballmer hopes, its partners.

Last month, the company detailed its strategy for selling its wares to midsize firms, which it defines as businesses with between 50 and 1,000 employees and/or 25 to 500 PCs. The initiative involves new products and services, encompassing both the classic Microsoft infrastructure portfolio and its stable of business applications, from Great Plains and Navision to Microsoft CRM.

As part of the overall announcement, Microsoft has unified the branding around its former Microsoft Business Solutions (MBS) applications; the software will now fall under the moniker Dynamics and will play a central role in the midmarket strategy.

In addition, Microsoft veered momentarily from the midmarket concentration to roll out its new Small Business Accounting 2006 software, aimed at businesses with as few as five PCs. The package, which integrates with Microsoft's Business Contact Manager software and Microsoft Office, is expected to shake up the SMB accounting market now dominated by such vendors as Intuit and Peachtree Software.

Nearly every one of the major IT vendors, from IBM to Oracle to SAP, has deemed the midmarket a cornerstone of its business plan. It's part of a trend that takes customer segmentation to a new level, including devoting individual executives and teams within each vendor's organization to handling small-business solutions, for example, as opposed to being tied to one product's development and marketing.

Ballmer says the key to driving business to the midmarket is understanding its constituents' unique product needs, licensing concerns and resource issues, which differ greatly from those of the smallest companies and of IT-staff-rich enterprise businesses.

"The midmarket customer is the least well-served customer across a spectrum of people involved in IT today," he says. "They are challenged in dealing with complexity and scale, and need to find solutions that are very appropriate to their needs."

Microsoft has been methodically crafting its answer to midmarket IT challenges. Its approach? To create single products that combine the company's ERP and CRM applications, Microsoft Office--as a front-end interface--and server offerings into integrated, out-of-the-box solutions. The forthcoming Centro server product is one example, which packages a bundle of Microsoft server tools, including Windows Server Longhorn, the next version of Exchange Server, SharePoint Server, and its system-management products. The caveat for partners and customers is that Centro won't likely sell for at least two years. That's because it leverages the code base for Microsoft Vista, the next version of Windows that isn't slated to ship in server version until 2007.

Nonetheless, Microsoft has gone a long way toward demonstrating thought leadership for midmarket clients. Despite confusion over certain details, partners, for the most part, are squarely behind the company's efforts and upbeat about its messages.

"We see the vision of creating applications that reflect the way people work and do so out-of-the-box," says Bryan Bechtoldt, vice president of information management at Inacom Information Systems, Madison, Wis.

Inacom, like other partners, is placing ever bigger bets on the Microsoft software stack. It sells both classic Microsoft infrastructure and platform products, including Office, Windows and Microsoft CRM. The company has devoted greater internal resources to selling, supporting and developing to the Microsoft stack. What Bechtoldt particularly likes about the company's new initiatives is that the broad Microsoft platform provides value to the customer right out of the box, allowing Inacom to focus on higher-margin custom-application development.