Midmarket Madness: Could The Market Be Any Hotter?

VARBusiness' state of the midmarket research reveals that customers are spending big and turning to solution providers more than ever. To illustrate just how hot this market is, we present a bevy of stories and charts with insights on customer buying habits and priorities. we've also assembled the definitive list of the hottest products for you to sell to midmarket customers.

So, whether you're new to this market, or a longtime veteran, you're going to want to spend some time with this special edition of VARBusiness. Not only is the number of midsize companies that are upping their IT spending on a record rise, for example, but the sheer dollars they are spending also are growing. According to this year's annual research on the IT habits of companies with between 100 and 999 employees, spending on technology is increasing year-over-year at a rapid pace. Specifically, more than half--56 percent--of respondents to this year's midmarket survey said their IT products and services needs have increased in the past six months. Not surprisingly, 52 percent of respondents expect to spend more in 2005 than in 2004. The percentage of customers polled last year that said that was 38 percent. No wonder, then, that IT spending is expected to reach 14 percent of revenue on average, up from 11 percent in 2004.

So, where exactly are those IT dollars going? Hardware accounts for the largest amount of money spent (39 percent), followed by software (29 percent), break/fix services (15 percent) and professional/consulting services (14 percent).

Midmarket customers reported that their top software priorities are antivirus software, firewall and intrusion detection, desktop operating systems, server/network operating systems, databases and disaster recovery. In terms of hardware needs, midmarket customers are looking to spend on servers, personal computers, security appliances, storage, and voice and data networking equipment.

Customers' Wants And Needs

So, who comprises midmarket customers? They vary in size and shape, of course. And while employee headcount is considered a good yardstick for measuring midmarket companies, it is not the only one. Some vendors, including Microsoft, look beyond headcount when measuring midmarket companies. They look at total IT spend as a percentage of revenue, the number of seats across a company, the processing needs of an organization and/or even the number of internal IT people a company may have, if any. By some of these measures, the Chicago Mercantile Exchange (CME) is a midmarket customer, despite the fact that it's headcount is a bit north of 1,000 employees (it actually has close to 1,200 people on board).

As chief technology officer for the organization, Charlie Troxel has vast responsibilities. With two PDAs and a cellphone, he is always connected to his IT empire. Technology, of course, is the foundation for the Exchange, which saw more than $335 trillion, yes trillion, in futures traded last year alone. Troxel's goal this year? To make sure that trading takes place as effectively and efficiently as possible. But Troxel knows his strengths and realizes that with each new problem his team is looking to solve, there is the choice to build or buy. "We're inundated with requests for new technology and functionality," he says, adding that there are typically about 150 to 200 projects that the IT department undertakes each year, with another 50 that usually pop up along the way. The sheer volume of projects constantly has him wondering how much he should outsource to a trusted third-party ally.

Just recently, the CME turned to Copan Systems for massive array of idle disks (MAID) technology, specifically, the Copan Revolution 200T backup product, a disk-based, long-term repository for write-once read-occasionally data. The CME undertook a pilot program implemented by Copan before deploying the technology companywide.

And while midmarket customers are poised to spend more than $160 billion on IT products and services this year, there are some nuances to keep in mind when selling products and services to these smaller customers. Their wants, needs, budgets and time frames can be different from those of the enterprise.

When preparing to launch a new business-analytics solution for the midmarket, Daniel Schwartz, president of NexVue Information Systems, a Stamford, Conn.-based solution provider, took the needs of his target customer to heart and designed his offering around that. Obviously, the product had to be reasonably priced, easy to understand and implement, and exacting in its delivery.

NexVue's new Business Information Optimization (BIO), a Microsoft-based business-analytics platform, is specifically targeted at the mid-size customer. Schwartz says he saw an opportunity to extend the business-analytics market, which has typically stayed in the domain of larger enterprises because of cost and complexity. "We've created a tool that enables midmarket companies to utilize the technology at a price point in their range," Schwartz says.

