Self-Service Nation: Why Targeting Small Business Is Good Business

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self-service

One of the key concepts at the core of traditional marketing is the 80-20 rule — that some 80 percent of the effects (or in this case, profits) are the result of 20 percent of the causes (here, customers). Indeed, if you’re able to target just a small group of people in order to successfully yield most of your profits, there are all sorts of benefits — it’s easier to reach a small group, it’s easier to build them the right product, and so on. Most large technology sales and marketing organizations have taken the 80-20 rule to heart and focus on some small fraction of the tens of millions of businesses on the globe, often targeting just the Global 2000.

While the 80-20 rule can be very powerful, the reality is that many of the costs associated with building, supporting, distributing and selling technology products have dropped dramatically in the past decade. Yet many enterprise technology executives are operating as though the cost of distribution hasn’t changed since the early 1990s. In the coming years, I expect startups to increasingly target the massively underserved small- and medium-sized business (SMB) segment by taking advantage of the arbitrage between actual and assumed costs of sales. Self-service sales models will be a key element of these startups that will forever change the face of the enterprise technology business.

U.S. Business Statistics | The Economics of Sales

A quick look at Census Bureau statistics on business size reveals some startling information:

  • Of the 25 million U.S. businesses, only 5.9 million employ one or more people.
  • Of the 5.9 million employer firms, only 17,047 have 500 or more employees, yet those firms account for 49 percent of U.S. employment and 61 percent of revenue. That translates into well under 1 percent of U.S. firms accounting for 61 percent of revenue
  • Of the 17,047 firms with more than 500 employees, the 890 with 10,000 or more employees account for 26 percent of U.S. employment and 37 percent of revenue.

Let’s say you’re an enterprise software company and that your economic model requires each sales professional to earn $2 million-$3 million in revenue a year to cover the costs of your operation, including the cost of the sales themselves (salaries, commissions, travel and entertainment, sales support and operations, etc.). Each one of these representatives can only do so many deals every quarter, so the revenue per deal must be fairly high — let’s say that the average deal size per customer, per year, must be around $100,000. And that’s just your part of the solution. There are likely other software, hardware and consulting costs associated with the complete solution.

If we assume that the average pre-tax margin of a small business is 10 percent and we take revenue for the 98 percent of U.S. firms with 99 or fewer employees, divide their aggregate revenue by the number of firms to get average revenue per firm and then take 10 percent of that number to derive pre-tax profit per firm, we get $103,962. In other words, the direct sales model would require taking roughly 100 percent of pre-tax profit from firms with fewer than 99 people for just your component of the solution. These are back-of-the-envelope assumptions and are for illustrative purposes only — the point is that direct sales organizations cannot serve the vast majority of businesses on the planet.

Currently the most effective way to reach the SMB segment is via bundling, for example to have your software or hardware bundled (that is, OEM agreements) with some big-ticket item like a server; that vendor then distributes the combined product through a single or two-tier distribution channel. A very small number of products have the import to be sold through the channel on a standalone basis (such as backup hardware and software). If you compare what the large enterprise has in terms of technology vs. the small business, there is a massive gap. Most small businesses hack together solutions for many of their problems with Microsoft Excel, pen and paper, or nothing at all.

Enter the Web

In Figure 1, I’ve depicted the universe of potential customers in the U.S., from the roughly 300 million consumers at the base of the pyramid to the 17,000 largest enterprises at the top. Large enterprise IT companies have been created by primarily selling to the largest customers. And large consumer web companies have been created by targeting a large percentage of the total population. Far fewer businesses have been created, at least in high technology, by serving the small- and medium-size business segment as they were hard to reach. But that’s all changing rapidly.

Figure 1:  The Customer Segment Pyramid

the customer segment pyramid

In a web-based software firm, there isn’t a significant marginal cost of research and development (R&D). Cost of goods sold are often very small (especially in software), and CAPEX on a unit amortized basis is trivial. The biggest marginal expenditure is cost of sales. If a company can figure out how to simplify sales delivery and service by leveraging a self-service model, it can reach a large market segment hungry for better products and services.

