The stakes are stunningly high -- a $400 billion-a-year global market! -- and this is going to be an epic battle waged over a long time. Krammer says that Microsoft will continue to dominate that market for several years because smaller customers are often slow to switch to new software and most buyers won't really consider Linux until it becomes more mainstream. Besides, there aren't yet many business programs based on Linux, and those that are available, such as Sun's StarOffice, aren't as good as Microsoft's offerings.
Microsoft remains vulnerable, however, because small-business owners resent being captive to such a powerful force and not having viable choices. A January Yankee Group survey of companies with fewer than 500 employees found that 43% of them are concerned about becoming overly reliant on Microsoft's products and services; of those respondents, 72% were actively seeking alternative vendors. "Microsoft's challenge," says Krammer, "is to go from being a necessary evil to something that small businesses like to invest in."
Improvements are being made, but there is always room for more. In April Microsoft launched a revamped and much easier-to-use Web portal at www.microsoft.com/smallbusiness. Still, you might have to wait half an hour when calling customer service. Even more frustrating is how Microsoft keeps smaller customers at arm's length by forcing them to work through intermediaries -- local consultants who sell Microsoft's software, set it up, show buyers how to use it, or write their own software to work with it. There are some 325,000 of these folks, who go by awkward acronyms and names such as "VARs" (value-added resellers), "ISVs" (independent software vendors), and "certified partners" (individuals who have passed training courses run by Microsoft).
Small businesses hook up with these "partners" mainly through word of mouth, but if you're an entrepreneur with little tech savvy, it's hard to know whether your accountant's sister-in-law or your lawyer's fraternity brother is the best person to apply software to the challenges of your business. To help, Microsoft's newly redesigned Web page has a "partner finder" to identify local consultants and their areas of training and expertise.
The cottage industry of Microsoft's partners is getting some big new players. Both HP and Dell are starting to hawk their consulting services to businesses with fewer than 500 employees. IBM is reaching out to entrepreneurs too, but rarely dips below the 500- to 1,000-employee range. While all three companies embrace Linux, they also promote Microsoft's products as part of their overall packages for clients.
Although finding the right partner and setting up a new software system can be stressful, there's a compelling reason for sticking it out: Microsoft now offers many extremely useful products for small and midsize businesses.
Microsoft divides this huge market into two parts: The 7.5 million "small" businesses with fewer than 50 employees, with no more than 25 PCs and with a maximum of $5 million in annual revenue. The 330,000 "midmarket" companies with fewer than 1,000 employees have up to 500 PCs and up to $500 million in revenue.
The smallest businesses probably don't have a PC network or even a professional info-tech employee. These start-ups can benefit from Small Business Center (formerly bCentral), a set of Web-based services hosted by Microsoft on its own computers. The pitch is that it's like hiring Microsoft to be your info-tech department for a monthly or annual rental fee, usually after a 30-day free trial. First developed in 1999, the services -- aimed at businesses with fewer than 25 employees -- have quickly become popular, attracting more than 2 million users in the U.S., Microsoft says.
One of them is Jack Marshall, president of Pastry Chef Central in Boca Raton, Fla. His small family business sells baking and pastry tools through pastrychef.com. "It's supercheap," Marshall says of Microsoft's "shopping-cart" services, which cost only $249 a year (excluding credit card verification fees, which are billed by a third-party partner). "You can't beat it." And even though Microsoft can't give the little guy all the powerful features of an Amazon, "they're moving toward that," he says. Marshall particularly likes the new "order status link" that sends e-mail purchase confirmations to customers with Web links so they can check on delivery without having to contact the company: "That's been a fabulous timesaver for us." Besides time, there's the money: Microsoft says that the top 100 customers for Small Business Center's e-commerce service averaged $43,000 in revenue last December.
Small Business Center also offers ListBuilder, which enables companies to send mass e-mails to customers to let them know about sales or other news. Microsoft handles the mailing, then tracks who opened the messages and were inspired to visit the sender's website. The cost: $29.95 a month or $299 a year. Microsoft surveyed 100 ListBuilder clients and found that businesses sent e-mails to an average of 30,000 customers, though some had amassed lists of more than 100,000 names. (Microsoft says it does not keep e-mail addresses for its own use.)
One of Microsoft's most useful hosted Web services is SharePoint, which allows colleagues to share information and collaborate with one another and their customers. SharePoint is sadly underused by small businesses, but it's a smart idea. In a Microsoft case study, Jeff Williams, president and owner of Carolina's Choice, a furniture manufacturer in Rocky Mount, N.C., says SharePoint allowed his company to make up-to-date sales information available 24 hours a day to a network of 700 furniture dealers (the cost: $19.95 introductory price, then $39.95 monthly).
As fledgling companies grow, Microsoft wants to wean them from paying monthly rental fees to investing in licensed software installed on PCs (which is how Microsoft has always made most of its money). The staple of the desktop PC has long been Microsoft Office (Word, Excel, Outlook, and PowerPoint), which boasts 400 million users worldwide. "Everyone I hire out of college can use it," says Eric Meslow, president of Timbercon, a 30-person, $4.5 million fiber optics manufacturer in Portland, Oreg. That gives Microsoft a big advantage over Linux, which often requires training.
The latest twist: Last October, Microsoft introduced Office Small Business Edition 2003, which lists for $449, while earlier Office users can pay an upgrade price of $279. The prices are up to $50 higher than the standard version, but Microsoft throws in two compelling programs. First, Business Contact Manager consolidates all the information you have about a customer, a dramatic improvement over the haphazard data silos discovered by Nelle Steele that could spell lost leads or missed sales opportunities. The program can identify long-neglected sales accounts or alert you to what's coming up in the pipeline in the next seven days. Timbercon's Meslow says that before his salespeople had this "sales funnel" feature, it took them an hour a day to monitor their accounts. Now it takes "about two minutes," he says. Meslow figures that saves a total of 20 hours a month for his typical salesperson, who generates an average of $150 to $200 an hour.
