Ramdas S, CRN, June 16, 2011
For most Indian IT vendors as well as resellers, the SMB segment remains a large jigsaw puzzle which seems to be growing multi-dimensionally every day.
Pundits say that the enterprise business is easier to tap because of the smaller set of customers. Also, most vendors are engaging with large enterprises directly, at least from a relationship perspective. “The enterprise landscape in India today is charted very well, and most mature vendors have good understanding of the accounts and what these customers plan to do,” says Vishal Tripathi, Principal Analyst, Gartner India.
Similarly, the IT consumer market is not regarded as different from any other consumer market, and strategies used in businesses such as FMCG seem to be working in the IT consumer market.
The SMB business appears to be a different ball-game. Basic activities such as aggressive pricing, and investments in marketing and brand building, help in garnering consumer market share.
“The Indian SMB market is one of the toughest in the world. In fact, inside Lenovo, we call it the ‘Sabse Mushkil Business’ (The Toughest Business),” comments Aditi Ganguly, GM, SMB BU, HSB Lenovo India. “It’s tough because the market size is huge and spans across the diversity of the country. And beyond some of the basic trends, there are no fixed patterns on how an SMB thinks and buys, making it a very difficult terrain to operate.”
According to market research firm AMI Partners, which does multiple studies on the Asian SMB market, the Indian SMB market is the biggest opportunity for IT vendors.
The number of business organizations in India is huge, and AMI classifies around 4.15 million separate entities in the Indian landscape. Of these, around 4,660 are considered large businesses which are already on the radar of most IT vendors; these are organizations with more than 1,000 employees. AMI says there exists around 32,600 medium businesses in the country with an excess of 100 (IT) users. Apart from these, there exists 1.6 million small businesses which have seen some form of IT penetration. At the same time, more than 2.5 million small businesses exist which would buy a PC in the next few years.
“According to Government of India statistics, there exists 20 million small businesses. However, we estimate that only about 4.1 million of them can be tapped by the IT industry. Many of the other small businesses on the government radar do not even have electricity,” explains Neha Jalan, Senior Associate,
AMI Partners.
Both partners and vendors say there are very few recognizable patterns for doing business with SMBs. “Apart from some common challenges, the needs of SMB customers are so different that it’s difficult to formulate a specific strategy to tap the market if you are going after them,” says Ajit Mital, CEO of the Lucknow-based Acme Digitek Solutions.
One of the challenges of an SMB is that depending on its size and focus it can display the characteristics of both enterprises and consumers. “You are bound to see companies of similar sizes operating in different modes in this segment. Some of them may have corporate policies, systems and processes, while another company of a similar size would be working with a more personalized management and thinking more like a consumer,” observes SR Nair, MD, Team Frontline, Kochi.
According to Jalan, another challenge for a vendor or partner is to identify the right customer profiles among thousands of SMB profiles in a territory, and work out a strategy to communicate with them. “At AMI, we have segmented small businesses and medium businesses into smaller sets, and have identified the specific needs of each segment. Depending on your exact offering, the target market also changes.”
Unlike in an enterprise, where there are clear-cut roles and functions for people involved in an IT purchase decision, in the case of an SMB, and especially a smaller business, there is little clarity on who the decision-maker is. “It’s often hard to identify and even harder to profile the decision-maker. While in many cases the final decision is taken by the proprietor or key business owner, the person influencing the decision can often be someone lower in the ranks,”
says Nair.
Not surprisingly, enterprise vendors such as IBM, HP, Microsoft and Cisco invest considerable amount of time, energy and money in acquiring intelligence on mid-market opportunities.
For example, in 2010, IBM set up a business unit that aligns with other units to work on mid-market and SMB opportunities. “We adopted a systematic approach and first acquired databases, then built market intelligence for ourselves,” says Jyothi Satyanathan, VP, Mid-size Businesses & Inside Sales, IBM India. “Today we have on our radar 30,000-40,000 companies which employ 100-1,000 people, and which would be spending Rs 5 lakh to Rs 15 lakh on IT over the next two years.”
Similarly, in 2008, HP launched its White Spaces initiative whereby the company identified 9,000 mid-market entities with little or no IT penetration and went along with SAP to tap these accounts. Since then, HP is known to have appointed multiple agencies to build data on SMB accounts, specifically building intelligence across more than 60 cities on accounts having 49-499 users.
Acer India has also set up an SMB engine with an outsourced agency making telecalls and being involved in other lead-generation activity. The engine tracks enquiries across all campaigns that Acer does, and distributes leads among the 120-odd Acer Select partners. “Unlike an enterprise vendor, we as a PC company have a very large base to cover, a million-plus potential SMB customers. The SMB engine plays a proactive role in ensuring that our partners are fed with enough leads,” says Saji Kumar, Head, Product Management, Acer India.
Security vendor Fortinet has additional methods for identifying an SMB opportunity. “While we do opt for classifications such as 100 employees and above, we also look at WAN connectivity. A qualification cut-off for us is 4 Mbps of combined bandwidth. We have identified close to 16,000 potential accounts in the country,” reveals Vishak Raman, Regional Director, Fortinet India/SA.
PC vendors also depend on their own OEMs and tech partners to reach SMBs. “Every quarter in every territory we have at least three customer-facing and partner events. Sometimes these events are held at the behest of our OEMs such as Intel, Microsoft and AMD. We collect data, then start pitching to these SMB customers,” informs Kumar.
