The Holy Grail of the SMB Market

I’ve been working with many a new client who wants to reach the SMB market. These are traditional enterprise companies who want to expand. And they the SMB market as a viable one to pursue for growth. But this market has been elusive to many for a long, long time. That’s changing of course. But there are still many who don’t see that.

Google has with its recent apps announcements launched itself into serving the SMB market and while a lucrative market unto itself, seems ready and poised to take on the enterprise market ala Microsoft themselves.
Oracle’s—having acquired PeopleSoft to grow in the SMB market— has been achieving success with its Oracle E-Business Suite. That stripped-down ERP package is aimed at companies with as few as five users. Get that, Oracle for five users.
In the last 2 years, market leader SAP AG has shown its rising affection for the lower end, substantially ramping up its “strategic” mid-market initiatives, called Business One mySAP All-in-One. SAP now states “SAP already has a substantial SME footprint with approximately 65 percent of its worldwide customer base comprising companies in this segment.” Wow, pretty good for an enterprise software company.

Don’t those seem like “stories of the weird” rather than tech headlines? So, what’s the big deal? Why all the focus on SME?
This “new” and largely unpenetrated market has been the holy grail of technology. Referred to as SMB or SME (mostly in Europe), these groups of “small and mid-sized businesses” are traditionally beyond the reach of most. For a few reasons:
• The Wallet Threshold. With “traditional” perpetual software licensing, the typical cost of entry includes that of the license, the new hardware to run it on, a team of specialist to implement, and a commitment to buy “maintenance” contracts. The model required one mega-sized check upfront. Thus SMBs could not often afford software (especially the enterprise software) as the payback for investment came after a huge upfront cost.
• Flipping it around, SMB is hard to reach. For the Software Industry, they could not afford SMB’s, since there was just no way to profitable reach millions of small businesses. The cost of customer acquisition vs. the very low license fees made it an uneconomical model, whether via direct or channel sales. A common “dirty secret” of the industry is that about 80% of an enterprise software company’s cost is Sales and Marketing. There’s a lot of “fat” in that sales process that needs to be cut out if efficiencies are brought to bear. I heard a statistic but haven’t been able to confirm that has the exact same cost of acquisition as Oracle at 1/10th the price. If that’s true, they haven’t figured out the model correctly.
But things have changed. And it’s with this little-itsy bitsy thing called the web.
Ten years ago, you couldn’t effectively target and reach the SMB / SME market. You had limited reach, poor distribution vehicles, expensive advertising overhead to raise awareness, and an absolutely terrible time affordably reaching any particular part of the SMB market.
Today, there’s a solution to each of those problems.
1. Targeting → Focused Search Advertising online.
2. Reach → SMB customers are online more than other audiences.
3. Poor distribution → customers find your solution.
4. Upfront adoption Cost → SaaS (software as a service) eliminates upfront fees
5. Awareness generation → the user influencer communities spread the news
Chris Anderson, author of The Long Tail, has made a strong point about the Internet allowing access to smaller market sets. Products that could serve many in “the long tail” can now be served. If ever there was a classic definition of a new market opportunity being opened up by the Internet, it’s the SMB space. The SMB market is a gold mine, by any definition. For the vendors who crack it in a cost-effective way, they can have the moment of finding the Holy Grail.

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