A Look Inside The Midmarket: What Do Your Customers Really Need?

Fortunately for him, Schwegman doesn't shoulder the burden of IT by himself. In fact, he counts on key partners to help manage the rapid growth at the company. And what rapid growth it is. The company's annual revenue more than doubled in fiscal 2003 to $238.9 million, for example. As for its IT needs, they, too, have spiraled in the past two years. For example, traffic on the site has more than doubled, and it is expected to triple or quadruple around the holiday rush this year. That means Schwegman is working around the clock to beef up the infrastructure capabilities of the site as it prepares for serious spikes in traffic. All of this, as you can imagine, is pushing Schwegman to the limit; he says his IT needs are growing by about a factor of 10, and they show no sign of slowing. That's why partners are so invaluable to him.

For example, Overstock recently moved to a new co-location facility in the Salt Lake City area. The retailer turned to local IT consulting and managed-services provider Single Edge to make the move possible. The entire Overstock Web site is run from the facility, where Overstock has contracted for a 2,600-square-foot enclosed room. The Overstock equipment currently occupies between 600 and 800 square feet, but Schwegman envisions a major expansion.

One reason for the confidence in Single Edge: The IT solution provider proved its mettle when it built from scratch the facility that houses the Overstock.com Web store.

"It's a new world-class facility [that came] at an extremely aggressive price," Schwegman says. "Most data centers you go to offer you a cage. Single Edge provided us an entire closed-off room with hand-print security access."

While that may sound cutting edge for some customers, it's becoming more of a way of life in the mid-market customer segment, where technology is often seen as a size neutralizer that enables midmarket companies to compete with some of the largest industrial giants on the planet. But given their limitations due to fast growth, limited IT staffs and budgets, midmarket customers are disproportionately dependent upon trusted, third-party allies.

"We typically put a lot into [a] relationship and the people we do business with," Schwegman says. "Single Edge has been outstanding, and we see a long relationship with them."

When selecting partners, Overstock demands rapid response times, stellar service and support. "We're growing so fast that it is difficult to map out the next six months," Schwegman explains.

Overstock groups its technology providers into two categories: vendors and partners. "If we've made a monetary commitment to a certain IT vendor and we're getting a certain level of support and pricing discount, we no longer classify them as a vendor, we call them our partner," Schwegman says.

The Midmarket Speaks Out

Overstock.com is just one example of a fast-growing midmarket customer depending heavily on reliable partners. The midmarket continues to grow as a force to be reckoned with, as VARs and solution providers have been reacting and quickly aligning the channel to address the needs of the SMB market.

The midmarket is steadily picking up steam and increasing its IT budgets on an ongoing basis. According to VARBusiness' State of the Midmarket research, nearly 40 percent of midmarket IT executives surveyed saw their IT budgets grow in 2004 and plan to continue that increase in 2005.

Long-term relationships are also what the midmarket is looking for"six is the average number of years of doing business with a preferred IT solution provider. Midmarket IT executives reported that, on average, they worked with nine external third-party solution providers and VARs in 2003. One in five say they expect that number to increase in 2004.

Brian Piatek, director of technology at Wood, Smith, Henning and Berman, a Los Angeles-based law firm with 150 employees, says his firm has worked with the same primary technology partner for six years. Piatek says that the needs of a smaller company are the same as an enterprise's needs, but on a different scale. "The same issues that happen to an organization with over 1,000 employees are the same issues I deal with every day," he explains.

For Piatek, the major pain point is e-mail. The firm currently uses Microsoft Exchange 2000, but as e-mail has evolved and become the primary form of communication with clients, change is needed. "We send more e-mail than we spend time on the phone, so we're moving to Exchange 2003 because it clusters better," he says.

To combat spam, Piatek says his company made the choice to outsource the filtering to Denver-based MX Logic. "We tried doing it in-house with the I Hate Spam Server Edition, which worked, but it was a pain," Piatek says. "Now we have outsourced it and it goes to their site, is filtered and comes back to us."

Indeed, VARBusiness' research found that 12 percent of midmarket executives surveyed plan to outsource entirely to third-party solution providers in two main areas: automating human resources and improving financial reporting.

