On paper, market research says these customers have the potential to yield favourable returns. In Australia, for instance, IDC values this segment at AU$16 billion, just under 60 percent of the overall technology market.
For a slice of the action, software makers have trimmed their expensive, high-end applications -- lowering prices from thousands to mere hundreds. Afterall, isn't every SME price-sensitive? It depends on who you ask.
In the database business, Oracle has thrown down the gauntlet to its competitors, namely IBM and Microsoft, by slashing US$1,000 off its entry-level product, the 10g Standard Edition One.
The database now costs about US$5,000 per processor, matching Microsoft's SQL Server 2000 database. IBM's DB2 Express remains at US$3,899 per processor.
"Making our entry-level pricing the same as Microsoft's shows that we're serious about competing head on with SQL Server," Oracle's vice president for licensing Jacqueline Woods said in a statement.
Woods said the price cut underscored Oracle's commitment to providing SMEs with a "world-class product at affordable prices".
Money, money, money
"This is not an apple-to-apple comparison," said Rizzo, product management director for Microsoft SQL Server.
"While Oracle has lowered prices to compete with SQL Server, customers get much more with SQL Server 2000 Standard Edition.
"For instance, SQL Server can be used with four CPU servers, while 10g and DB2 Express are limited to two. In addition, SQL Server includes licences for business intelligence software, reporting services, extra security features and management tools at no additional charge," Rizzo told ZDNet Australia.
Oracle obviously doesn't share his views.
"While at first glance Microsoft's claims may seem credible, closer examination reveals that their analysis is flawed," said Roland Slee, Oracle Australia's Business and Technology Solutions director.
"Microsoft's scalability claim focuses on the number of CPUs supported by the database rather than on the workload those CPUs are able to process," he said, adding that Microsoft failed to mention critical restrictions which limit the size of the workload supported by SQL Server. These include:
Slee said applications running on SQL Server frequently suffer from performance bottlenecks caused by the database's locking model.
Apart from lower licence prices and higher performance, total cost of ownership also includes higher availability, Slee said.
"10g costs the same as SQL Server yet it supports a significantly larger database workload. If a server running SQL Server fails, the database will go down and stay down until the server is repaired," he said.
Meanwhile, IBM refuses to get in the middle of a price war debate. It would rather focus on partners and customers.
"DB2 Express was 'wildly successful' ... within six months of its introduction, nearly 400 independent software vendors (ISVs) have registered for the product on IBM's Express Enablement Web site," said Jim Koerner, vice president for IBM's DB2 Information Management Software unit in Asia-Pacific.
Koerner said DB2 Express was opening doors to new partners by virtue of running on both Linux and Windows.
"DB2 Express is bringing ISVs to IBM that had never worked with us. In fact, 73 percent are new to DB2 and 20 percent are new to the company.
If not actually taking developers away from Microsoft, DB2 Express has, at least, elevated us to a major contender in the SME space," he said.
Oracle's attempt to woo SME customers is also seen as a poor effort. "When Oracle announced the availability of 10g, it focused less on grid computing and more on key themes such as manageability and mid-sized customers. These are key areas that we've been focusing on for some time ... they're following our lead," Koerner added.
To buy or not to buy
The bottom line, Microsoft's Rizzo said, is that lowering the cost of ownership is not just about lowering the processor price.
"What matters to customers are the long-term costs associated with running a database ... things like maintenance, support, staff overhead, training and completeness of functionality, and it's less expensive to maintain and manage a SQL Server system," he said.
"Oracle's price drop is interesting for two reasons -- it clearly highlights the importance of the overall SME market to Oracle, and it serves to highlight Microsoft's dominance in that market," said Barnes, vice president for Meta's technology research services in Asia-Pacific.
"Oracle's move to slash the list price is certainly a way to generate interest in their product but in terms of the actual street price, if we consider that the primary customer at this level are application partners -- the issue here is the cohesiveness of the platform and the overall cost of ownership.
"So from an end-user perspective, the battle over list price is more noise than anything else," Barnes said.
Functionality-wise, entry-level database solutions from the three vendors is compatible but a Microsoft-centric SME will gravitate towards SQL Server because it's the path of least resistance, he added.
He advises Oracle to be more creative in terms of how it supports partners because "ultimately, price is only one aspect, and the reality is that Microsoft is never going to lose on price."