A few weeks ago the managing director of a small business in the Midlands went to see his local network reseller. His firm's core database was kept by three different people on three standalone PCs, and the poor managing director had no idea which version was correct and up to date. He did not know precisely what to do about it. He only knew that he needed to do something - and pronto.
This bewildered businessman is typical of the most under-developed but fastest growing segment of the networking market in the UK: the small to medium-sized enterprise (SME) market, usually defined as organisations with fewer than 250 employees.
David Soares, European managing director of networking vendor Netgear, says: "The network market as a whole is growing by 12 to 15 per cent a year, but the SME segment is growing twice as fast, at 25 to 30 per cent. Take-up of networking among SMEs does not seem to be that great, hence the high growth rate."
Other vendors are even more enthusiastic. Richard Bradley, operations director for channels at Cisco, says: "Penetration-wise, there is a long way to go with SMEs. That's why it's the most interesting market to crack. We think the SME market will grow faster than the enterprise business, with three-digit growth year-on-year in the next two to three years."
Research by distributor Computer 2000 showed that 40 per cent of sales by its Business Class SME resellers were network-related, including 18 per cent pure networking, 13 per cent internet-related and nine per cent ecommerce. Researcher IDC predicts that total annual IT expenditure by UK SMEs will reach £22bn by 2002, so SME networking is set to be a huge market.
Knowledge is power
It is hardly surprising. SMEs are facing the same business pressures as their larger competitors. Team working and information sharing are becoming increasingly important, and more staff are becoming 'knowledge workers' who depend on accurate, complete and up-do-date information. It's just the kind of information the Midlands businessman did not have.
So 'traditional' networked applications, such as multi-user database and accounting systems, are proving increasingly popular with SMEs. Other systems, such as graphic design and even document management, are also being networked - not least because modern files are often too large to be transferred by floppy disk.
Remote working is becoming common among even the smallest companies, at home, on the road or in satellite offices, and networks are the obvious way to keep everyone in the loop. The most forward-looking businesses, which often include startups and small professional firms, are doing away with permanent workstations in favour of so-called hot-desk environments where staff access all their personal material via the network.
The traditional benefits of networks, such as sharing printers and scanners, reduced stationery and postage costs, centralised back-up and better security, are still valid today. And then, of course, there is the internet.
Nigel Judd, general manager for marketing at Computer 2000, sees the internet as the main driver of SME networking. "The net has driven them into networking. If SMEs can communicate with customers electronically, why not link up their staff? It makes sense," he says.
"When DSL [digital subscriber line] comes along, more SMEs will use networks to feed all the internet traffic through one pipe. It's cheaper and they can control it."
According to some reports, smaller firms actually have the edge. Shane Buckley, vice president for channels and original equipment manufacturers at 3Com, says: "In our research, companies with one to 20 users had much higher connection rates to the internet than those with 20 to 100 users. The ratio was about 2:1."
The 3Com survey found that 65 per cent of SMEs had a website, a further 21 per cent were either building or planning to build a site in the near future, and only six per cent planned never to have a site. Most were only at the 'online brochure' stage, but 29 per cent of sites had been designed to sell products and services.
Andrew Wicking, managing director of network reseller Intronets, says: "SMEs are developing an internet presence, but most want to do it in gradual stages: first get a PC, then develop a network, then get internet access, and finally develop a website."
According to 3Com, just over half (57 per cent) of PCs in SME offices have external email, but only 37 per cent have full internet access. Half of companies (54 per cent) had a PC for every member of staff, and 56 per cent provided remote network access to employees.
The ASP appeal
Extranets do not feature much in SME networking, or at least not yet. Only a third of SMEs in the 3Com survey had any kind of electronic link with partners, suppliers or customers. Intranets are becoming more popular, but mostly at the top end of the SME spectrum. Many SMEs are just too small to benefit from an intranet.
Rented software from application service providers (ASPs) is expected to appeal to SMEs, once they become used to the idea. Customer relationship management, and the convergence of voice and data using technologies such as voice over IP are tipped to appeal to SMEs in future.
So are virtual private networks (VPNs), which use the internet as a cheap substitute for dedicated leased lines between offices, according to Stephen Stanway, managing director of infrastructure specialist SAS Business Group.
"More medium-sized enterprises with multiple sites will be looking at VPNs as the costs come down and the products get better," he says.
