As Yahoo, Google, etc. cater to elusive small businesses, Microsoft's hand could be forced

As Yahoo, Google, etc. cater to elusive small businesses, Microsoft's hand could be forced

Summary: Small businesses and consumers may not know it, but they wield an awful lot of power in technology markets. Worldwide, they probably represent as much if not more revenue potential than larger businesses and corporations.

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TOPICS: Microsoft
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Small businesses and consumers may not know it, but they wield an awful lot of power in technology markets. Worldwide, they probably represent as much if not more revenue potential than larger businesses and corporations. Not only do their sheer numbers make them a force to be reckoned with, the discretionary nature of spending that takes place within them means they are very highly coveted.  Most small businesses for example, (let alone individuals), don't have to go through any red tape when it comes time to buying new technology. Within moments of recognizing a need, the purchase is sometimes over. For these reasons, where ever small businesses have gone, the big businesses who covet them have followed in hopes of intercepting that demand.

To just about any Internet-based solution provider looking to serve them, the small business technology market has been difficult to unlock. I know this because, dating back to the late 1990s, we here at ZDNet had several initiatives underway that were designed to win the loyalty of small businesses. We experimented with everything from content specifically geared to small buinesses (eg: reviews of PCs designed for the small business market) to services such as Web and e-mail hosting. Because we had a large audience, we also negotiated with the providers of other small business-targeted Web-based services (ones that we had no plans to offer on our own) like American Express to integrate them into our site. Everyone knew that the one company that came up with the magic formula, if it was out there, would score a major home run. But, for the most part, everyone was striking out. Small businesses are a finicky elusive bunch. 

But today, in 2006, things are a bit different than they were in the late 90s. Most small businesses, some of which are owned or managed by 20-somethings that grew up on technology, are aware of how Internet-based services can make them more successful.  For example, while most people associate eBay with on-line auctions, there are thousands of small businesses out there that think "electronic storefront" (particularly given the transactional capability of eBay's PayPal service). Today, in a story headlined Yahoo to simplify e-biz for small companies, IDG News Service's Juan Carlos Perez reports:

Yahoo will revamp its e-commerce hosting platform to make it easier for small businesses to open and manage online stores. On Monday, Yahoo plans to unveil the first stage of the project by introducing two new "wizards" for designing stores and adding inventory information.

The automated guides feature intuitive interfaces, templates, layouts and menus that hide programming complexity from users, a Yahoo official said.

In addition, the stores built with the wizards are automatically optimized for search engine spiders, said Jimmy Duvall, director of e-commerce products for the Yahoo Small Business unit.

Yahoo plans to extend this initiative, which it calls Open for Business, to areas like online payment and shipping in early 2007.

Online payment? eBay is in the game. So too is Google with Google Checkout. Now, it looks like Yahoo is entering. As more and more small business people and entrepreneurs turn to the Internet to take the friction out of revenue generation, more new and interesting solutions are springing up to serve them. One of my personal favorites is Goodstorm. I first met the folks from Goodstorm at Mashup Camp (they were attendees) and found the primary selling proposition -- if it's truly possible -- to be so compelling to entrepreneurs that I hand-picked them to participate (at no cost to them) as co-hosts at the upcoming Startup Camp (Nov 2, 3 at the Computer History Museum in Mountain View, CA). What's the promise of Goodstorm's MeCommerce service? To earn business owners 50 percent profit on every sale: a profit margin that's unheard of in most business circles.

But, if you ask me, the most disruptive force in the small business market and one that Microsoft is going to have a tough time dealing with is the onslaught of online solutions to problems that Microsoft typically sells shrink-wrapped software for. This was one subject of discussion during the last Dan & David show, particularly now that Google is pulling together a Web-based productivity suite that appears pre-wired to deal with the offline problem that's viewed as the key barrier to adoption for browser-based software. At first, Dan and I debated the chances of success for the new crop of Web-based office suite from Google and others with Dan feeling that the full-fledged functionality of Microsoft Office was a key deterrent to anybody considering the move to a far less functional offering. 

But I didn't believe that correctly sized-up the motivations and collective purchasing power of the incredibly lucrative small and medium business market that is poised, if you ask me, to slip right through Microsoft's fingers. I argued that we could talk about functionality all we want, but that, at the end of the day, to SMBs, cost counts. At the end of the day, to a small business, what's the difference between more profits or additional savings?  Ultimately, both drive the bottom line in the right direction. 

Much the same way Goodstorm's promise of 50 percent profits could cause small businesspeople to stop dead in the tracks for a second look, it won't be long before the increasingly Internet-saavy small business market begins to recognize the potential impact of offerings like "GooFice" on their bottom line.  And that impact isn't just based on software cost (I know a lot of small business people that would rather not shell out hundreds of dollars for productivity software), but simplicity too. In other words, most would be willing to trade in some bells and whistles for something similar if it meant increased savings as well as fewer headaches.

