Acronyms can be used to fudge reality: We lose track of what the letters stand for, our expectations lack shape and clarity, and we search in vain for useful information. In that light, what's true for WMDs can be equally true for SMBs.

So when we read or hear for the umpteenth time that the SMB revenue opportunity is measured in the hundreds of billions of dollars and holds the key to the future growth of the IT industry, we find ourselves musing: “OK, but what exactly is a 'small' business technologically? What makes a particular organization's IT challenges 'medium-sized'? And, most important: What should those distinctions mean to a vendor of technology solutions trying to deliver business value?”

Analyst firms and vendors have come up with a dizzying array of SMB determinations. Some analyst firms scale down their “small” category to operations with up to 50 users; others say that any business with less than half a billion dollars in revenue falls into the SMB bucket – a mega-bucket indeed by our reckoning. EMC Corp., to name one vendor, simply defines SMBs as organizations with fewer than 1,000 employees. Oracle implicitly narrows the target by licensing the new SMB edition of its E-Business Suite for 10 to 50 users. Entellium, a much smaller vendor that provides hosted CRM technology expressly for SMBs, slices its market into three segments: 50 or fewer, 500 or fewer and 1,000 or fewer employees.

We like the idea of breaking the market into more segments rather than fewer because user behaviors, and thus customer requirements, can vary so much from one end of the space to the other. So after spending considerable time with vendors, integrators, VARs, customers, and a host of government almanacs to get their collective take on the issue, we set the bars as shown in the figure below.

But all the numbers notwithstanding, the true measure of the SMB marketplace can only be taken by focusing on the nature of the customers' problems. In selling terms, size obviously does matter, especially if one's goal is to outrun IT commoditization by repackaging old software and selling in volume to scads of new customers. But from the user perspective, other factors matter just as much, if not more. So let's now look at a different set of practical definitions.

Small: A company doing much work with a little technology, or with next to none

Your business buys its software through the reseller channel and runs it on a single server and a handful of PCs that were purchased at a computer retailer or business supply outlet. There is no IT department, and the business owner – that's you – makes the technology purchasing decisions and deals in person with a local reseller or integrator for installation and support. Sometimes you try to do the work yourself as time allows. Your company may have a Web site, but online collaboration with customers and suppliers is done largely via email.

Small infrastructure doesn't equal small problems, however. Compliance, for example, is an issue that affects independent medical practitioners, accountants, and attorneys in the same way it touches hospitals, global accounting practices, and big law firms – except that sole proprietors and small business owners have neither the budget nor the staff to deal with compliance specifically. Technical documents of many sizes and formats – X-rays and tax forms, for instance – need to be accessed, shared, and archived electronically. Suppliers and financial service companies that now conduct business on the Web expect even their small customers to do likewise. E-mail is increasingly virus-prone and spam-throttled. So the issues are significant, even if the resources to deal with them are not.

Medium-sized: An organization fighting to up-sell and cross-sell without getting squashed

Your company bit early on the concept of building an IT infrastructure, invested a significant share of its profits in technology, and hired a several-person dedicated staff to maintain and upgrade it all. You already use the Web to order supplies, promote products and services, and handle basic customer transactions, and technology has helped your company to act bigger than it is, landing sales in far-off locations and taking sales away from some of the big guys in your industry. Today, a few tech-savvy executives are figuring out how Web services could improve operational efficiency and boost sales revenue through CRM and customer self-service.

However, you as CEO and president now realize that this rosy scenario conceals serious flaws. You spent far more than you expected on hardware, software, and integration services in the late 1990s, and then the recession cut your margins to the point where you've had to let production employees go. Even though technology lets you do more with less, there's no way you can add IT staff for new projects or take production and administrative staff away from their daily work to train them on new systems. At the same time, competition is increasing. It comes both from other medium-sized companies here and overseas and from the big guys whose lunch you had been planning to eat, who are now reaching down for your slice of the market even as you are reaching up for theirs. The Internet, it turns out, is a sales, marketing, and distribution weapon that cuts both ways. Who knew?

