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Small
companies can be big customers
With small and mid-sized companies planning to spend more
money on technology, they have become the target market for
IT giants on the lookout for new growth opportunities,
writes MOHAN BABU
An interesting trend is shaping up in the global application
software industry, especially in the segment serving the
small/mid-sized niche. Leading the trend is Microsoft, which
after saturating the PC/OS marketplace is looking for new
growth opportunities. In a recent Business Week article
titled “Is Small Biz Microsoft’s Next Big Thing?” the author
talks about the software giant’s ambition to wring $10
billion in revenue from this emerging market by 2010, up
from just $300 million today. It is estimated that the
opportunity is huge. Gartner’s research predicts that small
and midsize companies worldwide will spend $420 billion on
technology this year; less than 25 percent are using the
kind of sophisticated applications Microsoft is now selling.
The rest rely on basic accounting or tax packages or on
programs such as Microsoft’s own Excel spreadsheet—which
requires a lot of customising. This $420 billion is making
all the big software vendors drool.
By unleashing the “Microsoft Business Framework”, the
Redmond giant is hoping to create a business inside
Microsoft bigger than its top software rivals, Oracle and
SAP, are now. Interestingly, this new line of business will
be almost as large as its desktop Windows business is today.
“If we do a good job, we’ll build the next big growth
business at Microsoft,” says group vice president Jeffrey S
Raikes. The company embarked on this strategy a couple of
years ago when it spent $2.5 billion in buying two companies
that make software for small and midsize companies: Great
Plains Software and Navision. Interestingly, these two
business deals are among the largest acquisitions in
Microsoft’s history. After integrating the different pieces,
Microsoft is getting ready to announce its MBS (Microsoft
Business Solutions) suite of applications.
Interestingly, if Microsoft is trying to carve out a new
market, can other biggies be far behind? Surely not!
Recently IBM, in a bid to win more of the small business
market, launched a direct attack on Microsoft, this time
taking the fight to the streets over pricing rather than
just features. Generally, IBM has followed a strategy of
matching Microsoft’s pricing but this time it is going all
out to undercut it. Its WebSphere Commerce Express is priced
around $20,000 which is 24 percent below Microsoft’s
competing product, Commerce Server Standard. IBM also cut
the price of its DB2 Express database software to $5,449 per
50 users which is well under Microsoft’s SQL Server price of
about $7,967. “From IBM’s standpoint, more and more we see
Microsoft as a very important competitor in the
marketplace,” says Mark Lautenbach, head of IBM’s small
business marketing. Given the trends in the economy, even
(or especially) small businesses are extremely conscious of
cost and prefer the lowest cost vendor that can satisfy
their minimal needs. They are not easily enamoured by the
technology hype and look for easy-to-use software that they
can just run off the shelf, without the need for extensive
configuration (or assistance from expensive consultants).
The United States and Europe remain the largest market for
packaged software applications. The domestic market in India
does not appear in the radar screen of the big software
vendors, even though most of them think of India when
considering low cost development centres. This might change
if there is sufficient traction in the usage and
computerisation across vertical domains in India. The names
of Tally in the accounting space and Ramco’s Marshall in ERP
immediately jump out when any discussion of Indian software
is undertaken. Even with the widespread use of these tools,
we do not have more than a dozen or so national or big
brands that operate at a large scale. Of course, the
application software industry in India is equally
diversified too, with small vendors and integrators working
hard to carve out a niche for themselves. In a highly
fragmented market, small vendors seem to be having a field
day. The big software integrators and vendors (the Wipros,
TCSes and HCLs) are looking externally for a few dollars
more while smaller niche players are operating in the
diversity.
There is perhaps an opportunity for entrepreneurial techies
to continue to explore. Because the financial, accounting,
legal and operational issues are unique in our market,
customers would rather prefer a local vendor who can develop
a total customised solution rather than shelling out big
bucks to the likes of Microsoft, IBM or Peoplesoft.
Actually, a larger software vendor who understands the
Indian market, operations, etc, may be a really good target
for the likes of Microsoft and IBM.
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