Picture this: a small business owner realises their growing business requires a new OEM white box solution, so they head to the nearest mass retailer and convey this to the person behind the counter. A while later they emerge, not only with an OEM white box product, but also four mice they didn’t actually need. Why? The retailer would only sell the solution if software was bought with it. The small business owner now has a whole heap of extra mice sitting in the corner of the office.
The above scenario (true story by the way) raises a few questions in regards to the small business market in New Zealand. Are SMBs getting the short end of the stick when it comes to buying products and solutions for their business? Do they know the best place to go to get value for their money? Is it better to go straight to a mass retailer rather than a reseller or integrator, or are retailers just there to rip them off?
The Channel investigates where small businesses are at post credit crunch, how they are approaching the purchasing of products and solutions, and the opportunities this is creating.
Retailers versus resellers
Glen Senior, Global CEO of The Small Business Company states that compared to their large enterprise counterparts, SMBs have less time, money and staff to draw on. As a result, support is a big concern in this market, with most small businesses considering the question: "If something goes wrong, who is going to fix it?”
In this regard, getting a specialist consultant in is always going to be the smart option. "The trick is small businesses have to know what they want. If you just want an off-the-shelf solution, a mass retailer is fine. But if you want something that does a specific job for your business, go to a reseller.”
On the other hand, mass retailers offer the possibility of an incredibly cheap deal, something that is hard to turn down when you’re a cash-conscious small business.
"I would always go to a mass retailer first if they have something I can just plug and play, assuming you have the knowledge to open it, attach it, install and operate it,” says Senior. "Most IT for SMEs is pretty intuitive; you don’t need instructions for the new iPad, for example.”
That being said, retailers often aren’t familiar with an SMB’s technology requirements. "I’ve had plenty of conversations with business owners who have purchased from a retailer and have ended up buying the wrong thing, or the wrong components, as they’ve been told they need them,” says Steve Martin, Symantec SMB Director.
This is often a cost-driven decision, but by the time they go back to fix the mistake, precious time and money has been wasted anyway. "Short term cost-savings don’t necessarily pay off,” Martin points out.
According to Leila Harache, Commercial Business Manager for the Noel Leeming Group, there is a myth in the market that retailers have large margins on all of their products. She believes most people involved in the technology industry are aware that there are in fact very slim margins. "We have a dedicated team of buyers who are hunting out the best products for the right price, and are then able to pass this value on to our customers.” She goes on to say that retailers want to ensure the customer is satisfied with their experience and find the "best product at the best price”.
Justin Lanigan, Sales Director and Co-owner of 123 Online, says that as a small business targeting the SMB market, they are very aware of the constraints facing companies in this space.
"If your target market is owner-operated small businesses, then their technical knowledge is very minimal,” he says. "We get a lot of customers coming to us that are confused and have already had a lot of technical jargon thrown at them.”
He says that, as a small business themselves, they are lucky to have a tech-savvy co-owner and design director. "If that wasn’t the case, we would need to use a consultant, otherwise we would be up the creek without a paddle.”
Lanigan believes that there needs to be more of a solutions focus within retailers, so there is the opportunity for further help if an SMB needs it. Coincidently, Harache informs
that their retail stores have recently launched a new facet to their sales approach that includes "Tech Solutions technicians”.
This means that once a product is purchased, tech experts can be sent out to the business to complete installation. It is highly likely that this will amp up the competition in the small business market.
It appears the issue for this market is not who they go to for their products and solutions, but a case of lack of knowledge and information. The majority of SMBs seem to lack the education in regards to the solutions that are on offer and the providers of those solutions.
Clive Levido, Fortinet’s New Zealand and Pacific Island Country Manager, backs this up, saying that a lot depends on the type of solution and the knowledge of the small business. "Many SMB IT solutions have been highly commoditised and can be readily and efficiently purchased through a mass retailer,” he states.
"The real consideration for a small business is how much domain knowledge, design and support is required; often a lower priced solution from a mass retailer can become higher cost if it results in a negative business impact.” He goes on to say that while security solutions are becoming increasingly easy to configure and navigate due to GUIs and configuration wizards, he would still recommend a reseller.
Noel Leeming Group’s Leila Harache emphasises that a small business needs to ensure buying a solution is done correctly. "One of the things small businesses fall into the habit of doing is purchasing a product that costs less and does not do the job the way they would ideally like.” She believes SMBs should avoid purchasing consumer products and trying to make them fit in a business environment. "It is sometimes worth investing in the right solution at the start.”
According to Senior, most IT information is product-based, and vendor sites "just sell their own solutions, so SMEs find it hard to believe what they say, as they are not independent. Even the independents have some incentive to push particular products or services if they have a supplier agreement”.
He believes that when looking for a solution, a small businesses should take it upon themselves to talk to other organisations that have implemented something similar, asking them who they used as a supplier and getting feedback on the technology before purchasing it for their own business.