There seems to be no pattern to the purchase of networks by SMEs, with all sizes and sectors well represented. Particularly hot prospects can include companies with a reasonable amount of IT experience and a need for managing and transferring large files.
These could mean architecture, computer-aided design and manufacturing, engineering, print and publishing, and other media companies. These include professional and financial firms with a high proportion of knowledge workers, often working out of the office; firms with a number of branch offices, such as estate agents; and heavily transaction-based businesses which take orders by telephone or through ecommerce.
Look before you leap
But although the SME market is ripe for development, resellers must be careful how they approach it. The mantra repeated by all successful suppliers of IT to SMEs is sell business benefits, not technology. This is not just because many SME directors are owner-managers who expect a direct return from every farthing they spend, but also because few SMEs employ IT professionals, and therefore, many do not realise the benefits of networking until they are explained to them.
"Selling to SMEs is entirely different from selling to corporates," says Judd. "They need to understand exactly how they will benefit before they invest. They do not have the product knowledge of an IT manager. They need a compelling reason to install any technology - not only networking - so resellers have to think about the total solution and address the market with commitment and patience."
In essence, the SME has the business vision, but usually it is up to the reseller to put it into practice, says Chris Brown, business manager at reseller Primary Networks. "The reseller converts the customer's basic idea into reality, by designing the network, deciding the type of active components, specifying the cabling and providing support."
Jane Dennis, sales and marketing director at value-added reseller 1-2-1 Euro Technology, says spotting likely prospects is quite an art. "It's usually the firms that are experiencing high growth, as well as those moving from a traditional office-based model to a distributed model that need to look at installing a new network infrastructure, as the benefits can be significant," she says.
Martyn Jackson, business development manager at reseller Equinox Solutions, believes it is essential to get involved early in the customer's thought process. "I like to speak to a prospect well before it has considered how much the solution will cost, so I can mould the need into our framework and build a value proposition that makes it difficult for others to muscle in," he says.
But if the pre-sales phase is important, good post-implementation support is essential if resellers want to keep customers loyal and get repeat business. SME network hardware tends to run itself, but the software can require a lot of tweaking, particularly in applications for email.
Few SMEs have the time or resources to do their own network management, so it is a service resellers can supply, often on a remote basis.
In some ways, an SME network is like a scaled-down version of a corporate one. But there are differences, many of them connected with SMEs' limited budgets and lack of IT expertise.
SME network hardware can be quite different from corporate products, and although the big boys such as Cisco and 3Com make SME ranges, specialist SME vendors such as Netgear, Allied Telesyn and SMC also have been successful.
"SMEs have different needs from large enterprises," says Soares. "Enterprises want a big network that handles high volumes of traffic and gives the opportunity for exercising a high degree of control. All our equipment is plug-and-play, and cost-wise, it's designed for the SME market."
Routers for small business networks sell for about £200, and hubs for £40 to £100. Add £20 per PC for network cards, and up to £20 per PC for cabling, and a five-user SME network can cost as little as £500, plus the same amount for installation. Corporate network hardware can cost £200 to £300 per PC.
SME products need to be low-maintenance and also robust, since they are less likely to be protected by air conditioning, uninterruptible power supplies and the other creature comforts of corporate data centres. Even the construction of an SME product may be different.
More advanced features are filtering down the chain, says Darren Thorne, connectivity sales manager at distributor Ideal Hardware. "For years, if SMEs had any kind of network it was simply peer to peer, but as technologies become more cost effective, corporate-type network products have been downscaled massively for SMEs."
In one respect, selling to SMEs should be a good fit for the average network reseller, since most are SMEs themselves, and smaller firms like to buy from their own kind.
"The fact that we run our own business on the technology is very relevant to our customers," says Jonathan Wagstaffe, managing director of reseller Connectology.
But perhaps the biggest attraction of SMEs is that they won't be smaller companies forever, and you will have yourself a group of rapidly growing customers.
- SMEs are the fastest growing market for networking, as products become cheaper and better, and business needs increase.
- The internet, and the need to share data, are the main drivers.
- Resellers must be prepared to sell the business benefits of networking, design and implement the solution, and allow room for growth.
- There are good post-sales opportunities for resellers to provide support and network management skills.
- SME network products are cheap and simple, but functionality is beginning to match that of corporate products.
- The best SME prospects are growing businesses which need to support multiple offices, teleworkers and ecommerce.
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