Using techniques perfected by consumer web companies, a generation of enterprise IT companies will emerge that deliver a vastly superior user experience to IT professionals and employees alike. Improvements in ease of use will liberate employs from terrible software, server-side software development will increase the pace of product improvements and lower support costs, and the self-service model will change the economics of enterprise IT sales forever. Google’s (s goog) success is as much about AdWords offering advertising services to the SMB segment as it is about serving consumers search services.

The dominant player in the SMB segment of the IT market today is Microsoft (s msft), as it’s been able to drive significant sales by riding Windows OEM agreements. If I were Microsoft, I would be more concerned about software-as-a-service solutions eroding my market share in the SMB segment than the threat of consumer web search, but I digress…

While the marginal cost of direct sales is very significant, the marginal cost of self-service looks more like the marginal cost of R&D — that is, very small.  With a low marginal cost of sales, the 99 percent of firms that are poorly served today will be served much better in the coming years. And over time, these solutions will likely work their way up the pyramid to penetrate the small group of very large firms that are currently being served by direct sales professionals. If you’re looking for opportunities to disrupt enterprise technology businesses, you would be well-served to start with the sales model.

Mike Speiser is a Managing Director at Sutter Hill Ventures. His thoughts on technology, economics and entrepreneurship will appear at this time every week.

54 Comments

jfg17

Nice. Working now. They are right. But makes the point.

Kevin Gallini

Effects of surprise relaese the answer of delivery and cost. To result the recieved are numbing reasoning of petty investigation of surprise and white enterprise. Bless. 6Characters.

Robert Rogers

Community building concepts and ideals will translated very well in the new global/technology based economy. Given the fact that companies have access to different markets in more progressive ways, businesses are well served in seeking to create online “communities” of service providers. By collaborating with similarly situated business owners in industries that are compatible to our own, these collectives of service providers can strengthen their market role. Technology facilitates that collaboration. Thanks for the research and information!

Internet Strategist @GrowMap

I was at IBM when they went from providing onsite CEs (Customer Engineers) for any water cooled mainframe account to deciding that even my accounts, several of which were paying in excess of $1 million a year just for the service contracts – not including hardware and software leases, new purchases or anything else – were not large enough to justify having enough technicians to properly support them.

Our collective priorities are skewed to worship money and profit. Focusing on supporting and recommending small businesses will create a much better world to live in and spread the wealth far more equitably.

Fred van den Bosch

Mike, your post touches on what is probably the most critical issue in enterprise software today: how to sell it profitably. Having analyzed a number of smaller (up to ~$100M/yr in revenue) enterprise software companies, it was interesting to find that it seems impossible for an enterprise software company to break even below $25M/yr in revenue, and most don’t break even until $50-100M/yr. As you mention, the high costs of sales and marketing are the dominant factor.

I’m not sure I quite understand the approach you are suggesting though. If I have a company with less than 500 employees, why do I even want to have a computer room and an IT staff and –consequently- why do I even want to think about enterprise software? I’m sure there are many SMB’s that still run their own servers today, but I’d venture to say that the future for SMB is SaaS, which will lead to the eventual disappearance of the enterprise software market for SMB’s (unless we equate SaaS to enterprise software).

Large enterprises will –at least for the foreseeable future- continue to be consumers of enterprise software and we indeed need a more efficient model of selling (and deploying) software to these companies. It seems that the suggestions you are making for the SMB market could (and should) be applied to the large enterprise market. More specifically, the usability of products should be such that the IT staff can download and test without technical assistance. If that is the case, the traditional “direct sales” approach (a sales rep and sales engineer visiting prospective customers to present the value proposition and work with them through long periods of intense testing), can evolve to a much more light touch approach that is lead by inside sales and requires on-site technical assistance or sales presence by exception only. The challenge is that enterprises have complex IT infrastructures, which means that it may take several iterations before a new software product reaches a point that it can be sold in this light-touch manner (Nick Mehta also points this out). During that time, a traditional direct sales approach still seems to be the only option, which may be the main reason building enterprise software companies tends to be expensive.

