Midmarket Vendors That Are Good As Gold

Who is gold to customers in the midmarket? How about Microsoft, which a whopping 70 percent of customers consider to be strategic to their overall IT needs and objectives? Contrast that to EMC or Novell, which midmarket customers in large numbers don't consider strategic.

As we do each year, VARBusiness has polled midmarket customers about which vendors they consider strategic, tactical or unimportant to their companies. (This year, nearly 300 end users responded to our survey.) Out of a list of 10 leading vendors (though end users could also identify other companies if they wanted to), Microsoft came out on top in terms of strategic importance. This is the second year in a row that Microsoft has done that. Other vendors that follow include Dell, Intel, Cisco, Symantec, Hewlett-Packard, IBM, Computer Associates, Novell and EMC.

Speaking of EMC and Novell, they also finished at the other end of the spectrum. How so? Well, more than three-quarters of midmarket customers polled said these two vendors were "unimportant" to them; that's despite significant efforts on behalf of both companies to court and recruit midmarket customers. Novell, of course, is trying to reconnect with many midmarket companies that used to rely on its software more strategically, while EMC is trying to recruit these customers anew.

Looking at the complete rankings of vendors reveals some interesting things about how the midmarket--which virtually every major vendor now says it's targeting--thinks. Take IBM, for example. According to our survey, half of midmarket customers consider IBM "unimportant" to them. Moreover, IBM, as well as HP for that matter, failed to finish in the top five on the list of strategic vendors. And IBM didn't even make the top-five list of companies considered tactical. (HP, at least, finished second to Intel for that.)

This is all somewhat surprising given IBM's massive endeavor to get in deep with midmarket customers. Its effort has culminated in the creation of the IBM Express Portfolio of products and services specifically designed for SMB customers (total offerings now number more than two dozen), and the establishment of alliances with 30 midmarket ISVs.

In reality, despite pouring massive amounts of money into the building of its SMB business, IBM's SMB sales have grown just 14 percent and 8 percent in the past two years, respectively, according to its own reckoning. No question that's solid progress. But it's less growth than what rival Microsoft is enjoying, and it's working from a larger base.

So is IBM fooling itself about the potential of the midmarket? Not likely. What our findings suggest is that IBM, like others, needs to give its SMB efforts more time. Though it has dominated VARBusiness' Annual Report Card (ARC) awards for the past two years--analysis reveals that IBM has won more overall categories than Dell, HP, Sun, Microsoft, Oracle, CA and EMC combined since 2003--as well as scoring remarkably strong in a partner-satisfaction study compiled by sister publication CRN, the company does not yet have the full ear of the channel. One reason: IBM still generates a sizable percent of its midmarket business directly, which is in sharp contrast to Cisco and HP, which rely almost exclusively on the channel to cater to the needs of midsize customers. This suggests that IBM's efforts with partners who cater to midsize companies, despite such initiatives as its Small and Medium Business Advantage program, have not reached their full potential because studies show midmarket customers overwhelmingly depend on trusted business advisers to make their IT purchase selections.

What Makes a Vendor Strategic?

Two factors stand out among the list of top midmarket customer favorites. For starters, the list of most strategic companies is dominated by large PC and server-oriented companies. For 2005, Microsoft, Dell and Intel top the list. So much for the end of the PC era.

And so much for solutions, at least for now. Truth be told, the more solutions become important to midmarket customers, the more likely the list of strategic vendors to these companies is likely to change. Clearly, infrastructure companies have the upper hand in terms of importance to midmarket customers today. But over time, critical applications and solutions-oriented vendors are likely to have more significant meaning to these customers. That could open the door for Oracle, SAP, Salesforce.com and even smaller companies, such as Best Software, to join the list of strategic vendors.

Before these companies join the list of the top-five most strategic midmarket vendors, they'll need to deliver a better message to these customers. Many are working on it, of course, but they could take a cue from those already in the top five. Like IBM, Microsoft, too, has dedicated products and programs for this space. Its Small Business Server offering has turned out to be one of the most successful products in the company's history. Cisco, whose product portfolio is increasingly midmarket-company friendly, is also on the list: Its new Catalyst switches, which were unveiled last year, are cheaper and easier to use for midsize accounts. Plus, the introduction of a new line of Integrated Services Routers (ISRs) manage the networking connections of small and midsize businesses, and branch offices. In just three quarters, sales of these products have topped $1 billion, making them some of the most successful products Cisco has ever introduced.

More recently, Cisco unveiled new offerings to further solidify gains made in the SMB market. That includes the new Cisco SMB Support Assistant, which is Cisco's first technical support service for SMB customers. Support Assistant is priced approximately 45 percent less than SMARTnet, Cisco's more expensive support offering suited to enterprise customers. In addition, Cisco also unveiled Cisco Network Assistant 2.0, a follow-on to the company's first-generation tool that features drag-and-drop upgrade tools and expanded support for SMB-Class devices.

To help partners make the most of the opportunity around selling these and other products, Cisco has rolled out SMB Select Partner, a rewards program for partners who increase Cisco sales in the midmarket, plus a new effort to put as much as $500 million more behind Cisco's global partner financing program.

"We have partners of all sizes and shapes targeting various parts of the market," says Chuck Robbins, Cisco's vice president of U.S. channels. "But where we believe many can be truly successful for the long haul is in the midmarket, high-value solutions space, where the demand for the services outstrips supply."

Looking Ahead

Among those successful in the midmarket space today, Microsoft is already looking ahead to the future. It's spending a great deal of time examining the business models likely to be adapted by SMB-minded partners, says Allison Watson, vice president of the Worldwide Partner Group at Microsoft. As a result, her team is looking at nontraditional sales models, such as the managed service-provider and specialty- solutions delivery models for the SOHO markets, to determine how to motivate, reward and recognize allies.

"We conclude that many midmarket companies will eventually migrate to other opportunities, such as the SOHO market. That's why we are devising our programs to be as flexible and progressive as they can be," Watson says.

At the other end of the spectrum, Novell is trying to do the same. But it has been thwarted by a changing technology portfolio and business model. While analysts and press have largely been positive about Novell's transformation to an open-source software company, end users have been scratching their heads.

Sam Sandusky, CEO and president of Big Sur Technologies of Tampa, is among Novell's most loyal allies. (His company was the 2004 Novell Partner of the Year in North America.) No matter what Novell says about turning the corner, however, customers, which ranked Novell at the top of the list of "unimportant" vendors, still raise questions about the company's future.

"It's frustrating, given the strength of the portfolio and the promise of future products," Sandusky says.

Novell CEO Jack Messman concedes that Novell is still transitioning to the open-source world, two years after announcing its intention to do so. But, he says, the company is commanding more respect every day, especially in the midmarket, where it has traditionally sold well.

"In [the market] today are proprietary and open-source products. Over time, I think there will be more open-source content in that product, which will lower its price even further," Messman says. "It will be a good entry-level product for small businesses."

Like many, Messman truly believes the midmarket--comprised of small and midsize-business customers--will spell the success or defeat of vendors large and small.