SMBs want to focus most of their time on running their business — not on running their IT. It is a powerful lesson for those companies smart enough to incorporate it into their value proposition, and one that plays well to the model of hosted services providers.
David Lammey, general manager, business and consumer at web hosting company WebCentral, says SMBs are looking for technology that is affordable and usable, but that can be efficiently implemented and then left to run itself. "They don’t want to continually have to give attention to things like security or upgrading software versions or trouble-shooting with the thing falls over," Lammey says.
He says that WebCentral’s products fall in to two categories — those that help their clients better run their business, and those that help them better promote their business. The latter group includes websites, online stores, and email marketing tool, and is the group that is easier to sell.
"The promoting stuff is more front-of-mind, as it is more 'aspirational' for them," Lammey says. "They are always thinking about ways to better promote their business. So that is easier for us to sell. It is the stuff that helps them better run their business that is harder to sell, because they only make those decisions when something breaks or they are in some level of distress."
Tony Heywood, Comstor business manager at distributor LAN Systems, says selling to SMBs is about reducing capital risk, increasing productivity and being able to clearly demonstate this by way of clear return on investment (ROI) modelling. "Equipment and service financing can play a big part in accomodating the SMB customer," Heywood says.
"Second, resellers need to come to terms with the fact that the cost of an SMB sale is disproportionately higher than that of a mid-tier or enterprise sale, when compared to the revenue from that sale," he says. Therefore, Heywood suggests that whatever resellers can do to shorten the sales cycle and increase the size of the opportunity will assist in counteracting this.
"In SMB, cash is tight and decision makers are often the owners of the business," he says.
Online services
One of the strongest trends to hit the SMB space in recent times has been the accelerated penetration of broadband usage.
According to the 2005 Broadband Barometer report, developed by IDC Australia and issued by the business internet provider Pacific Internet, more than 95 percent of Australian SMBs now have access to the internet, with 73 percent connected via broadband.
The benefit of having a faster, always-on connection was represented through 54 percent of SMBs reporting that having broadband made them more able to make informed business decisions. Nearly the same number reported an increase in revenue and decrease in operating costs. What they are doing with that connectivity is also changing. While email remains the most commonly used internet technology, SMBs are also heavy users of e-commerce, with more than 50 percent using it now or planning to in the near future.
Hosted solutions are now used by 10 percent of SMBs, although that figure is expected to leap by 230 percent in the next year. Pacific Internet’s report also found that 19 percent of SMBs are using industry-specific applications, with another 11 percent expected to do so soon.
All of this has been great news for companies providing hosted software, such as Salesforce.com, Sage CRM, Siebel OnDemand and NetReturn (the Australian provider of the NetSuite range of online business applications).
According to Foad Fadaghi, the research director at Frost & Sullivan, hosted applications is one of the most exciting trends in the SMB marketplace. "You are seeing a lot more functionality appear in the SMB offerings — things like hosted contact centre applications, a lot of solutions that are all-in-one ERP as well as CRM, such as Netsuite. They give a lot of bang for buck in that SMB space.
"Every business — medium, large or small — has a certain set of requirements around accounting, HR, CRM, etc. And what essentially vendors have done is cut back on the enterprise solution to address that mid-market space. But more and more, mid-market organisations are now able to get the same sort benefits from technology investment of some of the larger businesses."
This is in turn impacting on the reseller channel itself. "There certainly is a lot of pressure in the market for vendors to go direct. The hosted model suits a direct-to-market approach. Companies like Microsoft and SAP are still very much trying to come to grips with the best way to bring together a hosted solution that doesn’t cut out their extensive and powerful channel, which has been the enabler of their rapid growth for years. It’s not like they can ignore it either, because new competitors have the edge — they don’t have the cost of running a channel."
WebCentral has in excess of 70,000 accounts, with the great majority being SMBs, providing services including web hosting and POP email, through to managed application hosting services such as premium email services and e-commerce hosting. Growth has been strong. Lammey says that in the case of WebCentral’s managed email product, the company has seen 40 percent growth since January.
While Lammey says that the concept of the application service provider model turned out to be a fizzer in the dotcom boom, the fault was not with the model, but rather with the lack of broadband penetration into the business community that sought to use it. "We talk about broadband as an enabler — a catalyst. And we are only just starting to scratch the surface of that, with [internet service provider] iiNet coming into the market with ADSL2. That has a huge effect in terms of the different types of services that SMBs can pull into their business, compared to some of the traditional means of going to Harvey Norman or their local reseller, buying a shrink-wrapped box and loading it up locally."
The changes have been filtering their way through other parts of the industry. The recent announcement by Microsoft of its forthcoming Live suite of tools and applications for Windows and Office is recognition of customers’ increased willingness to access more than just information over the internet. The fact that the Live strategy will use advertising to offset its cost is an added bonus for cash-strapped SMBs.
Lammey says he is hearing a lot of expressions of interest from software developers whose applications have been tooled for internet delivery, who recognise the potential in being able to reach WebCentral’s 70,000 accounts. The company is also fielding enquiries on whether it is providing accounting and CRM applications online, and is investigating a range of other solutions, including online storage.
"Those are the sort of things that we’ll be pushing out in the near future — small, bite-sized chunks that are affordable, with no long-term monthly contracts and no huge set-up fees," Lammey says.
The online application delivery model is also generating changes in traditional IT channels. WebCentral for instance has recruited a group of so-called technology advisers, who generally provide some form of technology services to SMBs at an hourly rate. WebCentral can either bill a reseller directly at a discounted rate, or bill the end customer direct and provide a rebate to the reseller.
Coote says hosting is likely to play a bigger part in Commander’s future, as the company seeks to round out its service offerings. "Really, if they take three to four hours out of a day to manage an application, it is actually dead time for those people," Coote says.
"We fundamentally believe that a product set loaded up on a network, accessed through a broadband pipe, is going to be a compelling story for small business over time.
"We are already strong in the desktop in terms of telephone systems and data, we are a large distributor of data hardware, and we have our own network.
"For us, the optimum would be a business environment where a small business would get their total office from us — connectivity, end points and applications — and we would run
all that on our network. And that’s why we’ve been investing in our back end and network," Coote says.
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