Microsoft to penetrate local SMB market

Zatni Arbi ,  Contributor, Jakarta   |  Mon, 09/22/2008 12:44 PM  |  Sci-Tech

No one can underestimate the potential of small- and medium-sized businesses (SMBs). Depending on how they are defined, it is estimated that there are between 35 million and 100 million SMBs worldwide.

They are more nimble than big enterprises, respond faster to their customers' needs and have a greater growth potential overall.

Like big enterprises, SMBs can also benefit from IT. The Customer Relationship Management (CRM) application, for example, can help them maintain their customer bases.

There are other services such as HR and payroll, collaboration, inventory and invoicing that can help SMBs add powerful business capabilities to their organization.

However, SMBs differ from big enterprises in their financial capability and in their ability to absorb losses when an IT implementation fails. Therefore, SMBs have to be extra careful in their IT spending.

In addition, unlike big enterprises, they do not normally have the resources to take care of their IT infrastructure. But, because they exist in such a large number, it is not surprising that a lot of software companies have developed solutions for this huge segment of IT users.

Recently, I interviewed Michael Risse, Microsoft's vice president of the SMB Group, on how SMBs could share the benefits of IT. He spoke of a "trickle-down effect", -- how software that was once limited to the domain of big enterprises was now increasingly entering the SMB segment.

One way to make the software available to SMBs without draining their financial resources is to deliver the software as a service. Thus, a new software delivery model has emerged called "Software as a Service", or SaaS.

The new model is intended to lower the cost barrier for SMBs. Instead of having to invest in their own servers and software, SMBs would be able to spread their IT costs over a longer period by buying the services that would help them grow and compete against their competitors.

Another benefit is that SMBs can try the services and see whether they really provide them with what they need.

"SMBs have to be 100 percent sure that the software they use will help the business," Risse said.

An analogy will be to rent a Toyota Alphard cab for a day or two before making the decision whether to buy one or not. Renting it gives you the opportunity to see if you really like its luxury and comfort.

The SaaS concept is not a novel one. It has been around for some time. A number of companies, including Independent Software Vendors (ISVs), have been making it available to SMBs.

Now Microsoft has come up with a new wave of SaaS that it calls "Software plus Services", or S+S.

The basic tenet of both SaaS and S+S is that the software is run and managed by third-party providers. With the S+S, however, some of the software still resides on servers and desktop PCs located on the SMBs' premises.

Being a software creator, Microsoft naturally wants to perpetuate the need for end customers to buy their software. Come to think of that, although the services can be made available and accessed through the Internet, every user will still need the operating system and a browser on their computer. So, to me, the distinction between SaaS and S+S is not as significant as it may seem.

Three models of S+S will soon be available: An end customer would have all the software on their own server, but a Microsoft business partner would help run and manage it for them.

There will be no need for the SMB to hire a high-salaried IT manager or build their own data center, and therefore they will be able to keep their overhead costs down. Or, the business partner can host the software and deliver the needed services to the SMB. Another option is that the hosting is provided by Microsoft.

"We can do it, and the end customers will not care where the software is run (from) as long as they get the services they want," said Risse.

Flexibility in delivering the services is necessary, because in some countries there are regulations that prohibit storing and managing a company's data in an off-site data center.

"In Germany, for example, a company's email has to be managed and stored on a server that resides on its premise," said Risse.

Whichever model is chosen, the aim is to make software and services more affordable to SMBs. Meanwhile, the channel partners can also benefit from the new wave.

Up to now, the role of the partners in Microsoft's business is very crucial. "Microsoft has around 600,000 business partners around the world," Risse said. "Ninety percent of our sales are made through our channel partners."

With the arrival of S+S, the roles of business partners would become even more critical. The partners can work very closely with the SMBs, and they have the knowledge of local regulations such as taxation and business practices. They can provide the right advice for local companies.

Once the S+S is available, more SMBs can take advantage of services -- the so-called "attributes" of the software -- without having to install the software on their local servers or client machines and pay the hefty license charges up front.

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