It’s no secret that small- to mid-size businesses (SMB) mean big opportunities for leading technology companies. Market research firm AMI-Partners reports that total SMB IT spending in 2003 was $300 billion. IDC analysts estimate that the majority (54 percent) of technology spending in 2003 came from companies with fewer than 1,000 employees.
It’s small wonder that companies like IBM, Microsoft and HP see the SMB market as the Promised Land — a potential growth driver the likes of which the IT industry hasn’t seen for years. With more than 500,000 medium-sized businesses and tens of millions of smaller businesses worldwide in the market for IT products and services, all indications point to further growth in 2004.
When it comes to tapping that potential, IBM — who defines SMBs as companies with between 100 and 1,000 employees — is as aggressive and focused as anyone. Leading the SMB charge for Big Blue’s $13.1 billion software business is Mark Ouellette, vice president of worldwide SMB sales and marketing. In addition to his stewardship of IBM’s Express portfolio, Ouellette is a key player in the company’s efforts to reorganize its software development resources and sales forces across 12 vertical industry segments.
“This is a long-term sustainable commitment in terms of addressing the needs of SMBs,” Ouellette said. “We’re going to be in this industry for the long haul.”
Ouellette said IBM has invested $500 million in sales enablement programs and demand generation for its business partners selling to the SMB market. With a little help from its partners, IBM is building a portfolio of solutions designed, priced, and marketed specifically to SMB customers.
“Here’s the point, we have declared since 1999 we’re not in the application space — our partners are,” Ouellette said. “Our success in the SMB market is partner led. We make the middleware and independent software vendors create the solutions. Unlike Microsoft, we’re not competing with our partners. Were not going to compete with them — we’re going to partner with them.”
IBM has signed up more than 900 partners worldwide to its Value Advantage Plus (VAP) enablement and incentive program — this includes 200 partners new to IBM in 2003. IBM’s VAP program is a relatively new incentive initiative launched earlier this year. The program is designed to simplify IBM’s partner discount structure and empower solution providers of all types to earn significantly higher margins when selling IBM’s middleware to SMB customers.
IBM has also signed up more than 100 independent software vendors (ISV) as partners to its ISV Advantage program. Also launched earlier in 2003, ISV Advantage is designed to provide select mid-market ISVs with technical support to develop — and marketing support to sell — IBM solutions to their SMB customers.
“Fundamentally, IBM offers its ISV partners two programs. One is a reseller program for our top contributors — $100,000 partners. Then there is our VAP program. This is an umbrella program designed for ISVs and integrators,” Ouellette explained. “All we require of these partners is that 40 percent of the solution results from their value-add to the applications. From there, we want to see some successful implementations.”
Roughly 1,400 ISV partners participated in IBM’s Express Early Enablement program. More than 350 new applications have been developed as a result of IBM’s Express program.
At present, IBM has 14 Express software offerings in the market. Express offerings for hardware, services, financing and middleware for WebSphere, DB2, Lotus, and Tivoli, to name a few. SMB revenue represents 20 percent of the IBM’s overall sales.
Thanks in large part to its ongoing SMB initiatives and the Express portfolio, IBM will welcome more than 8,000 new software customers into the fold by the end of 2003 — these are small, medium and large first-time buyers of IBM middleware.
“The reason we developed the Express lineup in the first place is because medium-sized business customers require very different solutions than our enterprise customers,” Ouellette said. “SMBs need easy installation and integration, and our solutions need to be priced right for the mid-market. SMBs deal with business problems, and need business solutions that are easy to use and install with fewer resources. That’s how Express solutions are designed. You will not see an Express item hit the market unless it meets rigorous criteria.”
Since the announcement of its first Express offering in November of last year, IBM’s Software group has launched 13 new Express solutions for SMBs in only 12 months. Traditionally known as a large enterprise vendor, IBM’s Express portfolio is a $500 million gamble the company is making as its pursuit of the SMB market heats up.
“We’re very pleased with the acceptance of our Express offerings in mid-market from a couple of perspectives,” Ouellette said. “As a software group in IBM picked up around 8,000 new customers this year because it solves pain points of SMBs. Express is more than just middleware or hardware, it’s a specific set of 11 attributes that must be met to qualify as an Express offering.”
Another wager IBM is making this year consists of a top to bottom shift toward developing industry-specific solutions. IBM is investing millions of dollars to add more industry-specific capabilities to its middleware — representing the biggest change in its $13 billion-a-year software business since 1999.
“Our partners tend to think of themselves by industry,” Ouellette said. “For us, success is all about defining, recruiting, and enabling local and regional ISVs, as well as those in horizontal space offering customer relationship management (CRM), supply chain management (SCM), and enterprise resource planning (ERP) solutions.”
But IBM isn’t alone. HP earlier this year announced a new hardware-centric portfolio for SMBs, driven by its leadership in printing devices. Microsoft, building on its Windows heritage and locked in a perpetual battle against the open-source movement, has long used its desktop popularity to dominate the SMB market. These widely differing approaches set the backdrop for a market that has no one-size-fits-all solution.
IBM remains confident that its focus on building industry-specific Express solutions, as delivered by its growing pack of business partners, will be well received by the SMB market in 2004 and beyond.
“Next year SMBs will see more of the same from IBM — we’re building on what we’ve started. We’re going to sustain our commitment to the SMB market by rolling out our partner strategy as a roadmap for our Express lineup,” Ouellette said. “It will be an interesting year because according to Gartner, 50 percent of ISVs and integrators worldwide said they are going to make a strategic decision between .Net and J2EE. Now that’s very interesting when we’re talking about our solutions and the value proposition we’re providing.”
Since IBM’s entire on-demand business strategy is wrapped around Java 2 Enterprise Edition (J2EE) in one way or another, 2004 indeed promises to be a very interesting year for IBM, it’s partners, and SMBs.
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