VARs Under the Influence?
Your technology adviser has a new best friend. Its name is Microsoft
October 28, 1997, was a big day for Bill Gates. His age went up one year, to 42. The value of his Microsoft holdings went down $1.76 billion, the result of a precipitous stock-market dive. And with un-Microsoftian subtlety, he kicked off a campaign to capture a long-sought-after quarry: the small-business owner.
From his sprawling campus in Redmond, Wash., Gates spoke to a crowd of small-business attendees who had trickled into a dimly lighted, cavernous room in a Washington, D.C., convention center. A satellite hookup beamed the tycoon's trademark smirk and Master of the Universe aplomb onto three gigantic wall-mounted monitors. It was as though Big Brother himself had come to address the technologically unwashed.
Gates's message was familiar: Customers-want-everything-faster-and- you'd-better-get-on-the-Net-before-the-competition-eats-your-lunch. But this time it was anchoring Small Business Crossings, a one-day event that Microsoft Corp. recently took to 13 cities in four months. With nearly every Fortune 1000 desktop awash in Microsoft products, Crossings is part of Gates's sharpened focus on the millions of small companies that have yet to purchase the latest version of, well, everything. "The small-business market is probably the largest for computer software, and we haven't really cracked it," says Paul Bazley, general manager of small-business marketing for Microsoft.
As Microsoft campaigns go, Crossings is pretty quiet; compared with media events like the launch of Windows 95, it's practically a whisper. And if you happen to miss the festivities when Crossings rolls through your town, you might never notice that Gates has mobilized a massive effort to grab the lion's share of your technology budget. That's because Microsoft's latest strategy, for the most part, isn't directed at you. Rather, it targets the people and organizations that you depend on most for technology advice--what to buy, and when.
"You're never going to sell directly to small companies," says Bob Kazarian, Ph.D., president of Charles River Strategies Inc., a consulting and research firm in Wellesley, Mass. Consequently, Microsoft is attempting a more circuitous route. Last August, it launched a multimillion-dollar campaign to reach 150,000 small-business technology consultants, systems integrators, Internet service providers, value-added resellers (VARs), and training firms (what Microsoft has dubbed "value-add" providers, or VAPs). The bait: a level of support and training so unprecedented that it becomes difficult not to sell Microsoft products.
On the face of it, Microsoft's new strategy looks like a good thing for everyone. Microsoft increases sales. Resellers and consultants increase their expertise. And small-company owners get newly thought-out software and services that are more closely tailored to their needs.
But there's also a risk. "Few others can reach as deep into the channel as Microsoft," says Kazarian. That means whatever competition remains among software companies looking for a piece of the small-business market may end up being choked off. "Smaller players often have very limited shelf space, speaking both literally and figuratively," says John Carpenter, director of research for Channel Information Services Research and Consulting, in Waltham, Mass., an independently owned business unit of CMP Media Inc. "If Microsoft penetrates them, it naturally leaves less room for Corel, Novell, and others."
There's also the danger that small-business owners, unaware of Microsoft's largesse, may misread their advisers' growing enthusiasm for Microsoft products. For that reason, it becomes important that they make sure those advisers are offering them the best solutions for their particular business needs. "Now, more than ever, small companies must apply the same reviews to their technology partners that they would to any other partner," warns Heather Clancy, editor of Computer Reseller News, a CMP Media publication based in Jericho, N.Y.
The new strategy is not, by any means, Microsoft's first attempt at storming this market. For years, the company has fired advertisements, direct mailers, and specialized products at small-business owners. Two years ago, it established the Small Business Council, an assembly of business leaders who provided technology information to the company's small-business customers. Then there was Microsoft's small-business Web site and America at Work, a series of videos aimed at small companies.
But apparently those initiatives weren't enough. Microsoft's internal figures show that, despite all its efforts, its typical small-business customer spends about half as much per PC on Microsoft products as do large corporate clients. And while the company owns more than 80% of the office-suite market, Microsoft figures that there's still a wide-open opportunity to sell office-suite software to small businesses. (According to Microsoft figures, only about 30% to 40% of small companies purchase any office-suite software from any manufacturer.)
About a year ago, Steve Ballmer, executive vice-president for sales and support and the second-best-known Microsofter, took a good look at the company's small-business efforts and decided they weren't cutting it. Out went the Small Business Council. And in came a whole new marketing approach.
It's an approach custom-made to reach the likes of Dottie Hall, who, with her husband, Vern Raburn, runs the Constellation Group Inc., in Scottsdale, Ariz. The eight-person company has two very different lines of business: selling marketing advice to software companies and exhibiting a vintage aircraft that the couple purchased 11 years ago from actor John Travolta.
Hall's attitude is typical of that held by many small-company owners. Even though she more or less lives in the software industry, she concedes that when it comes to buying equipment for her own business, "I know I should read more about technology, but I simply don't have the time to personally review the capabilities of every product."
