ROUNDTABLE - Love SME tender

As vendors tell us SME is the Next Big Thing, we ask our panel for some tips on operating in this market.

The SME market represents a fantastic opportunity for resellers. Butome tips on operating in this market. how can they exploit the potential of this area? PC Dealer invited a number of executives from leading vendor companies, which are currently addressing the SME area, to participate in the latest Roundtable session.

Participants

Joe Macri, SME business manager at Microsoft

Olivier Choron, marketing communications manager at 3Com

Peter Blampied, commercial business unit manager at Compaq

John Tuohy, marketing manager of Lotus Small Business Unit EMEA

Simon Meredith, chairman and freelance IT journalist

Questions from the floor:

Prem Bulcarney, Bulcarney Computers

Clinton Lee, Discount Warehouse

Robert Barnell, JR Ward Computers

Meredith: We hear a lot from vendors about the opportunities in the SME market; perhaps we need to look at it more closely. According to the DTI, there are more than three million small to medium enterprises in the UK, which ought to present a reasonably large opportunity for resellers to exploit.

But how do you do that? Exactly what have you got to do to make the best use of this opportunity? An increasing number of small and medium enterprises, it seems, are buying off-the-page or through retail - and that's not the traditional reseller route. Some of you might be retailers, but I think most of that business is going direct or off-the-page and some vendors, it could be argued, have been encouraging users to take that route as well.

It's also a pretty tough market, one which demands an awful lot of service from the reseller, and so in some respects might be harder than the corporate market.

We'd all like to exploit the SME market, but how are vendors going to help? I'd like to hear how vendors are helping resellers address this area and whether they think the reseller community is doing enough in itself to address it.

Macri: In terms of our sales through the channel, approximately 60 per cent of Microsoft revenue goes to local dealers of SME products, about 20 per cent goes through retail and about 20 per cent through mail-order.

So, clearly, from a sales position, our view is that the smaller reseller is very much there as a major channel to market for small business.

In terms of our programmes, we focus on three key areas. The first is our product strategy - we have launched a small business edition of Office and a small business server. More importantly for the channel, we've launched a programme called Direct Access, which has three key components. The first component allows the skills development of the small reseller - what used to be known as Net Results - and we've developed the programme further to allow small resellers to get access to, and train up on, the product.

The second component of the Direct Access programme is communication.

We have set up a Web site and, more importantly, a channel newsletter.

I am pleased to say that about 16,000 resellers have subscribed to the newsletter on a monthly basis.

In terms of other types of communications, we tend to hold briefings.

Before Christmas, we saw 6,000 resellers across the country and in March, we had the Direct Access Business Forum in Birmingham, which focused on the SME market.

Finally, we have set up a telemarketing operation aimed at the smaller reseller. Predominantly, this has been an outbound operation where we collect information from the channel, but as time goes by, it will become more of a promotional activity.

Meredith: Has anybody here heard about Direct Access? A few of you are saying yes, but not everybody. Does anybody have any opinion on how much Microsoft, in particular, is doing to address this specific market?

Bulcarney: We are a two-man show and Microsoft asked us to come to a Direct Access show in Birmingham, but why is it charging #69 to come to the show? It's our time we're spending by going.

Macri: There are two answers. The first is purely cost recovery. We are looking to make sure it is worthwhile for vendors as well as for resellers.

The second concerns value. If you have a show that is perceived as free, there is the question of its value and the contribution - so there is perceived value in contributing towards that. Having said that, what we are offering resellers in terms of promotions far outweighs the investment of #69.

Bulcarney: Well, if Ingram started charging for its shows, nobody would turn up.

Meredith: I think the problem we're touching on here is that it is expensive to address this market, both in terms of retraining people and marketing the event. But let's move on and hear what Compaq is doing in the SME market.

Blampied: We are trying to do three things, really - starting off with a lot of demand generation through national press advertising. We are also investing more heavily in our channel programmes such as Competitive Edge, which is a marketing support programme for dealers. Through our call centre in Glasgow, we've increased the amount of channel support and customer support we can provide. We're now taking something like 3,500 calls per month from dealers in Glasgow looking for additional information, pricing, marketing support and general questions and answers.

The question is how to improve the programmes that support the channel, how to generate demand and, through Competitive Edge, how to provide dealers with more information for them to sell more effectively into that market.

