Home Articles The SME software explosion

    The SME software explosion

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    After years of coping with business software designed for large corporations or the small corner store, fast growth small-tomedium- sized enterprises (SMEs) are finally getting long-awaited attention from software developers. And when it rains, it pours! Everyone from Microsoft and Oracle to the humblest local developer is channelling resources into software solutions that assist the high-growth aspirations of SMEs. It’s about empowering small corporates to get more out of less. The race is on to capture a slice of this potentially lucrative and largely untapped market. Jamie M. Vachon reports.

    BIG THINGS COME IN SMALL PACKAGES

    Getting the big guys to listen to the needs of the SME market hasn’t been easy.

    For over seven years, the IT press has been touting the coming explosion of application service providers (ASPs) pitching products to the untapped SME market. While many such products came and went during the dot com boom, it has only been recently that industry heavyweights, such as Microsoft, Oracle, and Siebel, have begun to focus their attention outside of the large enterprise. And it’s clear that the SME market has the undivided attention of the software industry when Bill Gates says that Microsoft is building a group that works “to deliver world-class business applications that are simpler and less expensive, offering more companies new ways to enhance the way they work.”

    In short, the large corporate software market is saturated, and software developers have turned their attention to the SME market – an area they have traditionally avoided – to boost their revenue. The difficulty for large software vendors will be to effectively recalibrate their existing applications designed for large customers to ones that will provide value to smaller customers. Companies like Salesforce.com and RightNow have built their entire businesses on the premise that applications built from the ground up will better suit SMEs than revamped enterprise applications. But as Bruce Cleveland, Senior Vice President and General Manager, OnDemand and SMB at Siebel Systems stated recently, “Siebel’s commitment to hosted CRM (Customer Relationship Management) and to our customers’ success is underscored by our business momentum and recent industry analyst reports. We will continue deepening this commitment, and delivering best-in-class pre-built CRM solutions for our customers”.

    But the numbers are compelling. In 2003, enterprise software spending in the US topped $18.6 billion. Around $1.3 billion of that came from SMEs, and that number is expected to grow by 14.3 percent per year. Spending by SMEs on CRM alone is projected to reach $2.6 billion by 2008. For SMEs, the wait has been a long one. Many vendors have appeared, touting revolutionary software for the high-growth enterprise, only to disappear in a matter of months, taking their client’s data and trust with them. But SMEs have been willing to take such risks for good reason. The ability to use the same enterprise class software as their larger rivals allows for decreased costs, faster time to market, improved customer relations and increased market share. It also allows them to maintain a very light internal IT department and avoid the costs of setup, design, implementation and maintenance of the applications their larger competitors are using.

    THE PRICE IS RIGHT

    The advantage for the fast-growth SME is that software vendors have finally realised that multi-million dollar, multi-year implementations just will not work. Whereas a typical Siebel implementation can cost over $10 million and involve over a year of design, development, testing, and implementation, a hosted CRM offering like Salesforce.com can cost as little as $87 per user per month and can be up and running in a matter of weeks. As Stuart McLean, executive director for NetSuite, said recently, “The traditional vendors are dinosaurs”.

    Increased attention on the SME market has not only had an impact on the pricing structure of new offerings, it has also forced established players to have another look at their current system of licensing and maintenance contracts. Until recently, maintenance agreements costing up to 22 percent of the list price of a software package have been the norm. Armed with their newfound buying power, SMEs can now negotiate better terms and added services on their software contracts.

    It is vital for growing SMEs to realise that they are now playing in a global marketplace and to compete they must be willing to invest in IT and take advantage of this new attention from software vendors. Traditionally, the purchase of software licenses involved a capital expenditure and required a significant upfront investment without any promise of a return. The new model is based on software as a service, where fees are paid per user per month. This frees up the SME budget by placing such licensing costs squarely in the operational expenditure category. The added bonus is that, as staff numbers expand and shrink, so do monthly licenscosts.

    COMPARING APPLES TO ORANGES

    The difficulty comes when trying to understand the differentiators between all the offerings. There are literally hundreds of CRM packages aimed at the SME market, for instance, and all are different in many ways. Salesforce.com is aimed at the sales and marketing segment of the CRM market, while Siebel offers a more traditional hosted CRM offering. Microsoft Business Solutions is also offering a hosted CRM application but is taking a different tack in that it is providing service through third party vendors like Webcentral.

    With so many choices the key for the SME is to be very clear on what is to be achieved with the enterprise application. If simple contact tracking is all that is needed then the purchase of an Oracle eBusiness Suite is probably going to be overkill. Likewise, if you are trying to automate your entire supply chain, a small niche workflow vendor will most likely prove insufficient.

    ONE SIZE DOES NOT FIT ALL

    Unfortunately, with the new focus on SMEs, software vendors have worked to generalise their offerings to ensure a wide audience for their new or revamped packages. This presents challenges to the SME. They have limited ability to customise the offering and in some instances are forced to change their business processes to match the software they choose. For businesses that lack defined processes, though, this could actually be a benefit.

    Another challenge for the SME is that the majority of software aimed at their enterprise is managed and hosted by a third party and this introduces a risk to data security. Before engaging any software vendor the SME would be wise to understand clearly who owns their application data and what security controls are in place to ensure that their data does not fall into the wrong hands. The customer must also weigh the risks and benefits of engaging an emerging vendor who promises to supply the competitive edge they seek.

    SEIZE THE DAY

    So, given the major software vendors’ heightened awareness of the SME market, how can your high-growth enterprise exploit the competitive advantages offered by the vendor’s applications?

    • Clearly def ne what you are looking to achieve with your enterprise applications. There are literally hundreds of variations of CRM applications, for instance, and to be able to wade through the sea of offerings an SME needs to have a clear focus on its needs and goals.

    • Decide what level of risk is acceptable for your organisation. While there are many niche players in the SME enterprise application space, few have the stability and strength of companies like Microsoft, Oracle, or Siebel. Deciding to risk your business on a new vendor may be very risky but if they have an offering that will provide you with a competitive advantage it may be worth taking that risk.

    • Articulate to the vendor what level of customisation you will require and be prepared to be flexible. To market an application to millions of SMEs vendors must generalise many facets of their offering. While this may be acceptable for an internal application like expense claim processing, individual branding and customisation will be required for external, customer or partner facing applications.

    • Understand what security controls are in place for your data and the level of effort to obtain your data should you decide to terminate the relationship with a vendor. It may be less expensive to use a hosted ERP application, for instance, but if the vendor does not provide sufficient protection for the application data a single breach of security may cost more than all the savings promised.

    • Understand your constraints when it comes to pricing. Application vendors are hungry for your business and they are willing to be flexible with licensing terms to win your business. High growth enterprises should realise that the time is ripe to take advantage of very favourable market conditions to implement enterprise applications. The range and flexibility of offerings can give you the competitive advantage that you need to succeed. Just think… your competitor is reading this article right now.

    Jamie Vachon is a Senior Technical Architect with Infosys Australia. He is co-author of ‘Pro .Net Directory Services Programming’, Apress 2003.

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