VARs, Vendors Target Midmarket Accounts

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 companies.

Melillo Consulting Inc., an enterprise solution provider in Somerset, N.J., 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 more than 80 percent of its revenue from selling Hewlett-Packard Co. 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 for whatever reasons, whether they are too big, too robust, too complex or not cost-effective. My goal is to extend our reach into the small and medium market where we really haven't been successful with large, commercial management solutions."

To date, GroundWork has opened up new opportunities for Melillo in education and health-care accounts and currently he has four or five 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. "We are trying to use lower-cost solutions for basic functionality and the more value-based solutions for higher functionality," he said. "[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. And it gives us the potential to add HP functionality to these entry points because the customer didn't have to spend money on their basic management functions. And these aren't small mom-and-pop shops. These are $100 million or $200 million companies. They are not going to spend 2 percent of revenue on enterprise management."

While Melillo Consulting is moving downstream to capture a greater share of the midmarket, Heartland Technology Solutions 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, Wichita, Kansas and Des Moines, Iowa. In order to go after the lucrative midsize businesses in those markets, Sorensen said Heartland will 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. Even though we hired a really good midmarket sales rep, there is more to it than the sales rep part of the scenario. What we are learning is that it requires us to change a whole bunch of things if we are really to be effective. Certainly, eyes are wide open on how we can do an acquisition to jump-start office as well as other markets we are trying to grow into."