Getting smaller companies into the world of on-line business has often been seen by many VARs as just one big pain in the neck, involving a great deal of effort for
very little return.
But things are changing. The growing array of tools to help businesses of all sizes get into e-commerce, plus the downturn in the corporate sector, have both helped to focus VARs' minds on the SME market. The key questions are whether there's enough potential revenue to get into this market and, if so, how best to approach the sector.
The government is certainly keen to get UK SMEs to realise the potential of on-line business and overcome the hurdles still perceived by smaller companies. Figures from Oftel show that 92 per cent of UK medium-sized companies are now on-line, compared to just 59 per cent of small firms. To help combat this, the government has launched a new initiative, eBusiness Clubs. Organised by the British Chambers of Commerce, the programme is using vendors such as Intel, BT, Cisco and HP to provide expertise in helping smaller businesses set up e-commerce activities.
Jackie Parton, marketing manager at Intel UK, says such plans will work only if they are run through local VARs. "This programme relies on local chambers of commerce and local resellers and not someone in a large corporate in the south telling a small Scottish company what they should do," she argues.
There's little doubt that vendors are desperate to get into the SME market, seeing it as a major new source of revenue. At the same time, increasing numbers of small firms want to get on-line. In a recent survey by Sage, 61 per cent of small
businesses said that being seen as an e-business would be good for their image and 51 per cent said it would open up new opportunities and markets. But 42 per cent were unclear about the most effective way to move from where they are today to where they want to be in terms of e-business. And government backing is not the same as bottom-line profits. Despite the potential, many VARs have fought shy of focusing on SMEs, mainly because they fear it costs too much.
It's a concern many vendors are aware of. "There is massive potential for resellers to capitalise on this market but only if they understand the requirements of small businesses," comments Richard Pitt, area director at Alcatel. He says vendors are doing their bit to overcome SMEs' worries about the complexity and cost of IT. Alcatel has developed systems that converge technologies such as voice over IP into a single box, providing smaller companies with access to the same advanced technology as larger enterprises.
It's a challenge
However, Pitt acknowledges that selling to SMEs is not easy. Resellers have to demonstrate the real benefits of technology and justify the cost. "Considerable revenue is available but resellers should look beyond an infrastructure sale alone and sell value-add services in order to fully capitalise on their efforts," he says.
Chris Phillips, European marketing manager at e-commerce software specialist Commerce One, which has just released Version 5 of its on-line sourcing and procurement systems, agrees. "Smaller companies continue to be confused about their role in e-commerce," he says.
Marketing manager at e-commerce software vendor Actinic, Lisa Walden, says packaged software is available at a low cost, but with customisation the average on-line store can cost anything from £3,000 to £20,000. She adds that opting for a packaged e-commerce system allows more room for profit because all the essentials are included.
"The issues for resellers range from which hosting company to recommend and how to take payment securely, to which software to use," she says.
"The revenue stream for the VAR comes from many directions, including designing the e-commerce store, setting up B2C or B2B trade, integrating it with the off-line model, integrating accounts and marketing the site. For discerning resellers there are numerous possibilities."
One concern among VARs about moving into this market is that SMEs tend to require more hand-holding than larger organisations - not always necessarily in terms of technology - but in terms of what an on-line project will deliver. For instance, SMEs may set unrealistically short business goals under the impression that once a decision to build a Web site has been taken, it will only take a few weeks to get on-line. The importance of testing new systems is often underestimated.
It is also important for SMEs to understand that while they may gain more orders by going on-line, they must be prepared for the problem of unfulfilled orders when customers change their minds. This can be more of a problem on-line than with traditional business methods and can hit SMEs harder.
VARs in this market need to be aware of these blind spots and to ensure they manage SMEs' expectations realistically. They also have to manage vendors' expectations which may also be unrealistic about how much can be wrung from the SME market. The Butler Group recently said that when SMEs buy a system they expect most of the cost, apart from realistic maintenance, to be paid up-front.
"SMEs certainly do not see themselves as long-term cash cows for vendors' benefit," says a recent Butler briefing paper. "Therefore, it is important that when vendors start to produce 'light' versions of a well-respected enterprise system, they must ensure it comes with a light supporting infrastructure that the customer can afford to work with."
Get the knowledge
Ian Kilpatrick, managing director of distributor Wick Hill Group, remains upbeat about the prospects for selling e-business to SMEs. He says today's second generation of e-business systems, which are less complex and cheaper than before, are extremely suitable for SMEs looking for cost-effective, secure on-line systems. "It's a great opportunity for VARs who may be finding a reduction in sales in their core markets, but who have skills, training and perhaps accreditation in the security arena to deliver that comfort to cautious SMEs," he says.
Paul Gordon, channel director at Sage, agrees. "Many SMEs lack confidence when choosing business software," he points out. "A reseller can assess their business needs and help them choose a suitable system. But it is important that SMEs can trust their reseller to offer a certain standard of expertise." Sage is introducing a new training and accreditation programme for resellers to ensure they have this knowledge.
As they realise the implications for VARs of getting SMEs on-line, many vendors are beginning to make changes to their existing channel programmes. Networking vendor Avaya is making changes not just to its product lines but also to its channel marketing programmes, says David Spiby, Avaya's director of strategy.
"We have signalled a strategic change to include small and medium users as one of our four key target markets," he explains. "Lead generation is particularly important and over the next year we will be running ads to target this market with a lead generation programme for our business partners."
Previously, Avaya's products at this end of the market tended to be focused on hardware, acknowledges Spiby. "We have now put a whole application on top of that to increase the value of the sale and to enable resellers to go back and add more applications on top," he comments.
"We've done that through licence keys so that it is easy for our business partners to simply turn on those new applications without a lot of extra work. We've also added some management capabilities so that it is easier for partners to manage, which lowers the cost to them."
The money issue
Peter Gee, director of strategic alliances at Pasporte which provides e-business outsourcing services, says it is a mistake for VARs to think that technical knowledge is the biggest barrier in getting SMEs into e-business. "In actual fact, it's the infrastructure," he argues. "An SME's priority is whether a supplier can provide a proper SLA."
VARs either have to provide a completely managed system for SMEs or work with a hosting partner. Money is a major issue but Gee says that because companies like Pasporte can spread their costs, the final end-user payments may not be as prohibitive as many VARs fear.
This was first published in March 2002