SMBs: 'The Long Tail' of IT industry

Pragati Simlote






NEW DELHI: Chris Anderson, the author of 'The Long Tail' stated, “The future of
entertainment is in the millions of niche markets at the shallow end of the

bitstream."






According to the book, in an era without the constraints of physical shelf space
and other bottlenecks of distribution, narrowly-target goods and services can be

as economically attractive as mainstream fare.






He called this the long tail.





IDC US research senior vice-president Frank Gens termed SMBs as the long tail
for the IT industry worldwide. He said, “SMBs are now a critical epicenter for

new technical adoption. They employ 70 per cent of the worldwide work force.

Last year, 49 per cent of all IT spending came from SMBs and there are more

opportunities sitting in SMBs.”






The same stands true for India also. A study by New York-based AMI-Partners
states that SMBs across the Indian subcontinent are set to spend $7.7 billion to

beef up their info-tech infrastructure and solutions this year. Research agency

ACNielsen pegs the SMB IT spend to increase to Rs 26,709 crore by 2008.






Thus SMB as a vertical is the area to look forward for growth for IT companies
in India. There are over nine million SMBs in India with an average IT spend of

Rs 30 lakh, which is 0.21 per cent of revenue. This presents a huge opportunity,

which is to be completely tapped.






SMBs are very different from large enterprises and majority does not consider IT
as strategic. For them to implement IT solutions, productivity gain and customer

service are the key drivers. There are no solutions, which are specifically

targeted towards SMBs. It is more a case of 'forced fit' where IT solutions for

large enterprises are pruned down to fit the SMB needs. Though SMBs have

invested money in implementing applications like accounting, payroll, messaging

and collaboration, security, HR management, inventory applications, but the ERP

and CRM penetration is still low.






Diversity in the SMB market is its greatest strength and also the greatest
challenge for the IT industry as it has to develop solutions that fit the needs

of SMBs. Most IT companies try to refit their existing solutions in SMBs instead

of developing solutions specifically targeted towards solving the pain points of

SMBs.






Currently, Indian SMBs are at the basic stage of IT implementation, which is
usually undertaken for productivity enhancement (reporting business). Adoption

of computers, usage of software, and the updating of Web sites have enabled

small businesses to strengthen their position. Indian SMBs have been looking at

IT as a support tool for business functions, rather than as a growth driver.






However, the growing complexity of business has changed their outlook. According
to ACNielsen technology director Monica Deveshwar, “Enabling and enhancing

e-commerce, automating and optimizing supply chain, customer relationship

management and security are the technology priorities that the segment is

looking at this year.”






One way for IT companies to further penetrate this segment is to focus on key
segments and leverage partners. IDC (India) country manager Kapil Dev Singh

said, “The engagement level should be partner led and the partner should be one

who is focused on a particular segment. SMBs face a major people issue i.e. they

do not have skilled people to implement IT solutions. They need good partner

that can understand their needs and handheld them till they can operate on their

own.”






Analyst at AMI-Partners Partha Sengupta, “Though computing and networking
hardware still remain the major contributors to channel partner revenues

(contributing over 50 per cent), spending on IT services has surged, making it a

significant contributor as well. This reflects the growing demand for training,

installation and technical support among Indian SMBs.”






Company initiatives





IT companies are also waking up to this untapped opportunity. Dell which has
largely targeted the larger enterprise is now “eyeing the small and medium

business (SMB) market” with its 'budget' laptops. HP also said in a statement

that it has retained its No. 1 position in the portables segment with a share of

36.5 per cent market share, according to International Data Corporation's (IDC)

results for Q1 2006. The small and medium business segment and the government

segment contributed a significant portion of sales for the overall growth of the

category for HP.






EMC has also expanded further into the SMB market with tailored line of hardware
and software products. It recently launched 12 new solutions to cater to

consolidation, archiving, back up and recovery and business protection needs of

the mid tier segment.






Corporation midrange systems division senior vice-president and general manager
Joel Schwartz said, “India is one of the key strategic markets for EMC

worldwide. It is also one of the fastest growing mid tier information management

and storage markets in Asia Pacific. Our worldwide mid tier business grew by

about 30 per cent last year. Our expectations for India are to always exceed our

worldwide numbers.”






Networking solutions provider Cisco Systems has unveiled 'Network on Wheels'
(NOW), a mobile showcase of customized Cisco networking solutions to address the

needs of the burgeoning small and medium sized business (SMB) segment in India.






SMB is the fastest growing segment for Cisco in India and with this program it
wants to further penetrate the market. Cisco's enthusiasm is not misplaced.






SAP has been working on an Indian SMB strategy since 1998, when it appointed a
few resellers to cater to that market segment. SAP also launched its Business

One solution for the SMB segment in January 2006.






According to the company, SAP is seeing a larger penetration in the SMB segment,
and it also happens to be an important part of its growth engine. SAP had also

recently announced a partnership with Patni to target the SMB segment.






Meanwhile, SAP's competitor Oracle is not sitting tight either. Oracle had
offered free download of starter edition database that could be used by SMBs and

developers sometime back. The company also has an aggressive game plan in place

for the marketplace.






IBM has also announced the launch of its packaged services offering in India.
"Packaged Services" is a first of its kind suite of offering primarily targeted

at small and medium businesses in India, who prefer "modular, easy to choose and

easy to implement" solutions.






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