IT Solutions Debut For Smaller Firms

For financial and other reasons, smalls and midsize firms have been slow to jump on the information technology bandwagon. Their procrastination will be rewarded.

By George Brandon

June 18, 2003

If you run a small or midsize company, it's a great time to be in the market for information technology (IT). Stung by sluggish sales to larger customers, IT vendors are tailoring many useful software packages to fit the budgets of smaller firms—a relatively untapped market. Buyers can expect bargain prices and higher value.

The buyer's market couldn't come at a better time for smaller firms that held off adding software for financial reasons or because early versions were too sophisticated for their needs. But now, many small and midsize firms feel increased pressure to deliver better services and lower prices to their customers and supply chain partners, which forces them to adopt the kinds of automated software solutions, networking technology and e-commerce platforms used by larger firms. As small and midsize businesses play catch-up with the big guys at last, their spending on IT hardware, software and telecommunications services will grow at twice the rate of that of large corporations over the next five years.

Small and midsize business buyers will find scaled-down versions of market-tested solutions in packages tailored for specific business sectors, such as community banks or health care clinics. IT vendors seem to have finally gotten the message that few small and midsize businesses are interested in one-size-fits-all solutions, says Anurag Agrawal, executive vice president and managing director of Access Markets International Partners, an IT consulting firm that closely tracks small and midsize markets.

Big vendors, including SAP, Siebel Systems, PeopleSoft, Check Point Software Technologies and IBM, will cut out the bells and whistles demanded by big corporations and deliver "thin" solutions that smaller firms need to capture and record data about customer purchases, keep track of deliveries, provide good customer service and comply with regulatory requirements.

For example, Check Point, whose security software products are used by more than 80% of very large enterprises and a healthy number of midsize companies, is aggressively seeking new business from firms with no more than 100 employees. Its Safe@ Internet security line offers secure Virtual Private Network links to the office network for home workers and road warriors, firewalls and managed antivirus services to ward off hackers plus Web filtering software to keep employees' minds on their work, for as little as $300 per site.

IBM has unveiled a series of initiatives over the past six months or so targeting smalls and midsize firms, including its IBM Express products line of open-source software, configured in cooperation with value-added resellers for specific industry sectors such as retail, manufacturing and banking. The line includes easy-to-install, low-priced versions of IBM's Tivoli software for managing data storage and its Lotus e-mail and instant-messaging software, as well as a recently introduced version of the DB2 database program priced at $499 for a base server package plus $99 per user.

Microsoft will muscle in on smaller markets as part of its plan to develop a $10-billion-a-year applications software business by the end of the decade. As the launching pad for that effort, Microsoft acquired mid-market software firms Great Plains and Navision in recent years and folded them into its Business Solutions division. Cozying up to small and midsize firms may also help the software giant offset an expected corporate customer migration to Linux and other open-source server platforms, says Mika Yamamoto Krammer, research vice president for Gartner. Many small firms lack the sophisticated in-house IT skills needed to install, manage and integrate open-source software with other applications, Krammer adds.

Firms that provide software functions for client companies using software from SAP, J.D. Edwards, Lawson and others will also target midsize and small firms that lack the in-house expertise to manage and maintain the software systems. Such outsourcers include Answerthink in the Northeast, IBM's software channel partner BlueStar Solutions, and T-Systems in the Midwest and New York.

Computer hardware vendors and telecom service providers are also looking at small and midsize firms to help offset slumping sales to big corporate customers. For example, Dell and Hewlett-Packard have attractive deals now on PCs, servers and printers for smaller firms. Other equipment vendors targeting smaller firms include 3Com, which makes networking gear, as well as Cisco Systems, Nortel Networks, Avaya and Siemens, which are introducing low-end switches and routers for telephone and Internet and e-mail traffic.

Telephone companies are offering small and midsize businesses high-speed Internet links and new discounted "integrated access" bundles of local phone service, long distance at rates of under four cents a minute and high-speed Internet access. High-speed Internet links are one technology smalls and midsize firms have not been shy to grasp: 65% of smalls and 83% of midsize firms currently connect to the Web via cable modem service or phone company digital subscriber lines or T1 lines, according to Yankee Group.