Gartner’s SMB Vendor Ratings: Microsoft

Hewlett-Packard, IBM and Microsoft have been cited as three of the leading suppliers of technology for small- and medium- size businesses by information technology research firm Gartner. In its first ever vendor ratings of the most powerful global technology providers serving the small- to medium-sized business market, Gartner analyzes each vendors strengths and weaknesses.

Microsoft dominates the small- to medium-sized business space with its operating systems and office productivity tools. Microsoft’s rating from Gartner is “positive” overall. The software maker remains strong financially and is generally well positioned to serve SMBs.

Specifically, Gartner gave Microsoft’s Small Business Server a “promising” rating, which means that the product presents strength in specific areas. Microsoft Office System, Windows Server 2003, and Microsoft Business Solutions each received “positive” ratings. Each product has its strengths, but Mika Yamamoto Krammer, Gartner research vice president, is waiting for the market to mature a bit, in order to determine the staying power of these software systems that were introduced just last year.

Steve Guggenheimer, vice president of small to mid-market solutions and partners (SMS&P) division at Microsoft, said he was pleased with the overall vendor rating from Gartner. Be he is particularly happy to see that Gartner recognizes there are differences between the information technology (IT) needs of small- and medium-sized businesses.

“Our big plus was getting them to think about the differences between small-business and the mid-market,” Guggenheimer said. “These businesses are very different customers with very different software needs.”

The SMB market is a vast, disaggregated collection of very different organizations, which tends to complicate things a bit for the large IT vendors. Guggenheimer explained where Microsoft draws the line with small businesses.

“We consider a small business to be any organization with 1-to-25 PCs or 1-to-50 people,” Guggenheimer said. “The difference between a business with 500 people and 50 people is huge. As a result, there are very big differences in our products. For example, Outlook 2003 with Business Contact Manager is a fine tool for a 10-person organization, but a full CRM solution has to be used in larger companies to create the same benefits.”

Microsoft’s view of the SMB market is highly segmented, more so than nearly any other major IT vendor. This is a good tactic for Microsoft because its many different divisions can address the specific needs of the SMB market’s many different segments. But segmenting the SMB market in such a manner also creates a few problems, such as confusion over Microsoft’s licensing structure. Consequently, Microsoft received a “cautionary” rating from Gartner when it comes to pricing. Krammer said businesses find Microsoft’s pricing structure confusing.

Guggenheimer said much of the confusion concerns Microsoft’s open volume licensing and software assurance programs — neither of which have anything to do with how small businesses buy their software.

“Only two percent of SMBs buy through our volume licensing plan, these pricing plans do not apply to the small business market,” Guggenheimer said. “Small businesses basically buy whatever software is part of the original equipment in a new hardware purchase. Small businesses buy OEM — they don’t buy Software Assurance or buy through the Open License program. Most small businesses buy new software as part of a PC refresh.’

Pricing issues or non-issues aside, Microsoft contends that it makes the software and services that other vendors simply can’t match in the SMB market, and is worthy of Gartner’s overall “positive” rating.

“For businesses with fewer than 100 employees our value proposition is better than ever,” Guggenheimer said. “We have the products — there aren’t any other vendors in SMB space that can match us. We’re going to continue to serve the mid-market, too. But we have to do a better job at telling that story.”

Gartner forecasts that through 2005, Microsoft will continue to earn a large portion of its revenue from SMBs, but that Linux and business application vendors will look for ways to unseat Microsoft.

“Microsoft must change its competitive tactics facing open-source software,” Krammer said. “And security issues also present challenges. Half of Microsoft’s revenues come from SMBs. We gather a lot of feedback from small- and mid-sized businesses. A lot of them say they select Microsoft simply because there is a lack of any mainstream alternative.”

Guggenheimer said there are more software options available to small businesses than ever before, “it’s just that our software is more conducive to the way small businesses run their business than other options on the market.”

As for the recent Yankee Group study that said SMBs are concerned about becoming overly reliant on Microsoft products and services, Guggenheimer said it presents a challenge for other vendors to rival Microsoft’s small business offerings. After all, it’s hard to argue with 142 million Windows users worldwide.

“Yankee Group probably took businesses with 500 employees or less and talked about licensing. I have not seen the actual report. But I have a distinct feeling that this is mostly a mid-market study, not a study of small business,” Guggenheimer said. “I don’t think small businesses with 50 employees or less have the same view of what the study portrays. We work hard to understand how small businesses and the mid-market differ. Analysts have to stop lumping these two distinctly different business segments together.”

Toward that end, Gartner should be commended for its analysis of key vendors serving the SMB market. Small- and medium-sized businesses need to actively question the vendors with which they do business. Krammer advises that SMBs should look at acquisition price and the commitment level of support after the purchase as key factors when determining which IT vendor they choose.

“If something goes wrong and a system crashes, who will be there for you? A good price is meaningless if you’re out of business,” Krammer said. “Ask for customer references and make certain the technology integrates well with existing systems. Bottom-line proof will determine the long-term value of the IT offering.”

Having vendors competing for your IT dollars is goods news for the SMB market. When vendors compete, you are in the driver’s seat — demand good quality products at competitive prices. And remember, small businesses should be just as demanding as the mid-market when it comes to alternative hardware and software solutions.

Depending on the dynamics of your business, buying new hardware and software should make your business more competitive and consequently more successful. The smaller the business; the greater the potential return on each and every dollar spent on IT investments — spend it well.

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