Mike Speiser

Nice to hear from you Fred.

I agree with you on SaaS 100% — I didn’t mean pre-packaged software when I used enterprise software. Server-side software allows you to continuously update, maintain one version for support purposes, collect analytics, and so on. I think we’re on the same page entirely.

Also agree with you on the fact that the large enterprise should offer dramatically better user experience (and ideally SaaS, too). I suspect that the willingness of large players to adapt their roadmap to the largest customers will mean that the move of SaaS up to the high-end enterprise may take longer — but that’s where it will end up.

And as both you and Nick know, sometimes you need hands-on folks to evangelize and iterate product development in the early days — my point is simply that, whenever possible, companies should do so not as a long-term sales model but rather as an “overlay” with the hopes of doing less and less direct selling.

This may not be true for the Fortune 500 or Global 2000 for certain IT purchases, but the SMB is just so poorly served today that there has got to be a ton of opportunity there…

Bob Walters

Hi, Mike.

Wow, another VC who ‘gets’ the SMB opportunity. Nice!

You join Jim Watson (CMEA) and Nate Redmond (Rustic Canyon) – our lead investors here at Untangle – in a small fraternity of SMB-clueful VC’s. Cool.

Here are a few amplifying points, based on our years of SMB-only selling:

1. It’s practically impossible to sell “rocket science” to SMB’s – they just ain’t interested. So you *must* sell what they need (e.g., security, backup, phones, bookkeeping, etc.).

2. We spent ~$10M getting a firm beachhead and brand within SMB IT. It can be done for less money, but only if you are blessed with a lot of time or a huge market tailwind (like the anti-spam wave that Barracuda rode a few years ago).

3. Ease-of-use is paramount; featuritus is death-by-1000-cuts.

4. We started in the channel, and have recently gone 100% web-direct. But there’s an important nuance here: we did not leave the channel behind. Rather, we migrated them to a custom web-direct, self-service experience.

5. Look for an unfair advantage wherever possible. Two of ours are a generous “freemium” offering (which is also open-source) and a pure-software strategy. For the latter, we white-label a solution that allows our channel to create/sell appliances.

6. For more details on these matters – and a graph showing what is possible in the SMB market, see my recent conversation on “The Open Road” blog on CNET.

Mike Speiser

Thanks Bob. Jim and Nate are both incredible investors, to thanks for including me in such great company.

Excellent points, all six. Will check out The Open Road. Thanks again for your thoughts.

Shankar Saikia

SALES MODEL OF ENTERPRISE VENDORS – DIFFICULT TO DISRUPT

Great post – I wanted to offer a differing opinion to the one in the last sentence: ” to disrupt enterprise technology businesses, you would be well-served to start with the sales model”

I worked for Oracle in sales both before and after (but not during!) the dot com bubble. Oracle became successful selling to the SMB primarily because of Oracle’s messaging such as “we have an integrated solution”, “our apps optimise the strength of the Oracle database”, “we have a complete suite, including modules that you will need as you grow”, “we have industry apps”, “we have gazillion developers” etc. Another reason Oracle is successful at selling is because Oracle sends the Oracle bus (i.e., 5 SCs, 2 industry VPs etc.). In comparison, a smaller ERP-vendor with a similar product but with a smaller salesforce is unable to compete against Oracle’s messaging and strength in numbers.

I would say that to disrupt the enterprise vendors, start on the product management side – have products that are simple, elegant, easy to use, more importantly easy to start with – eliminate the 6-month implementation cycle. Another point, get the customer started with basic capabilities and then upsell the higher end stuff. Make the products more like Google search, Twitter and the iPod and less like Oracle/SAP etc.