Meredith: Has anybody seen the results of Compaq's advertising and marketing campaign for the SME market?

Lee: We have seen the advertisements and, yes, they are making an impact and generating demand. But what we have found is that many companies are still looking at prices on the other side of the Atlantic and they're importing hardware from the US. I'll give you one example. You have a 233MHz K6 machine that you can pick up for under $850 in the US. So, companies with respectable IT departments go abroad and buy their hardware in the US.

Meredith: So, you are saying Compaq has a grey market problem and that presumably this is because the SME market is particularly price-sensitive?

Lee: It is price-sensitive, but small businesses are also looking for support and, okay, that's where we can do more. But if they have any sort of in-house IT department, they prefer the huge cost savings by buying the hardware elsewhere.

Meredith: But not many smaller companies would have that internal IT support, would they? Is this making life difficult for you? Is the constant pressure on pricing making it harder for you to provide the level of support that these businesses expect?

Lee: If we're promoting support alone then fine, it's a different business, but if you are promoting support along with hardware, people will question your hardware prices. And then they will ask for a separate costing for the hardware component - which they compare with advertisements in the national press.

Meredith: And are smaller businesses prepared to pay for the support and service that you give them separately?

Lee: Well, they have a problem deciding how much value they can attribute to the service.

Meredith: So, it's still not easy to sell support when hardware is advertised at such low prices. Perhaps SMEs feel to some degree that they can do it themselves.

Barnell: Just a general comment about Compaq. JR Ward Computers is a small reseller in Milton Keynes which is trying to address the small to medium size enterprise, but Compaq has a real problem with support in that area.

Trying to get through to the right people at Compaq is pot luck - you go from department to department and from person to person until you finally get through to someone who is prepared to take it on and deal with it.

There seems to be a very unclear structure as to whose responsibility it is to support the product.

Meredith: This has come up in a previous conversation about this market, and I think one or two of the vendors might say it is a problem of scale and something that they won't be able to resolve very quickly.

Blampied: The whole reason for Compaq's call centre in Glasgow is that it provides a single number for everyone and you don't get passed around.

It is designed to provide decent support. It is up to the reseller and the call centre to do the internal sourcing - to try and find out what the problem is and whether it can be resolved by us, by a service provider or through warranty. Certainly, about nine months ago when we had no call centre, we had a department of three people taking phone calls and we now have a team in Glasgow of more than 20 people who take 3,500 calls a month.

We do have a process for resolving problems, but what we find is that not everybody always knows what that is. So if you go through the call centre, it should give you the right answer and the right process.

Barnell: Let's hope things improve and we'll obviously move forward with it, but I do think it's the scale that's the issue. You are not used to dealing with smaller companies that require support in such a hand-holding manner.

Meredith: Did you know about the call centre?

Barnell: Yes, I did.

Meredith: And you haven't been using it?

Barnell: Not to a great degree, because you fall into a Catch 22 situation when you start having these support problems - it means you start to sell less kit. We don't sell so much Compaq kit now. We go to other places where we can get our problems fixed.

Meredith: Let's move on and hear about what 3Com is planning for this area.

Choron: I personally don't like the term SME because we have found that there is a big difference between the MIS support in small businesses and in medium-sized companies - in terms of products and the support required.

When you deal with a medium-sized company, you are dealing with the technical expert, who can actually come back to you with pretty good technical feedback.

The difficulty that we have with small businesses is that they don't have this technical support, which means you have to deal with them very differently. So we are putting a programme in place called the Small Business Specialist.

What 3Com is trying to do for small businesses is establish communications with the reseller. We are giving resellers the tools to communicate with them - the right training, seminars and promotions for this market.

In addition, we are creating more tools to help show the business benefit of networking to customers who are not technical but just talk business.

We have to make them realise that networking can bring them actual business benefits and can be cost-justified.

Meredith: What sort of response have you received to the campaign so far?

Choron: I think we have about 1,000 partners enrolled but, to be frank, we haven't really been active in recruitment up until now. We have put the structure in place and now we have a pretty big marketing campaign to recruit more people - and, by the way, this is free of charge. I don't think we will have any problems selling the idea and I wish you could all join up with 3Com. If we could get 10,000 people to enrol in the next month, I would be delighted.

Meredith: Olivier, you mentioned training as an issue. What I would now like to hear from resellers is exactly what sort of programme you would want see from the vendors. What sort of training do you expect and what kind of support? What do you think would help you address this particular market?