The current market
In Key issues for IT providers targeting the SMB market, Gartner states: "Midsize businesses are more willing than ever to consider alternative and emerging IT vendors to get the best deal possible since the impact of the economic turmoil during the past 18 months.” The report goes on to say that while traditionally, midsize businesses don’t like to change their provider, there is evidence to suggest that this is not necessarily a stable fixture in 2010, with the growing need to lower costs and "obtain greater value”. This means that competition for business in the SMB market will be tougher so providers will need to work harder on building a business case for solutions.
The last time The Channel looked at the small business market, we found that 45% were going to resellers, dealers or distributors, reflecting the increasing need for expert advice when it comes to the IT landscape. Advice is still a necessary prerequisite for this market, however Gartner reports that the SMB IT market is a highly competitive place to be, particularly as of this year. As a result, it is undeniably important for providers to keep an eye on trends and buying behaviour.
Solutions in demand and the opportunities that follow
The need to replace communications equipment, combined with total cost of ownership motivations, means that more SMBs are beginning to consider unified communications (UC) investments. Given the nature of UC solutions, a small business is more likely to call in a consultant for advice on this.
"Enterprise-level technologies, such as archiving, are coming downstream and becoming easier for SMBs to use."
In Why SMBs implement unified communications, Gartner says that the majority of SMBs tend to have fewer internal IT resources dedicated to managing UC technologies. "This means that UC equipment being sold to SMBs needs to be easy to deploy and manage, have high ease of use and low maintenance requirements.”
When investing in UC, most small businesses will consider the cost and business justifications, and will usually want to know the financial benefits and business efficiency improvements that would come with the adoption of UC. Gartner outlines that the benefits can include cost savings, such as reductions in operations costs through the consolidation of infrastructure across an organisation.
Revenue generation is another benefit: "improved client retention driven by enhanced customer service (such as reducing the time taken to assist customers) achieved through the adoption of UC technology.
Michelle Caminos, Gartner Small Business Analyst, believes that when you look at resellers and systems integrators, in general, many have been resistant to take on selling UC solutions in terms of the revenue model. However, she states it should be "necessary as an option to add to their portfolio”, especially when you consider the SMB market truly does need the knowledge and assistance of a specialist in this area.
As the economy picks up, small businesses that were worst affected by the economic downturn will start to look at regeneration, and hiring more people. Caminos emphasises that an increasing number of organisations in this market are evaluating the idea of cloud-hosted services, and if they aren’t already, she believes they soon will be.
"For those that are in charge of IT purchasing decisions, as they evaluate their IT environments they are now starting to ask, in terms of the cloud: "At what point will we need this and does it work?””
Levido states that there are three key drivers influencing the SMB market at present. "The desire to capture every possible transaction by heightening service levels and lowering response times, the need to be nimble and move with the changes in a business’s chosen market, and the desire to drive down cost per transaction through increased operational and financial visibility.” According to Levido, these aspects have contributed to the fact that there are an increasing number of organisations who have begun "cautious exploration” of cloud-based services.
The whitepaper Market insight: IT providers are selling cloud-hosting services to SMBs by Gartner, backs this up, reporting that SMBs are now more willing to consider cloud services than they were 18 months ago. The development and convergence of cloud infrastructure services in the web-hosting market means there are new opportunities for flexibility and cost-savings with small businesses. Interestingly, the paper states: "The cloud hosting market is in a critical period, as service providers look at such challenges as softening market demand, reduced profitability, hyper-competition and cautious buyers. The evolution of cloud computing will exacerbate these challenges, as it offers a low-cost, rapidly scalable option for deploying infrastructure.”
Gartner recommends dividing the market up, in terms of a limited number of market scenarios. Focusing on companies that are expanding or going through a merger and acquisition, for example, should filter out a pool of companies that need new IT functionality and capabilities promptly. This is a great opening to offer cloud services.
It is good to note that SMBs’ objectives for cloud-based services are similar to those of large enterprises, such as cost management, simplification of IT infrastructure and bundled application solutions.
According to Caminos, many providers out there are struggling to get their bundling right. "Currently, most of it is done from a reseller or system integrator perspective and it lacks the flexibility required from an SMB’s point of view.” It is worthwhile to develop bundled products that include storage, computer and network elements based on a monthly subscription or resource model.
Sections of the small business market are beginning to embrace enterprise-level solutions, such as document management and deduplication technology.
"Enterprise-level technologies, such as archiving, are coming downstream and becoming easier for SMBs to use,” Martin says. "More enterprise-level technologies are being repackaged and implemented by SMBs.”
However, Caminos believes that it is only the IT-intensive SMBs that would take on enterprise-level solutions, as most aren’t at the size or level to require such technologies. "They just can’t procure it,” she says. "There aren’t many solutions developed for SMBs that aren’t straight off the shelf.”
The key to the small business market is the fact that each situation is unique, requiring a unique approach when it comes to presenting a business case. "Technology is scary for small businesses, and many technology providers do a poor job of explaining themselves and what they do. You can’t just assume that because you understand something, your target market will as well. Put yourselves in your client’s shoes,” stresses Lanigan.