In the SMB space I would not compete head-on with the Oracle’s of the world on the sales side – I would attack them from the side using the product.

Mike Speiser

Agree 100% that a good SMB product starts with ease of use.

On the DB side, Oracle has done well at the high end of the SMB market. But doesn’t Microsoft dominate the SMB DB market (in terms of number of customers and number of servers) with Microsoft SQL Server?

Shankar Saikia

ENTERPRISE APPS & SMB (“MEAT & POTATOES”)

Mike, Since I am an apps guy, I do not have an answer to the DB issue that you raised – you may be right. I know that SQL*Server, MS’s DB, is cheaper and is probably more popular with the SMB.

On a related note I want to continue on this topic of selling enterprise apps to the SMB. I like your point about not getting too excited about the low-hanging fruit. In other words, it is NOT easy to sell to the SMB. At Oracle it used to take us a long time (over 6 months) to close an ERP deal to a $100 million revenue company. Having run my own little startup for the last 22 months, I can see why it takes a long time to decide to buy from a big vendor like ORCL – the SMB customer doubts whether ORCL will provide the type of support needed by an SMB.

I could discuss this and related topics for a long time. My general assessment is that an SMB (revenue less than $50 million) should buy a product that the SMB can implement/install without much consulting help. At present the companies I would recommend are Intuit (Quickbooks for very small businesses), NetSuite (for larger but still small SMBs), Microsoft (for the slightly larger SMBs).

The other point I want to make is that SMBs need to be trained on business best practices such as procurement, order management, accounting etc. Process is more important that product – but I am digressing from your main point – sorry.

Great to read about the meat and potatoes stuff which is what applications is!

vinnie mirchandani

great post – just last week I wrote a post comparing enterprise sw to the iPhone app store, and made the point that vendors primarily deliver what they think customers are using, not what the market should be telling them. You are making an even stronger point – the market is giving them strong signals the demand is elsewhere but most continue to build what they think large companies need

http://dealarchitect.typepad.com/deal_architect/2009/06/let-the-market-speak.html

Matthias

While I agree that the SMB market represents an interesting business, I am not sure if all-size-fits-one SaaS software will be enough to respond to more specific needs for integration and customization to specific workflows. I rather imagine a model where service providers offer individual SaaS solutions together with integration and customization services (in contrary to multi-tenancy web-apps) – powered by IaaS like Amazon EC2. You can find more thoughts on that model here.

Mike Speiser

What does SaaS equal one-size fits all more than pre-packed software? It seems to me that, properly executed, the opposite might be true. The Facebook platform, Twitter APIs, and the like seem to suggest that open enterprise SaaS could be more extensible than ever?

Sonal Maheshwari

A very good discussion on an evenly matched topic. In my view the complete meltdown in recent times is owing to dependency on top 500/1000 firms or fortune companies. Every business wants a contract from the top organizations. They may be a bit better in terms of dollars but in terms of constraints and policies they dictate terms. Targetting small and medium businesses is easier and still quite unexplored hence providing organizations with lots of opportunities. Small business is easier to deal with and signing a fewer simple contacts is far better then signing a highly dictated constrained contract. Serving SMBs/SMEs is easier as well and they remain loyal. There is no dearth of SMBs even in US alone, with the number quite higher then 10 million.

Sonal Maheshwari
USourceIT: Riskfree IT outsourcing/ sourcing partner for small and medium businesses

Mike Speiser

Very interesting perspective. I wonder if there is empirical evidence that supports the argument that diversity in many smaller businesses provides more resiliency than a small group of bigger businesses?

Sonal Maheshwari

@Mike

Being in business for long what I can say with my experience is, with big business units a small to medium sized service provider is never sure for how long the contract would remain with them as big organizations are always on lookout for getting the most competitive services and don’t bother about forming too much relationships i.e. in most of the cases or they make you dependent on them, although the contract may yield you better profit margins. Whereas with SMBs/SMEs it’s more of a relationship and working together rather then plain business sense. They look more to each other as partner so one can compromise with comparatively lesser compensation owing to stability in the business.