When Hall's company needs new software, she doesn't pore over computer trade magazines or conduct her own product tests. Instead, she calls Tony Wainwright, who, with his son Andrew, co-owns ExecuTek Inc., a five-person reseller in the Phoenix area.
Last year, for example, Hall hired ExecuTek to upgrade Constellation Group's network with Windows NT. "I had a gut sense of what direction I wanted to go in," says Hall. "If ExecuTek had said that I would be better off with something else, I would have listened."
And so would the majority of her small-business counterparts. Consulting firms and resellers--the primary channels through which software companies distribute their products--hold mighty sway over their customers' purchasing decisions, according to a 1996 study conducted for Channel Information Services by Dataquest Inc., a computer-industry market-research firm in San Jose, Calif. Slightly more than two-thirds of people who had made a purchase in the previous 12 months reported that they received product recommendations from their resellers. And 93% of all those surveyed said that when they were offered recommendations, they took them. "The only cost-effective way to reach small business is through the channel," says Charles Humphrey, vice-president of channel programs for the Channel Group of CMP Media. "Therefore any technology company with strong brand and tech relationships with the channel is going to have an advantage."
Those who install complex systems and sell software know just how powerful a few words of advice can be. "It's the brother-in-law network, and it's very much alive in the small-business market," says one VAR, who preferred to remain anonymous. "Once a small-business owner gets advice from a trusted adviser, it's very hard to break them free from the recommendation, even when it might be wrong," he says. His assessment: Microsoft is wise to hit up the smallest players in the channel, because those resellers and consultants don't get much attention from vendors and are most likely to sell products they are familiar with.
Microsoft's chief instrument for providing that attention is Direct Access, an outreach and support program tailored just for the firms that are part of its VAP network. The program offers these small resellers products and information quickly, easily, and--most important--cheaply. For $295, a reseller can purchase the Direct Access Action Pack, which comes with a slew of products, including BackOffice 2.5 with Windows NT Server 4.0 and a special version of Microsoft Office 97.
Direct Access is already making an impact. "There's no question that this has helped me sell more Microsoft products," says William Gray, owner of Image Projections, a two-person reseller located in Houston. "I just don't get the same level of support from Novell."
Software resellers like Gray aren't the only ones who get the attention of small business. Microsoft has found, for example, that accountants are among the most trusted advisers for small-company owners. "We want to leverage the influence they have with their small-business customers," says Cory Linton, professional services marketing manager for Microsoft. So last June, the company and the American Institute of Certified Public Accountants (AICPA) cosponsored the Technology Advisor Program (TAP), a training initiative. While Microsoft is not the only software vendor involved with the program, it has used TAP as an opportunity to offer AICPA's 331,000 members a special version of the Direct Access Action Pack.
Of course, Corel, Novell, and other Microsoft competitors are also beefing up their marketing efforts and tweaking products in the hopes of wooing small-business owners. They, too, see the small-technology provider as the linchpin in this market, but when it comes to reaching down to the smallest VARs, their arms are shorter than Microsoft's. "We need better recommendations from the consultant and small resellers," admits John Bodine, product marketing manager for Corel's WordPerfect line, located in Ottawa, Ontario. "But we just can't match Microsoft's efforts dollar for dollar."
While some eye Microsoft's incursions with dismay, others remain skeptical of their impact. "Microsoft might have the cash to enter, but even Microsoft will only lose so much money," says Jeffrey Tarter, editor and publisher of Softletter, a software-industry newsletter based in Watertown, Mass. And he thinks Microsoft's products simply won't resonate in the market. "Now they're in a high-cost channel with the wrong applications, so I'm suspicious about how long they'll stay committed to it."
Tarter believes that, although Microsoft may have figured out what distributors want and need, it will ultimately fail because it still doesn't understand the customer. "I think they are still pretty clueless about what small business does with computers," he says. "Most small-company owners are highly focused on one task, such as a point-of-sale system or payroll application," and for that reason they will never be large consumers of products like office suites.
Microsoft, of course, sees it differently. The company has always followed the flow of PCs, says Nigel Burton, director of small-business marketing, and last year almost half of all PCs sold flowed into small businesses. "We plan to stay in this market unless small companies decide they don't want computers anymore," says Burton. "We have hundreds of people writing small-business applications, and we'll continue listening to customers to get the right products out there."
Microsoft's two latest "right products" are BackOffice Small Business Server, an easy-to-use version of Windows NT for companies with 25 or fewer networked computers, and the Small Business Edition of its popular Microsoft Office application suite.
Whether or not Microsoft will choose to linger in the channel, small-company owners should take note that the computer giant is there, doing everything possible to proselytize their trusted technology advisers and make it easier for them to do business. With the formation of every new VAP, with every Direct Access newsletter, with every accountant who attends Microsoft night school, Bill Gates extends his influence just a bit farther than the competition can reach.
Microsoft might have the perfect technology for your fast-growing company. Then again, it might not. Trouble is, it's getting harder to test either possibility.
Joshua Macht is an associate editor at Inc.