Business: Transactions – financial or otherwise – that increase organizational performance in terms of profit, productivity, positioning, or competitive standing

Organizations of all sizes recognize and proclaim that IT makes them more effective in many different ways. Yet the needle on IT spending growth remains stuck in the low single digits. Frustrating as this is, there's no great mystery as to why it is so: in short, it's because the levels of FUD (fear, uncertainty, and doubt) are as high as they've ever been, for the consequences of making a mistake in this tenuous economic environment are potentially quite dire.

Over the past 15 years, outside vendors and in-house technical professionals have worked together to build a foundation for information technology that supports the business enterprise, and on balance, they've done a terrific job. But now the game is up, and the bills are coming due. At the Fortune 2000 level, CEOs and stakeholders are looking for tools that will drive profits by improving specific operations in specific industries. Instead, all they are hearing about are “solutions” for this and for that, and the messages all sound alike even though the technologies they're describing seem to be very different. So prospects are confused and hesitant, and they're not signing sales orders at the rate vendors had hoped to see by this time.

Well, what's true for these large enterprises is also true for SMBs, and if anything, it is more relevant, not less. Unfortunately, IT vendors sometimes seem to think of the SMB market as a wide-open, new “free range” opportunity, one in which there are few barriers and plenty of room for all. But the truth is that it is not one unified space, and unless the pragmatic distinctions just outlined are taken to heart, trouble will soon ensue.

Fomenting the SMB Revolution
Keeping these issues in mind, what are IT vendors are doing to gain traction in the SMB arena? Perhaps these recent announcements will give you a flavor:

• Captaris acquires IMR: With the $27 million deal announced October 4, Captaris Inc. brings its considerable resources to the job of marketing IMR's Alchemy 8.0. This combined document- and records-management system, released in March, is billed as a way for SMBs to solve compliance problems at a low price point and integration threshold.

• Cisco Systems offers SMB-style switching: Cisco announced in late September it would seek to lower the barriers to advanced networking, wireless LANs and IP telephony with two new switches and graphical management software (the Cisco Network Assistant) designed specifically for SMBs.

• EMC acquires Dantz Development: To further extend its reach into the SMB market, EMC will pony up “less than $50 million” to acquire Dantz Development Corp., the developer of Retrospect, a backup and restore system for Windows and Macintosh users. Retrospect and Legato Networker, another SMB solution that was acquired by EMC last year, will eventually share a management console. The deal will expand EMC's distribution model and expertise as well as its product line, since Retrospect is sold to SMBs through the reseller channel rather than direct.

• HP, Oracle launch bundling blitz: Hewlett-Packard announced earlier this month that it will partner with ISVs to bundle business applications widely used by SMBs on HP systems sold through the VAR and integrator channel. Pilot applications include Avaya's IP Office and Intuit's QuickBooks. And Oracle reportedly has decided to offer North American SMBs the Oracle E-Business Suite Special Edition, a preconfigured application package already sold in Europe and Asia.

• Now it's 'My SMB's SAP': Just last week, SAP launched a new release of Business One that is says will help small and medium-sized manufacturers improve processes such as materials resource planning. SAP is also equipping Business One with embedded CRM capabilities, something it expects will appeal to its mid-sized retail and service customers.

Kinetic Information's research shows that bundling together different types of business applications can be helpful in reaching customers who live in SMB-land, but only if those bundles can be mixed and matched and easily customized at the front end, and only if they interoperate fully with the technologies that are already in place. Offering more flexible pricing schemes also can help, but providing industry-specific expertise through new channel partners can help even more. Including Web-based collaboration tools may also be a good idea, but only if they can secure the content being shared.

At the end of the day, jump-starting an increase in IT spending “down here” requires sensible technology that provides targeted functionality, greater accessibility in terms of cost and usability, and mitigated risk in terms of security and compliance. We'll continue to keep tabs on developments in this space and will use several new research tools available to us to keep track of every new acronym we hear about, and to follow up on every nuanced question we're asked. So keep those cards and letters coming! Contact Us for More