Suddenly, Microsoft cares. If you run a small business, this may be just what you've been waiting for.
Many companies talk about getting close to the customer, but Microsoft pushed this idea to the extreme when it hired Nelle Steele to show up at 5 in the morning at the Milwaukee home of Tim Tucker. The owner of Air Engineering Inc., a supplier of industrial air compressor parts, is Microsoft's model customer. Steele's mission was to observe Tucker at close range, arriving as soon as he stepped out of the shower, then shadowing him until his workday ended at 10:30 p.m. Steele, a cultural anthropology Ph.D. student on leave from the University of Wisconsin, is one of five anthropologist-ethnographers (and the only one focused on entrepreneurs) that Microsoft hired full-time to conduct a field study. Called "Dawn to Dusk," the study documents the work habits and thought processes of a species the software behemoth had never before tried to understand: owners and employees of small businesses.
In tailing her quarry, Steele discovered, to her surprise, that small companies kept vital information in disconnected places -- what she called "data silos" -- from scribbled notes on scraps of paper to files on a PC that could be accessed by only one employee. This made it harrowing to try to answer basic questions like, "How did we do in the Northeast last quarter?" "I saw the pain that data silos caused day to day," says Steele.
Her work is part of Microsoft's $2 billion research and development effort aimed at convincing these tribes of technological primitives to join the modern world. While most of that is earmarked to improve products, a lot of it is going to spreading the word. That's in addition to two recent acquisitions -- Great Plains and Navision business management software at another $2.4 billion -- to enhance its offerings for small business. Even for Microsoft, with $50 billion in cash in the bank, that's a major investment. Microsoft has started trying to care about these customers. Why us, you might ask, and why now? Partly it's because "enterprise" customers, those that have more than 1,000 employees and 500 PCs, aren't spending on tech the way they used to. So the industry's top names, including IBM, Hewlett-Packard, and Dell, have started going after the littler fish. Even among this crowd, though, Microsoft's push into small business is remarkably fervent and richly funded -- and for a good reason: competition. There are two parts to the story that follows: the first is the challenge Microsoft faces and the criticism it has endured in the past. The second is what Microsoft is doing -- with a degree of success -- about both.
Microsoft's push into small business is remarkably fervent and richly funded -- and for a good reason: competition.
Today, 90% of small and midsize businesses run on the Microsoft platform, says Mika Krammer, an analyst at Gartner, a research firm. That's a stranglehold on this enormous market of 8 million companies in the U.S. and 40 million worldwide. Globally, these companies pay almost as much for info tech -- $400 billion a year -- as America spends on defense. But despite its long history of dominance, Microsoft faces a looming threat from Linux and the insurgent open-source "free software" movement. Linux could do what the Justice Department couldn't: end the era of Microsoft's near monopoly and strip a sizable chunk of its sales and profits in the coming decade. Many industry analysts and media critics think that Linux is more secure and reliable than Windows, a prime target for hackers. Entrepreneurs have been paying close attention to the debate. Two of their biggest role models -- Amazon and Google -- now rely on Linux to run their websites. At a Yankee Group conference in San Francisco in March, small-business owners commiserated with one another about Microsoft's disappointing customer support and their dislike of paying licensing and upgrade fees. They griped about how Microsoft's new releases often seemed more like beta software -- test versions with plenty of kinks -- than reliable finished products, and they bemoaned the software's vulnerability to viruses and the constant need for patches.
With mighty IBM putting its clout behind Linux, some small businesses are starting to convert, often with impressive results. Satellite Records, a 35-employee music retailer in New York City, made the switch after IT director Steve Shapero found Microsoft's software simply too high-maintenance. "It's like American cars and Japanese cars," says Shapero. "Do you want a Chevy Impala or a Honda Accord? It's great that Detroit and Microsoft are finally making things that don't suck, but we'd rather have the state of the art." Shapero said that Microsoft server software would require a full-time person to keep it running, which the company didn't want. "As an independent consultant I like to set up a Linux box, deploy it, and ideally never hear from my client again," he says. Other customers were motivated by cost savings from not having licensing fees. Westport Rivers Winery, a 20-person family business in Westport, Mass., cut its annual tech budget by 60% with Linux, according to an IBM case study. Rob Meyer, Internet director for Anaconda Sports, a 200-person sporting goods distributor in Lake Katrine, N.Y., says it saves around $3,000 a year on licensing fees now.
What's more, small-business owners still feel a residue of fear from Microsoft's long history of abusing power in its quest for total dominance. They remember how the company tried to hijack their websites in 2001 with SmartTags, an aborted Windows feature that would have turned many of their own words into links to Microsoft's sites and advertisers' without asking their consent. And they read about Microsoft's vendetta against guitar-string maker Ernie Ball, based in San Luis Obispo, Calif. Four years ago, the founder's son and CEO, Sterling Ball, was a victim of a "nail your boss" campaign by the Business Software Alliance, a trade group that Microsoft co-founded. BSA raided the operation and found that a few of its 80 computers had unpaid copies of Microsoft products. Ball said it was an accident, a case of unused programs left over on old PCs when they were passed from engineers to clerks. But he still had to pay $90,000 in fines and legal fees. Microsoft sent the news clips to other small companies as a threat.
Since switching to Linux, Ball has saved more money than he lost in the contretemps. "The money that I'm not spending on new versions of Office and on fighting viruses is going into marketing and R&D," he says.
Now that it fully grasps the Linux threat, Microsoft isn't being so heavy-handed with small businesses. Instead, the company is trying shrewdly to make its own claims of parity or superiority. Executives dispute Linux's claims of better security and reliability and point out that "free software" isn't actually free because you need to hire people to install, maintain, and customize it. (That's how rivals, particularly IBM, are looking to profit.) Still, Linux is "a real threat, and we take it seriously," says Darren Huston, the Microsoft vice president who leads U.S. initiatives for small and midsize businesses.