On the headache front, the example I routinely haul out is the one that I personally experienced earlier this year when salesforce.com upgraded to it's Summer '06 edition. With salesforce.com,  as would be the case with any purely browser-based offering, "installing" an upgrade involves nothing more than pressing the refresh button on your button. One second you were on the old version. The next, you're on the new. Cost? One second of your time. Compared to the headaches and potential cost of maintaining locally hosted software, browser-based solutions will on very short-order become a no-brainer for many small businesses. One headache I won't even go into, but that's significant, is the security one. The more your application infrastructure is browser-based, the less you have to worry about anti-malware administration which, with the zero-day exploits coming out these days, is a great headache not to have. For example, if you're using salesforce.com, almost no effort goes into securing it. 

Once small businesses begin to discover more and more bottom-line friendly browser-based solutions that get the job done, it could begin to impact their thinking about overly functional operating systems and hardware. To put it simply, you don't need a $3,000 notebook nor do you need Windows Vista to unlock the power of salesforce.com, GooFice, or other browser-based solutions.

That's not to say that there aren't plenty of us out there that wouldn't want both (the notebook and Vista) for other reasons. But, between the collective bargaining power of the small business market and its importance in the bigger picture to Microsoft and other solution providers, something has to give. For example, try holding Microsoft's retail price list for the various editions of Office (the least expensive for small businesses is $399) up against free. At Gartner Symposium/ITxpo, Microsoft CEO Steve Ballmer talked about how his company has successfully been dealing with free for a long time and will continue to do so. How? Or, better question: Will history repeat itself?

Arguably (depending on your criteria), the two Microsoft products that have probably been most impacted by free alternatives have been Microsoft's Internet Information Server (vs. Apache) and Internet Explorer (vs. Firefox) with Windows Server having some of its lunch eaten by Linux getting honorable mention.  Both IIS and IE are essentially free as well (nod to those who like to remind us that "nothing is free").  But, of the free offerings in the market (for example Linux), none have never posed a serious threat to either of Microsoft's cash cows (client-side Windows and Microsoft Office). Combine the increasing Internet saaviness of small businesess with their senstivity to complexity and cost with the boatload of smart money (more than ever) behind MS-Office disrupting initiatives like Google's GooFice (sic) and the multi-vendor backed OpenDocument Format, and it appears as though Microsoft may not have as easy a time printing money as it used to. 

I, like others, believe that you can never count Microsoft out. One or both of two things will have to give. Microsoft may have no choice but to dramatically slash the price of MS Office (perhaps even bundle it with Windows), cough up it's own browser-based version of Office (is there anyone who doesn't think this is already in development?), or both. 

Topic: Microsoft

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7 comments
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  • David, you still don't "get it".

    You start off talking about small business' selling product and then get lost in bashing MS Office. Believe it or not, one has little of nothing to do with the other.
    No_Ax_to_Grind
    • Bashing?

      Who is bashing? I'm not counting Microsoft out nor am I being very critical of the company. Microsoft will adjust, as it always has to significant paradigm shifts.

      Regarding selling product, the point is that the Internet is becoming an increasingly viable platform to solve many problems that were typically solved by local solutions. As small businesses get hip to the idea outsourcing transactional functionality to the Internet, it's not a big leap of faith to outsource other functionality to it as well.

      db
      dberlind
      • So your saying...

        That because someone uses PayPal (or other service) that means they toss their Office Suite? Ummm, that is a HUGE leap David. Not to be cruel but that very much sounds like the argument that once you run a Linux server you are automatically going to switch all desktops to Linux. Just isn't happening.

        Now back to the topic, First, no one can guarantee a profit, unless of course they are controling what you buy and what you sell it for. Second, I work with a lot of small businesses (ISVs) and pretty much all of them hate the conditions of all the payment systems and instead elect to go with credit card transactions. Why? Because these payment services have a nasty habit of locking up your accounts at the first hint of a problem and it often takes months to get to your own money. PayPal has been sued so many times over this I can't even count them all. Read the fine print for any of these services and you will see that you are "agreeing" to allow them to do this.

        Don't get me wrong, if there is a customer complaint fine, then lock down the funds needed to cover any repayment, but locking up a business account for months is often enough to force the small company out of business.
        No_Ax_to_Grind
  • We still have the "offline" problem

    Dear db,

    I think we still have the application/data not available in offline mode, something you discuseed a while ago.