Sonal Maheshwari
USourceIT: Riskfree IT outsourcing/ sourcing partner for SMBs/SMEs

Nick Mehta

Excellent post, Mike. I think the other commenters covered it all, but I’ll add two points:

1. First, I’m excited by this change because it really does force you to focus more on usability, immediate value and quality product as a vendor. You don’t have sales reps, SEs, slideware and constrained demos to cover up your product’s shortcomings so it has to stand for itself (to some extent).

2. In contrast, however, I do wonder how this fits with products/markets that are in the “evangelism” phase versus ones that are well-understood. For example, most SMBs understand the need for things like email, phone systems, etc. and are simply evaluating alternatives. Therefore, the self-service model works quite well. But how about new categories where the market need isn’t understood – where it’s not obvious why an SMB has to have a product in the category. Will a self-service model really work? Or does the product value proposition have to be proven out elsewhere (e.g., in the larger companies) in a more hands-on fashion? I’m curious as to your thoughts on this.

Mike Speiser

Thank Nick. As a guy who knows this space well, I really appreciate your comments here.

I think you are right that self-service models may sometimes require a direct “overlay-like” sales organization for some time. But the idea is that the overlay goes away as the product hardens and the market adopts your product. Just as many large direct sales organizations cannot sell new products and require an overlay (like you had at VERITAS/SYMANTEC/KVS for some time), so too might product in their early stages.

On proving the model at large vs. small companies… The downside to “proving” the model in a big company is that you become beholden to that big company who then takes over your roadmap. I would be cautious on that front. Although I do understand the low-hanging fruit sure is tasty…

What do you think?

Dave Feldman

Timing is the key. Product Management must have a “Go to market vision and strategy” in conjunction with a product design.

A successful direct sales can cover up many R&D flaws by winning over early adopters before usability is “baked”. Further, R&D and Product Management should leverage their direct salesforce in terms of product/market feedback.

Interesting end of quarter reading.

George

Hi Mike –

Great post. It’s ironic that Ray Ozzie has been trying to push Microsoft in this direction since his Internet Services Disruption memo http://blogs.zdnet.com/web2explorer/?page_id=54 in 2005:

“Products must now embrace a “discover, learn, try, buy, recommend” cycle – sometimes with one of those phases being free, another ad-supported, and yet another being subscription-based. Grassroots adoption requires an end-to-end perspective related to product design. Products must be easily understood by the user upon trial, and useful out-of-the-box with little or no configuration or administrative intervention.”

Your insight that SaaS is a bigger threat to MSFT’s core strength in SMB than search is pretty powerful. I guess the real test will be if they can successfuly sell and operate via Azure all the products in the server and tools business.

Mike Speiser

Thanks George. Great link.

Disruptions often start at the low end of the market and move up. Much easier to move up market rather than the other way around… It’s clear that stuff from the SMB world will move up. I wonder how much of the stuff from the consumer market will move [directly] to the SMB segment, though? Or are consumer and enterprise two separate beasts entirely?

Adam Vincent Gilmer

In my opinion you are correct, small to medium sized business are key to growth and new brands and business development. Recent history and the study of products in the marketplace over the last 2-5 years have shown merchandisers must keep up with old and new generations. Moving forward this will also be expected.

Just because we have high touch technology doesn’t mean smaller categories. In fact new items/products and existing brands have to adapt to the market change. (The 8020 Rule operating in various areas of business like you pointed out in your article). This allows new startups with ideas and big business to come together creating opportunities.

A new breed of gazelle companies challenging the older dinosaur way of thinking. Statistics show more and more people are working from home with mobile phone. Only 10 years consumers were timid about using their credit cards to purchase form a site. Today it’s the norm. The “Star Trek” generation of yesteryears meets the “Matrix” and Neo is living in “Back to the future”.