Barnell: With a small company, the basis is the cost. It's quite often the case that everyone would like to go on these training courses and everyone would like to know the product better. But in small companies, things are changing so rapidly that it always comes down to cost - whether it's the actual capital cost of the courses or the time.

Barnell: When you're dealing with a small company, you're looking at a great investment on the personnel side of things. You've got to release the person, you've got expenses and whatever, but then there's the actual cost of the training.

Meredith: But have you got an answer for that? Because your guys can only be on one course at a time, can't they?

Barnell: That's what I'm saying - the small company is prepared to make the investment in personnel terms, but it is a double hit when you've got to pay money for the training too.

Meredith: So it would help if the programme was free?

Barnell: Free, or more cost-effective in some way.

Meredith: But that still doesn't solve the problem, does it? Because you still have an engineer sitting on a course all day.

Barnell: That's a business problem that has to be addressed. You have to train people and accept that you must release personnel periodically if they are to become better trained. This is possible for the small reseller.

But when training involves a financial investment in addition to the actual man-hours taken up by training, that's a different matter.

Choron: You have to sell - you depend on the sales. What we have put together for resellers is a combination of sales and technical training - which is also free of charge. We have also created CD-Rom based training to get over the time problem. We will keep doing more of that as we go along and we also have a marketing CD-Rom on the way, complete with direct mail and promotional tools. We realise that you have to be reactive, but it would be far better for you and for us if you started being a bit more pro-active.

Meredith: What is Lotus doing for this market?

Tuohy: One of the things that our research has turned up is that small to medium businesses are not really interested in technology - they're interested in solutions to their problems. They want to grow their business, they want to improve customer satisfaction, reduce product cycles and things like that.

Another thing of interest to you as resellers is that for every dollar a customer spends on a software licence, they are spending seven or eight more on additional services. So, the real opportunity is not so much in software licence sales but in after-sales service and applications development - creating and designing systems, training, support and consultancy and so on.

A lot of what we are doing at Lotus is designed to enable our business partners to build and support these systems. We have created a Lotus internet starter pack. IDC forecasts that there will be a tremendous growth in the sale of services for running internets - not necessarily intranets - and there is a big opportunity in Europe. A lot of small businesses are just starting to get onto the internet.

The internet starter pack is based on Domino and Notes technology, but it is designed so that a small business can be up and running within 10 minutes. It is very easy to install and it has a collection of templates of applications. But there is also an opportunity for the reseller to customise and add to that solution, using the underlying Domino technology.

You've probably seen the TV commercials that IBM and Lotus have been running over the past year, as well as e-business commercials from IBM, designed to raise awareness in the small business community of IBM and Lotus as solution providers.

Meredith: John has talked about the type of service, information and products that SMEs need, but do you feel, as resellers, that vendors give you the products, the information and the services that your customers need?

Blampied: From Compaq's perspective, we are trying to deliver things like compatibility, reliability, quality and value for money. So, from our product prospective, we feel we have a compelling product mix and the programmes and support services that put us in a very strong position to support dealers.

As a hardware vendor, we can't turn that into a complete solution for the customer, so it's your responsibility as a dealer to provide that complete solution, based on the platform we are developing.

Certainly, one of the things I would like to ask about, and one of the things that our research shows up, is the increasing levels of frustration and dissatisfaction within small businesses about the advice, configuration and information they are receiving from those dealers. The question I put back to you is: do you feel you're providing the right sort of services that small businesses want?

Meredith: The question for dealers, then, is this - are your customers happy with what they are getting out of you? All these guys are saying that SMEs represent a big opportunity, but are you making the most of it? And if you are not making the most out of it, then how do you? What have vendors got to do to help, and what have you got to do to help yourselves?

There are plenty of ideas and schemes, but I don't know whether resellers are responding well enough - are dealers responsive enough?

Macri: Clearly, from a small business perspective, the small reseller is the primary channel to market and the answer is yes. But Peter (Blampied) touched on an interesting point when he mentioned advice. There is a lot of hot air about what advice is and also about what the word independent means. If you are a small business, you probably go to your accountant or banker for advice. The question that beckons is: what's the dealer's role when it comes to advising about technology and creating business opportunity?

