IBM, NITs and SMEs

On Friday 18th Jan, IBM bought Net Integration Technologies Inc (NIT) which offers a "business server software solution for small businesses". This is part of IBM's revived attempt to break into the SME market with a SaaS offering. Together with another recent IBM acquisition - WebDialogs - this will be integrated into IBM Lotus Foundations; taking IBM into face-to-face competition with Microsoft Small Business Server. With Lotus Symphony, IBM has a direct competitor to Microsoft Office.

The SME market is now looking more attractive to companies like IBM - mainly because the larger Enterprise market is looking much less attractive. SAP has also seen the potential for SaaS in this $400b SME IT market (according to IDC)

There seems to be an increasing view that SaaS will unlock the SME market. The problem is that I've had this view for 10 years - and it still hasn't happened yet. SMEs are remarkable Luddites. I am amazed at the sizable minority who don't have email access - let alone a website. If Sage can't get SMEs to accept SaaS, then I have doubts that IBM or SAP will. I remember discussing this with Paul Walker (CEO of Sage) some time ago. He talked about how so many of his customers 'liked to take the books home each night to keep them away from prying eyes' (like the tax man or even the wife!) Large companies may have got over that some time ago - but even they have not rushed to SaaS as yet. How much more difficult will it be for SMEs?

Mind you, it does put another company on my "Who might buy Sage" list!

Another view?

I asked my ex-Ovum colleague, Gary Barnett who is now with the Bathwick Group, to give me his views. Gary is one of an elite band of highly respected and influential IBM watchers.

Some time ago (in 2005) I wrote a piece describing the clash between IBM and Microsoft as a clash between two completely different cultures - One, IBM, very used to storming big cities, the other very used to storming small villages - I said at the time that the big challenge for both is to figure out how to win over the medium sized towns.

On one hand, Microsoft is pursuing a pretty straightforward "scale up" strategy - Forging alliances with VARS and integrators - usually off the back of a very technology-led play. IBM, meanwhile, is trying to stoop to conquer - by trying to engage the same set of VARs and Integrators with a "Hi, we're IBM, how can we help you get richer" story.

One of the ironies, particularly where it comes to IBM's relationship with the mid-market and slightly bigger integrators. is that a number of them have an obsession (a stupid one I think) with competing with IBM for big deals... and they tend to sneer at targeting the mid-market.

As for SAAS and SME's ... the reluctance of SME's to embrace SAAS is much more prevalent in Europe than it is in the USA. And I'm afraid I think that much of it has to do with "Luddite" tendencies. I'm happy to go on record to say that any firm with fewer than 500 mailboxes is insane to run its own email servers... but there are many that still believe that they can do a better, cheaper job than an external provider. They do so for a number of reasons - One of which is the fact that they don't actually understand how much running their own email is costing them, next they over estimate the level of availability that they have (and therefore ask for levels of availability that are necessarily more costly), finally - I have had SME IT managers admit to me that they didn't outsource because they wanted to gain experience running email etc etc.

On the other hand, the mid-sized VARs have done a really poor job of selling SAAS (and services generally). Their conclusion is that "it's hard to sell services to mid-market" - and I think they're really wrong.
The answer is that you sell differently to mid-market - and once you figure out how to do it, it's actually pretty straightforward. The problem, in my view, is that services companies have forgotten how to sell the idea of services - and are therefore only able to sell to companies that have already decided that they want services...
There is a vast opportunity for SAAS and services generally in the mid-market - but it requires that service providers implement the level of automation they need in order to deliver small deals to a greater number of clients (Many "SAAS" propostions are woefully complex to fulfill - no matter what the brochures say about "automated provisioning"), and it requires that service providers get their heads around the idea that there are some segments of the market that aren't going to beg them to bid... where they're going to have to sell the concept as well as the deal.

Gary Barnett
Partner and CTO
The Bathwick Group Ltd
gary@bathwick.com