Adam Vincent Gilmer

Mike Speiser

Great pints Adam. It sure does seem like the web, VOIP, mobile, and the like will lead to many more people working from home. I wonder if that will translate into more small businesses accounting for a larger percentage of aggregate private sector revenue though? I suspect it will, but I don’t have any hard data to support that point…

Ernest Nova

The technology products that could be sold this way should match the technology needs of the targeted firms. It would be useful to do a gap analysis of the opportunity.

If I carry your back of the envelope calculations further – it implies the average revenue of the US small firm is about $1M and that would imply 15-20 employees (even less in Silicon Valley).

A firm like this has likely already cloud-sourced low hanging fruits like email,communications and ecommerce web hosting. It is probably using a payroll provider or a PEO, outsourcing its core HR needs. It has a lawyer on retainer or on a a needed basis and a part-time book keeper using QuickBooks (by the way, Intuit is the other large SMB player). If it is manufacturing, it is relying on the ERP resources of its manufacturing partner and using a drop-shipper for product fulfillment.

The opportunity may be in creating software that helps providers and vendors to the SMB, rather than the SMB directly.

Mike Speiser

Very good points Ernest. And you are right that the core of Intuit is the SMB-focused QuickBooks. I should have noted that.

Gadget Sleuth

It’s what i’ve thought all along…targeting small businesses is easier, less expensive, and they tend to be more loyal to a company or provider as well.

Mike Speiser

Certainly from a marginal cost perspective. The only issue is that it’s easier to call a few buddies and get a few big checks at the start of a company. Which is why I think so many people take the low hanging fruit rather than make the long-term strategic decision to build a scaleable alternative…

Sam

THIS is the main challenge – reaching out and converting the hundreds of thousands of SMBs cost effectively vs the few hundred enterprises. While self-service implementation works, self-service purchase of complex offerings is definitely not there yet. You still have to have a direct sales force to asnwer their questions, establish the fit, share the ROI and close the deal. The self-service sales model works for simple ‘point’ tools nto for complex offerings – even though they cost less than $100/seat. The potential in SMB market is big but winning from it is hard.

Kent England

I work in the K-12 education sector now, but before the telecom bubble burst, I was an engineer in the telecom equipment sector and this article struck a chord with me. From my telecom experience, I know the author’s point of view regarding the Fortune 500 is accurate and I trust his view of SMB self-serve.

My question is this: “Could this work in the state-county based K-12 educational sector?” Each K-12 district is pretty “small” by Fortune 500 standards, but the system is bound-up (at least in CA) by state law and Federal mandates.

Is it worth thinking about K-12 as small business and trying to apply these principles to this market? Heaven knows, with budgets the way they are, anything to save money while improving service would be wonderful.

Mike Speiser

Wow, telecom equipment providers were at the tip of the 80-20 rule spear — rather than the Global 2000 you probably had a market with 10’s of customers. And I’m sure they wrote huge checks…until they didn’t.

Very interesting points with respect to K-12. I’m not familiar enough with the education market. Would love to hear from others who know more about the market?

Peter Sisson

Mike, this is one of the most well though-out and interesting posts I’ve seen on gigaom – and that’s high praise considering how great this blog is. You are absolutely right. Walk into most VC’s offices and say you want to target small business, particularly SOHO, and all you get back is some horror story about some company in their porfolio that tried to target SOHO in the past and failed miserably. But what they don’t understand is that things have changed now.

We are right in the thick of this with Toktumi, which offers a suite of cummunications services to small business for very little money – $14.95 for hosted PBX with mobile phone integration, another $6.95 for desktop share, and another $9.95 for fax. Less than $30 bucks a month yet if you try to purchase those items separately,well you’ve got eFax $19.95, webex is $59.95, and most hosted PBXs start at $24.95 and up for unlimited calling.

