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Article by Mohan Babu


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.




About the Author

  • A Bio and profile of the author, Mohan Babu, can be found at his homepage
  • Mohan has authored a book on Offshoring and Outsourcing (Publisher McGraw Hill, India), a link to which can be found here
  • Mohan has also authored an Online book on "Life in the US," available for free download.
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    For FAQ, Trivia and Information on Life in America, visit the Ask-A-Desi section

    ©Mohan Babu: All Rights Reserved 2005

    Mohan Babu is an international consultant trying to find the ‘sweet spot’ where IT meets business. E-mail: mohan He is also the author of a recent book on "Offshoring IT Services"

    All rights are reserved. Mohan Babu ("Author") hereby grants permission to use, copy and distribute this document for any NON-PROFIT purpose, provided that the article is used in its complete, UNMODIFIED form including both the above Copyright notice and this permission notice. Reproducing this article by any means, including (but not limited to) printing, copying existing prints, or publishing by electronic or other means, implies full agreement to the above non-profit-use clause. Exceptions to the above, such as including the article in a compendium to be sold for profit, are permitted only by EXPLICIT PRIOR WRITTEN CONSENT of Mohan Babu. 

    Disclaimer: This document represents the personal opinions of the Author, and does not necessarily represent the opinion of the Author's employer, nor anyone other than the Author. This Article was originally published in Express Computers


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