From the customer perspective, T.J. Klise, technology-services director in the IT department of Methodist Medical Center of Illinois, a 353-bed facility in Peoria, Ill., echoes that sentiment. "Budget, budget, budget, and staying within that budget is what I focus on," he says. "We don't have the benefit of [other] companies with lots of money to throw around."

He adds that partnering is key and says, "We really want a partner to share in what we're doing. The expectation is that we aren't going to be your average customer; we want to work together to develop and enhance our technology environment."

Like many, Klise says he's always on the lookout for new, up-and-coming solution providers. That includes OnStor, a Los Gatos, Calif.-based solution provider that delivered a NAS solution that helped cut the medical center's costs while improving efficiency. Jon Toor, vice president of marketing with OnStor, says the key to midmarket sales is adding value while saving money.

On the Right Track

Ironically, one thing that's complicating the IT lives of many midsize companies is their own growth. That's certainly what has happened to Chip Ganassi Racing, a race-car company that fields teams, makes cars, runs retail stores and employs 300 people. When the fast-growing empire outgrew its IT systems, it looked to ePartners, a Seattle-based solution provider, for help.

Michael Carbone, manager of information technology at Chip Ganassi Racing, encountered what so many midmarket customers run into. The Pittsburgh-based racing team, which competes on the NASCAR, Indy Car and Grand AM circuits, was tied to disparate technology platforms with little to no communication among them.

"In the racing industry, speed is life," Carbone says. "And we went through a phase of implementations and upgrades to help us keep up with the growing needs of the company." He adds that beginning in 2002, the upgraded foundation was laid to connect each of Chip Ganassi's sites. That included installing a VPN, VoIP and Windows 2003.

With the groundwork and a solid infrastructure in place, Carbone was ready to take the next step and install an enterprise resource planning (ERP) solution. Carbone had a close relationship with Microsoft and turned to his local representative for help, who recommended ePartners, and the ERP initiative took off.

The ERP solution encompasses multiple solutions, with the accounting system serving as the middle of the wheel, with emanating spokes that represent the different applications that will hang off of it. Those spokes include human resources, customer-relationship management, point-of-sale and Web-commerce applications. In all, the project is a seven-phased process of needs-analysis, requirements and implementations.

Dan Duffy, CEO of ePartners, explains that when targeting midmarket customers such as Ganassi, there is typically a slightly different approach to marketing and demand-generation. In addition, he says, solutions have to be more cost-effective. One area in particular Carbone sees as a big opportunity for improvement is the manufacturing process. Right now, it's a fairly manual process involving pieces of paper stuck to cars that bear the initials of the individuals who have done what work. With an electronic process to track where a car is in the manufacturing process and what cars are coming up for special race events, the company can be much more efficient. And, with a solution in place, Carbone sees the opportunity for team managers to focus more on strategic plans.

With an IT department of five, Carbone is always looking to partners for direction. Ganassi works with about six or seven IT partners. "We're a racing team, so everything is team-oriented," he says. "Without Microsoft, we wouldn't have ePartners, and without ePartners, we wouldn't have Microsoft."

And what about Microsoft's foray into the midmarket? Duffy says that while the midmarket focus has been around for some time, the software giant is doing a much better job of communicating their go-to-market strategy for midsize customers. "They've always been committed to the space, but now they make sure that everything--from pricing to products, marketing and messaging--is sensitive to their desire to bring value to that segment," he says.

Carbone says that while his total IT budget is not increasing, that is only because the technology that he is implementing is actually cutting down on labor and support costs, as well as operating costs because the systems are more stable. So while he spends less, he continues to invest heavily in IT products and services in order to be more efficient overall.

Obviously, that's the goal of many in the midmarket, where your best prospects may lie. Before you define your market strategy, spend a minute with our list of top products for the midmarket, and don't miss "Top 100 Midmarket Solutions," page 41, about vendors that midmarket companies consider strategic to them. Together, they can help refine your go-to market strategy.