So how can we survive offering such low prices, to such small companies? Because the cost of acquiring customers when you offer SaaS services has simply plummeted. I can’t reveal our precise numbers, but I can tell you that even at our prices, our gross margins pay back the cost of acquiring a paid suscription for one line in less than 6 months. If the customer gets more than one line, or adds fax or desktop share, it can be in less than 60 days.

So what has changed?

-As you point out, self-service models are key. The key to making this work is to finesse simplicity and ease of use. UI really matters here. Toktumi customers can set up new phone lines in just a few minutes, and although we offer live customer support, seldom need it.

-Customers are more familiar with online-services and now have the skills to do most of what is needed themselves, without IT support. Can you imagine the first reaction of the airline industry to customers actually booking their own tickets and picking their own seats via the Internet?

-Broadband penetration has made the responsiveness and capabilities of hosted SaaS applications viable on a broad scale for the first time.

-The number of people working out of their homes or on the road in “virtual office” environments is growing dramatically as the power of smartphones and ubiquitous wifi let people set up office anywhere. We call this new segment VOHO.

-Google adwords, referral programs, affiliate programs, and word of mouth are the dirvers of growth for acquiring customers targeting these markets. These types of programs are easier to set up and manage than ever before, and the metrics allowing them to be optimized to perfection are available for free.

IMHO, this is the perfect storm. Shunned for years by investors because they couldnt make the economics targeing small business work, now they do, and I believe you’ll see explosive growth of companies targeting these types of customers. We’ve certainly seen it for Toktumi.

Mike Speiser

Thank you for the nice comments and for adding so much to the content of the post. Can’t wait to see what you all do with Toktumi. Good luck and I hope we’re both right that things are about to get a lot better for SMB customers.

Girish Bhat

There is this old school of thinking (from shrinkwrap S/W days) that to reach SMBs it will cost $15-$25M.
Accordingly, teams adopt the Fortune500 mantra, hire a preoven sales guys, get disillusioned when sales do not materialize…

Mike Speiser

Love it. And when the “proven” sales guy fails, I guess you assume that it’s not the product or the strategy by him, so you fire him and find another ;-)

pwb

I think chasing the Fortune 100/500/1000/2000/etc is highly responsible for so much failure. Few can resist the allure of big dollar contracts. But ultimately, these are not great customers. The small/mid market is where it’s at. It should be noted that Google AdWords was first and foremost an advertising outlet for the “small guy”.

Mike Speiser

I agree with you 100%. The low hanging fruit is so tempting, but you may want to think twice before taking a bite of that apple ;–)

Rick

Seems like the debate you’re getting at is 80/20 Rule vs. The Long Tail. Owning the SMB hill seems to have worked for Microsoft!

However, I don’t know if the issue is easy to address. Targeting F1000 companies seems to be an addiction where I work in Silicon Valley. My employer boasts that their software is used by 100% of the F100 and damn-near all of the F1000, but in terms of corporate culture, they just don’t get SMB, much less the consumer market. Granted, they are an IT infrastructure company, but Microsoft has managed to do in 2 years (with a crappy product) what we couldn’t accomplish in a decade: create widespread awareness around virtualization while clearly articulating the value proposition to small businesses. Oops, I guess I just sort of gave away the name of my employer.

Mike Speiser

While Microsoft may not be great at understanding the needs of the SMB, the average Silicon Valley enterprise IT company is far worse. The problem is that the biggest customers ask for a command line interface (using a GUI is for wimps), advanced management tools, and a bunch of high-end features. The SMB often has limited IT help and is more than happy to use a GUI, has limited needs for advanced management tools, and would prefer simple too feature-rich. It’s hard to have two masters…

Having said that, I’m with you. Which is why I think there is real opportunity to go after the SMB segment — they have been so poorly served and the cost of serving them is lower than ever.

Rick

I totally agree with your comment in re: SV companies being bad at serving SMB needs, I actually think Microsoft is pretty good at it in part because they avoid the traps you mention (CLIs, expensive features, etc.). My employer (VMW), on the other hand, is guilty of these sins to the nth degree.

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