Meredith: Does it cost dealers too much to get involved in the vendor programmes? Would it help if they reduced the cost of the programmes, or do dealers expect to pay for training for marketing support and so on? And here's another question: does a Microsoft accreditation or Compaq accreditation make any difference in the SME market?

Blampied: From customer feedback and from research, we've discovered that unless the dealer is equipped to sell a product, we end up dealing with customer satisfaction issues. We are tightening up our accreditation process for high-end products to ensure that the end customer gets a better service.

Meredith: If dealers don't improve their service levels, will it get to the point where SMEs will just go to off-the-page, to retail or direct?

Blampied: The worst thing that could happen is that they end up going to Dell.

Meredith: But do you think that might happen? Will people turn away from the reseller channel?

Blampied: It's not a possibility - it's a reality.

Meredith: Why is that happening, though? Is it because service isn't being provided, or is it because you aren't providing support for the resellers?

Macri: I think the issue of channel mix is quite interesting. A product that has a dominant position will become, or will be perceived to be, a commodity product. So, for example, the value add opportunity in Windows is questionable because what we want to do is maximise market coverage.

As you move up the food chain to Office and then to Back Office and the server environment, clearly there is an opportunity for resellers. The interesting thing is that if we look at NT server and Back Office, the biggest significant fulfilment channel isn't retail, it is mail order - we were quite surprised by that. We asked those mail-order customers why they had chosen this way and the answer that came back - consistently - was that they went to their local dealer for the service and value add but for pure fulfilment they went to fulfilment channels. So, I think Peter is right - as you progress through the food chain, certain products and services will attract more revenue in that area.

Meredith: But are SMEs really willing to pay for everyday services and support? Or do they just expect that as part of the deal?

Macri: From market research, what we have learned is that small businesses are prepared to pay for service - at the point of sale. The point where it becomes an issue is when they realise two weeks or six months later that they need the service. It's all down to timing.

Blampied: I agree totally with Joe. All our market research shows that small businesses will pay for services, but only if they are sold at point of sale. Whatever SMEs are told when they purchase the system, that is what they believe.

Meredith: Is there anything else that vendors can do to help dealers increase sales and profitability in the SME market? Or is there anything that dealers can do to increase their SME sales?

Blampied: For me, the motive would be to increase skills and competency and to look at the internet and the information available through the Web as a potential differentiator in providing services to small businesses.

Choron: Five years ago, you could have said dealers did not listen to us, now it's a question of using the services that are in place. I think it is an adventurous and interesting prospect for vendors and dealers to work together.

Tuohy: We're at our most successful when we focus on a particular niche, and I think there are two ways you can try to succeed in the market - you can be the lowest cost supplier or you can try to differentiate yourself in some way from your competitors.

One way to do that is to focus on a particular segment of the market. So you might decide you are going to go after the small to medium businesses and be the premier IT seller for bakeries, small manufacturers or whatever, and in that way you can differentiate yourself from your competitors and focus on an area.

Macri: The critical issue is that it's up to you to decide what you want to do. The question is: what is the role of the supplier? Skills are important and that is the biggest single factor in this country that's holding back business development. I think the other point is that, at this time, vendors are interested in the small reseller, so my recommendation is to make the most of it. Now is the time.

Meredith: But are all the vendors prepared to offer free technical training for complicated products, for example those from Microsoft, to set up servers and things like that. Are vendors prepared to provide free technical training to help us sell their products better?

Blampied: If you become a system reseller, Compaq funds the costs of two accredited system engineers. The bit it doesn't fund is an authorised support centre. That means you do three Compaq courses and the first two are free of charge, but you will also require either a Microsoft MCP or a Novell CNE accreditation.

Macri: I think that is the answer, in conjunction with free for-internal-use software - bundling software and training together in a pack. It's not a simple matter of saying that accreditation is free, because the real cost, as you know, is that of taking your engineers and technical people out of the office.

If you take the Direct Access Action Pack, for less than #200 you get free for-internal-use software plus the relevant technical training and, if you look at the details, we have offered discounts on further training.

So, I'm afraid it's not a black and white answer, but that's the answer.

Meredith: Surely, from the resellers' point of view, the more knowledge they have, the better they can sell your product. And of course, whatever you can do to minimise the cost is always going to be helpful.

Obviously, you have to be prepared to put the time in and even come up with some of the money, but if the vendors make it easier for you, you will learn more and sell more - and everyone will do better out of it.