    Beside the question of privacy and confidentiality, the biggest hurdle against small businesses storing their data online is data availablility. Worst case scenario: If the vendor who store your data goes bust, does that means you lost all your data as well?

    Regards,
    Sinlee
    sinleeh@...
  • "Essentially Free"

    Of course, neither MSIIS nor MSIE are actually "free" in any sense; they're just bundled in with another product and their cost lumped in. That only works as long as there's another product to leverage.

    Right now, MSWindows gets that treatment by OEMs bundling it with computers, and to a degree MSOffice gets the same treatment. Thanks to cliff-tiered pricing, both are also "free" (as in zero incremental cost) to OEMs.

    Am I the only one who sees this as starting to resemble a house of cards?
    Yagotta B. Kidding
    • A rose by any other name.

      Shrug...
      No_Ax_to_Grind
  • MS doesn't have the stranglehold that you think...

    As the co-owner of a 2-man SMB (one man and one woman, actually), I can personally vouch for David's comments regarding many of my decisions (as well as my customers' decisions) being driven by the bottom line.

    What everyone in this discussion has neglected, including David in the originating article, is the impact of open-source!

    I have a 2 licensed copies of XP pro and a few games. That is the [i]ONLY[/i] software that I have paid for in [i]years[/i]!

    Without shamelessly plugging my company, I will say that our SMB is an IT/CAD consulting firm that sells consulting hours, service contracts, and specialized hardware such as workstations, servers, and plotters. We also dabble in some consumer-grade stuff building MythTV based HTPC's and gaming/lanparty whiteboxes, but that is mostly for fun (there is no real money in it).

    David is also very right in that a small biz doesn't need the $3k laptop or Vista to survive, but still wrong in the extent of the potential savings. This is long-winded but worth the read:

    My wife does our marketing and cooks our books using Suse Linux, OpenOffice.org, and GNUcash on an IBM Thinkpad 600E (a laptop that was built in 1999 with a PII400, 288MB of PC100, and a 40GB 7200RPM HDD). She can dock it at her desk using a port replicator and use a 21" CRT/full-size kb/wireless mouse. Total outlay: $500

    I do most of my work (everything else in the business, basically) dual-booting Suse Linux and XP pro on an IBM Thinkpad A22m (2001, PIII850, 512MB PC100, 40GB 7200 RPM HDD) that also docks at another desk in our home office with the same CRT/kb/mouse setup: Total outlay: $650

    We host our web site in-house and I store a lot of data, so we have a server; Intel D815EEA mobo, PIII666, 512MB PC133, PCI controller card to support extra disks, and a few HDD's running (you guessed it) Suse Linux with Apache and MySQL. I secured our domain for 5 years for $15 and pay a few extra bux to my ISP for a static IP. Total outlay: <$400

    Throw in the office supplies, DBA, bank account, misc. network hardware, linux-compatible HP all-in-one w/ NIC for automated fax marketing, and tools to build/repair/etc with: ~$500

    We essentially hung our shingle and started servicing clients with full capabilities [i][b]and[/b][/i] a web presence for roughly 2 grand (and a lot of sweat). Using commercial software and bleeding edge equipment would have made that expense at least 5 times higher (with no fewer hours invested).

    Can any upstart small business do this? Sure! Don't give me the "Linux is too hard to learn" whine. My wife never touched a Linux box before I handed over her Thinkpad and she was managing our books on GNUcash that night. She can't even tell the difference between OpenOffice and MSoffice (both of which functionally blow the ones and zeros off of those pathetic web-based suites). Software management and updating is no headache at all with Smart and the right repositories.

    If a small-business owner is still hesitant to dive into open-source for fear of the unknown, well [b]THAT'S WHAT MY COMPANY DOES!!![/b] Guys who are juggling 2 to 10 employees and are busy running a business with no budget for a full-time IT manager become very receptive to a learning curve, no matter how steep, when they learn that a few hundred bones a month for a service contract from me can save them tens of thousands of dollars on software licenses and downtime due to bugs/malware/spyware/viruses/etc etc etc. Consider that AutoCAD costs $5k/seat and qCAD costs zip. Multiply that over 5 users and think about it!

    True, it takes money to make money, but not as much as you think (we purchased all of that equipment over a period of a year, not one day). David is also right about the number of tech-savvy SMB owners out there, but more and more of them are learning the virtue of capitalizing on OSS and the hardware savings that go with it.

    Despite my wife's earnest marketing efforts, 90% of my business is referrals and we have never (EVER) had an unsatisfied customer.

    I like MS for its business savvy and ability to cope with changing market demands, but I am not controlled by them or their high prices and no one else has to be either. Anyone who says they are is a complainer who doesn't have the gusto to find a better way.

    my (long-winded) 2 cents,

    J
    litljay