In 2009 both Dell and Lenovo integrated their SMB sales teams with their consumer divisions. The understanding at that time was that SMB requirements were changing, and that the segment needed PC models which were more consumer-oriented with faster deliveries. However, of late, both these companies have made changes to their structures, and now have separate SMB teams.
“We have always had the SMB segment addressed by the relationship team. We have both a back-to-back business as well as a stock-and-sell model to address the space,” says Kumar of Acer.
“We have traditionally worked on doing back-to-back deals with enterprises,” says Rajesh Dixit, Director, KAB, Think Classic Product Group & Channels, Lenovo India. “But we introduced a stock-and-sell model for the Think range especially since the decision-making and buying patterns of medium-sized businesses are often spontaneous.” Lenovo has also set up exclusive distribution arrangements for select models of Thinkpads which go through Rashi Peripherals alone.
The vendor has also started two specific programs: Think In Retail for SMB customers who want to buy products after a look-and-feel, and Think Stock & Sell for faster deliveries of the SKUs.
Dell uses a channel different from its consumer channel for the SMB business. The Vostro model which Dell positions for SMBs is sold through national distributors, while Inspiron, positioned for consumers, moves through its master sales affiliates (regional distributors). For businesses that are medium-sized or more, Dell has set up the global commercial channels (GCC). “Partners who need to service small businesses can definitely buy through our consumer distribution channels. GCC will help them address specific customer requirements on a back-to-back business model,” says Mahesh Bhalla, Executive Director & GM, Dell India.
Getting the right communication to the SMB market is another tough task. Most vendors who tap small businesses focus on conveying the message through their consumer branding, which was the original reason for PC vendors to club their SMB and consumer divisions together. By contrast, communication with medium-sized businesses is more through events, direct mailers and social networking. “One of the interesting discoveries we made during our latest channel study was that SMBs are increasingly using social networking tools to make purchasing decisions,” informs Jalan.
However, some partners complain that vendors do little to tap medium businesses beyond making products available through channels. “Only enterprise vendors are focusing on building a direct communication channel to SMBs through events or any other activities,” says Nair.
Enterprise vendors are also introducing specific models which are said to be tailor-made for small businesses. For instance, HP India launched storage products under the ‘Just Right IT’ portfolio for SMBs. Similarly, EMC launched new models under its VNXe range of unified storage products which are specifically targeted at small businesses. “When you position a product for SMBs you need to remember that many of your clients do not have the luxury of an in-house storage expert, hence the product should be designed to be configured and deployed easily,” says Manoj Chugh, President, EMC India & Saarc.
Meanwhile, companies such as EMC, Citrix and Novell are increasingly leaving the job of developing the SMB market and channels to value-added distributors. Though EMC drives the Iomega business itself, its Affiliate channel program (that’s targeted at resellers working with small businesses) is managed by distributors. “We work with Inflow for most of our SMB opportunities. In Inflow, we can rely on a partner who can further address the demands of smaller partners,” explains Sandeep Menon, Country Head, Novell India.
Enterprise vendors have also started geo-expansion drives to reach more SMBs. While IBM has been very vocal about its plans, HP’s ESSN division has also been going upcountry with its wares. “HP has launched a geo-expansion program—spanning 22 upcountry towns and cities/clusters—that targets the next emerging markets in India, pushes our entry-level storage and servers, and develops the channel ecosystem in these regions,” says Faisal Paul, Head, Marketing & Solution Alliances, ESSN, HP Enterprise Business India.
AMI Partners believes that all SMBs go through three waves of ICT adoption. The first wave will involve the purchase of computers, setting up a network, opting for a high-speed broadband connection, and getting financial accounting software and accounting software. In the second wave, the small enterprise will opt for dedicated servers, think about security, and buy more software applications. The third phase would see massive upgrading of infrastructure, opting for dedicated leased lines, and considering CRM/ERP/supply chain solutions for deployment.
“The challenges of SMBs change as they grow from one stage to another, and the way they do business moves from a reactive to a proactive to a complete systems/processes-oriented mode,” explains Jalan.
Jalan says there are several important characteristics which both small businesses and medium businesses are displaying and which need special attention. For example, irrespective of size, most SMB companies want to buy from a single supplier for all their IT needs. Medium-sized companies want to standardize on a brand for their desktops and notebooks. All of them are clear that solutions must be tied to the TCO.
Another important fact is that small business purchases are based on pure priorities and cash flows. “You have to be on constant alert when you handle small accounts, and should be in touch with decision-makers to find out when they want to make a decision. They often purchase based on impulsive decisions,” notes AL Srinath,CEO of Shell Networks, Hyderabad.
Jalan has a message for vendors and partners addressing the space. “Competitive pricing is a key factor driving partners’ engagement with vendors. This has been constant for several years, but a recent addition to the partners’ wish-list is post-sales support and training. It has emerged as a leading factor because vendors often update their product portfolio and come out with new offerings. Training needs to be imparted to partners so they can keep themselves updated.”
Depending on the size of the segment, different sectors offer bigger potential. For example, in the case of very small businesses, it’s likely that services will do better than manufacturing or trade. However, mid-market manufacturing companies spend a lot more as the size of their business grows. AMI Partners sees the financial investment and real estate segments as being very consistent in their IT investments irrespective of size.
SMBs present one of the biggest opportunities for partners. According to Gartner India, this is estimated to be worth around $5 billion and growing at a CAGR of 15 percent. Vendors and partners can seize this opportunity by aligning with each other, following simple rules, and attending to the specific needs of the market. Together, they can crack the SMB puzzle. |