Vendors still don't get SMB IT 21 June, 2007 By Paul Weinberg

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"I continue to sense that some vendors don't feel the SMB market is worthy of focus."

He pointed to IBM, indicating that notwithstanding the global company's greater push with SMB targeted products and services, it has only managed so far to achieve "modest success" due to a concentration on the upper level of SMB. "With all their efforts they have extended down a little [into SMB]."

The other example for him is Informix, which he stated, made the mistake of pumping one release of database software indiscriminately into the channel without making a distinction between large enterprise and SMB.

"Because [Informix] was aiming at the high enterprise, the SMBs didn't see much value in it."

Kernochan recalled it took about half a year for Informix to appreciate the error, but by then the financial damage to the company had already occurred.

Although their rhetoric is there upfront about the importance of the SMB, IT vendors will need to do more to reach that type of customer, he stated.

"Vendors have to figure out how to get at that market in a cost effective way. They tend to focus their innovation efforts on the large enterprise market."

Kernochan observed that some application vendors, including Progress Software, have been more effective in targeting smaller markets.

He urged IT vendors to broaden their channel coverage beyond the VARs and resellers.

SMB-oriented independent software vendors or solution providers represent "a better bet" for IT vendors planning to extend their reach into SMB, suggested Kernochan.

"Often, a SMB ISV will be hosting the application [for the end user], and they are able to have both the knowledge of the software and of the needs of the particular customer. VARs may host it but they don't have the in-depth knowledge of the software."

Kernochan is not saying VARs have outlived their usefulness or will disappear. They will continue to do well, in the marketplace, but from the perspective of the IT vendors, SMB ISVs are stronger economic entities, he said. "I just believe the SMB ISV would be on a better growth path and may well have better margins as well. From what I seen regional VARs' margins are relatively slim."

Kernochan also suggested that the IT vendor is better able to calculate how much of its product is actually sold through the SMB ISVs to the end users from the revenue generated from purchased SMB ISV software licenses.

"You don't know [as a vendor] if the VAR will actually resell [your products]."

SMBs are in essence a new market for IT vendors because the products have to be simpler to use but yet powerful and they should require less administration, stated Kernochan.

"You are building products from the ground rather than upgrade something that was developed 10 years ago."

Kernochan cited the example of the enterprise service as an innovative IT technology that was developed originally for SMBs.

This industry analyst has accumulated information about the IT vendors' SMB approach from conversations and interviews he has had over the last several years with about eleven companies -- half of which are SMBs and the other are SMB ISVs.

What strikes him is how "the dissatisfaction levels are getting higher and higher" among SMB with the IT industry.

"One reason for that is the balance has shifted. The SMB wants as little administrative effort as possible for a solution."