Vendors Weigh In

According to VARBusiness' SMB end-user survey, more than half of those polled say they've placed their technology projects on hold until financial conditions improve. What's more, 37 percent of respondents have canceled entirely those projects without a defined ROI. But the word from analysts, distributors, and hardware and software manufacturers is that, while the SMB market has been affected by the faltering economy, it hasn't been hurt as badly as the enterprise market.

According to Tom Grimes, worldwide segment marketing manager of SMB solutions at IBM's personal computing division, the SMB market is recovering more quickly than the enterprise market. "SMBs are smaller and growing faster than enterprises," he says. "They have to react more quickly, so they can make changes in their infrastructure more quickly than large enterprises."

Grimes' colleague, Hoon Meng Ong, IBM's vice president of marketing for Global SMB, agrees. "We saw some drop-off in 2001 [in the SMB market, but it was not as dramatic as what we saw in larger enterprises, and it's showing a slightly better recovery [than enterprise markets."

Lindsay Sparks, Microsoft's corporate vice president for worldwide small and midsize business, adds that Microsoft sees PC shipments growing this year, with a "disproportionately large percentage" going to the SMB segment. That will continue next year as well, he says.

Still, no one disputes the SMB market has been hurt by a stumbling economy. "What is happening to the big guys is happening to the little guys," says Michael George, president and owner of H. Wolf, a competitive-intelligence firm in Raleigh, N.C., that specializes in the SMB market.

What it boils down to is now, more than ever, spending will be predicated on ROI and immediate corporate needs.

SMB Bright Spots

Nevertheless, even George expects there to be an "uptick" in the SMB market in the fourth quarter. And just because the overall SMB market may be sluggish doesn't mean there aren't bright spots. To the contrary, several high-growth areas exist.

Bob Stegner, vice president of channel and U.S. marketing for distributor Ingram Micro, cites three hot areas in the SMB market: wireless networking, mobile computing and networking in general. "From a VAR's standpoint, the wireless LAN [market is probably the best area to go into," he says. "The cost of entry is not great, and it's not a commodity-based solution, so a VAR can sell add-on services."

IBM's Grimes agrees. "Wireless LANs are big," he says. "Access points are coming way down in price, and the cost of integrating wireless into notebooks has come down." In response, IBM is integrating wireless access directly into its ThinkPad notebooks and running a Web-based course for wireless networking certification so VARs can gain certification online.

Beyond traditional LANs, VARs should consider opportunities in combining wireless applications with security. One example would be adding wireless connections to security cameras, says Roy Appelbaum, vice president of product marketing for networking, storage and telephony at Tech Data. Another popular application is creating point-to-point wireless connections between buildings, for which the distributor sells Proxim's Tsunami line of wireless Ethernet bridges.

Another significant area worth examining is voice-over-IP, manufacturers and resellers say. "IP telephony has been on the upsurge in the past two years," in large part because of the SMB market's demand for the technology, says Bruce Laird, vice president and general manager of the integrated communications business unit at Cisco, which targets its Integrated Communications System 7750 IP telephony device at the SMB market. "The longer the technology is in the market, the more SMBs see the good ROI on it. It's a foregone conclusion that IP telephony is the next big thing."

In particular, he says, there is a great deal of room for VARs to not just sell the hardware, but to create vertical applications using IP telephony and phones that can display XML. "VARs should spend time understanding how to do XML programming to retrieve server-based data and display it in a useful way [to create customized phone-based applications," says Laird, adding that by doing so, VARs will have a recurring revenue stream by developing new applications and maintaining old ones.

Mobile technology is another growth area. "By the end of 2005 or 2006, 66 percent of us will be mobile workers," says Ingram Micro's Stegner, citing an IDC survey. To meet the demand for mobile products, Ingram has expanded its mobile and wireless line by adding the Nokia 9290 Communicator,a cell phone/PDA that includes phone, fax, e-mail, calendar, imaging, Web-browsing and built-in support for editing Microsoft Word and Excel documents. It also has added the Sony Clie Palm-based PDA, the combination PDA/phone Treo from Handspring and the Sony VAIO line of laptops.

For its part, Hewlett-Packard has witnessed "a tremendous amount of strong sales in portables and handheld devices," says Pete Carrier, director of marketing and planning for HP Americas' personal systems group, which has seen strong sales of its entire portable line,the iPAQ line of handhelds, in particular. IBM has also seen a shift from desktops to notebooks in the SMB market, according to Grimes, and IBM's ThinkPads have been strong sellers there.

Meanwhile, on the software side, Microsoft is focusing on "apps around mobility and connectivity%85things like integrating Outlook and mobility," Sparks says. Beyond that, he notes Microsoft is seeing a good deal of refresh-technology activity,for example, upgrading from older versions of Windows, Office and servers to the most current versions. He also sees growth in CRM and supply-chain management in the SMB market. "Partners now want to take this overall technology umbrella and begin to integrate it so they can communicate both internally and externally," he says. "They want the ability,through both intranets and portals,to connect customers and partners together."

What VARs Can Do

Given that most agree the SMB market is holding up better than the enterprise market, and that its growth will pick up sooner than the enterprise market, VARs would do well to expand their presence there. But how? The answer is nearly universal and boils down to one word: service.

"Service drives sales, there's no getting around it," Stegner says. "If I'm a VAR, and I have the right relationship with a customer and give good, quality service, the product sales will follow. It's very difficult to lead with hardware alone."

Mike Seferyn, vice president of business development for TechSelect, a program run by Tech Data to aid resellers, says that at a recent TechSelect meeting of several hundred resellers, many credited their survival during the past year to a profit stream emanating from their services. A particularly good business model, Seferyn says, is doing consolidated outsourcing for SMB clients, so that for a single monthly fee a VAR can take care of many of a business's IT needs. "In many SMBs, there is no IT department, so if they want a VPN, network backup, or firewalls and security, they need someone to do it for them," he says. The ideal someone, Severyn adds, is a VAR.

All agree it's important that VARs focus on specific niches for providing services. "Small businesses want to know the people they're dealing with personally," HP's Carrier notes. "So VARs should get to know the business problems that need solving in their area, and then figure out how to offer those solutions."

Just as important, adds Tech Data's Appelbaum, is that VARs don't dilute their expertise by spreading themselves too thin. "Most important is to pick your battles," Appelbaum says. "The biggest mistake would be trying to be everything to everybody. Find a niche where you're comfortable, build your expertise and create a repeatable product-and-services portfolio."

No one knows how long the tech economy will stay in its downturn. But even in the downturn, the SMB market holds out some hope,if VARs are smart about it, says analyst George. "Do your homework, earn the trust of the SMBs, and offer more steak and less sizzle."