The top business priorities midmarket IT executives plan to implement with the help of third-party solution providers in 2004 include building or maintaining up-to-date-security and privacy policies (33 percent); streamlining or optimizing business processes (30 percent); business-continuity planning or improving disaster preparedness (28 percent); and electronic business-to-customer or business-to-business transactions (28 percent).

In the next year, Piatek expects to move to VoIP for all communications. He says he will probably go with a Cisco solution implemented by a partner the law firm relies on for communications.

When working with partners, Piatek says he makes sure that the vendor's agenda matches his company's agenda. "In terms of managing the products, it's key to making sure we're both working toward the same goal," he adds.

According to VARBusiness' research, nearly one-third of midmarket respondents interact monthly with their third-party solution providers, while another 23 percent interact weekly, and 14 percent interact daily.

American Locker Group is facing different challenges as a publicly held manufacturer of mailboxes for housing developments and apartment complexes, as well as coin, key and electronic lockers. The Jamestown, N.Y.-based company employs some 250 people, with sales staff located all over the country.

"Our main pain point is the security and documentation for the new Sarbanes-Oxley regulations and making sure we are prepared," says Deborah McKinsey, IT manager. The company has decided to outsource some general processes and documentation for the Sarbanes-Oxley requirements, McKinsey says.

American Locker Group must follow the same rules as the larger companies, she adds, which makes it difficult. "The rules seem to be drawn up for bigger companies. We only have one shift of employees, but we have to follow the same rules."

The company depends on a close relationship with partner Ikon Office Solutions, McKinsey says. When it comes to outside help, she prefers more input from solution providers. "Being a small office, it's difficult to keep up with all of the technologies by yourself," she says.

Advice is something other midmarket IT leaders are looking for as well, with 44 percent of survey respondents indicating strategic advice as an expected benefit provided by their preferred or primary IT solution provider. Another 58 percent expect an understanding of their business needs, while 40 percent expect help reducing operational costs. The providers' technical expertise was ranked as the No. 1 area of value seen in the relationship with a preferred or primary IT provider.

Hardware And Software

With just more than 1,000 employees, W.S. Badcock, a full-service home-furnishing retailer with more than 330 independently owned stores in the Southeast, is on the large end of the midmarket. It recently turned to Champion Solutions Group, an IBM Business Partner, to help consolidate its servers and streamline its technology infrastructure.

"We had about 45 servers, all with different configurations," explains Leo Hurtado, CIO and vice president of IT at W.S. Badcock. "We ended up purchasing about 15 or 16 IBM servers through Champion, and also are implementing a storage-area network and separating the computing layers."

Hurtado is getting started on his strategic plan to implement a three-tiered computing platform with a back-end database layer in the SAN, an application-server layer with IBM xSeries servers, a presentation layer with IBM servers and an intranet.

Servers top the response as the most important hardware technology categories in their 2004 budgets, VARBusiness' research found. In the software technology area, antivirus software was reported most often as important, followed by firewall and intrusion detection, server/network operating systems, databases, desktop operating systems, antispam software, disaster-recovery, accounting systems and office suites/productivity applications.

Then there's Linux, something Overstock is embracing along with scores of other midmarket companies. In fact, more than one-third of respondents say they have already begun deploying Linux. Overstock, for example, is using two flavors of Linux, one for its Web server and another to run its database servers. Schwegman settled on SUSE Linux, recently acquired by Novell, for Web servers, and Red Hat for the database servers. "We've tested every flavor of Linux for various applications and wanted to standardize on one version for the entire environment," Schwegman says. "But we found performance gains with SUSE for Web servers and Red Hat for databases servers."

"We are moving so fast, we don't have time for all the formalities of your typical big IT projects," Schwegman says. For example, last year Overstock made a move to a clustered-database solution on an Oracle 9i rack platform and an EMC data-storage solution.

As for other areas of interest, midmarket companies are using third-party solution providers in many areas, but application development and network integration top the list, followed by professional services, software licensing, hardware purchase, IT support, business-process improvement or redesign, and help desk.