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

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.

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 upgraded to it's Summer '06 edition. With,  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, 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, 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.