PERSPECTIVES: Business Office Software

Value-added service is the way to get ahead in the business office software race if you don?t want to go to the dogs. And all the smart money is riding on the back of small and medium enterprises. Simon Meredith reports

It would be very easy to say that, as far as resellers are concerned, the market for basic off-the-shelf business office applications is dead ? but it would not be true. ?As far as the actual software itself is concerned, I?d agree ? it?s being virtually given away ? but I think there are more opportunities to add-value now than there were a few years ago.?

That?s the view of Mike Hill, MD of Greengage Computers, a #2 million dealership based in Leicestershire, with a small London office. Greengage is a Microsoft solutions provider and, while the level of business can fluctuate considerably for his company, Hill says there are opportunities out there for dealers willing to look hard enough.

Applications software is certainly a considerable business, with the bulk of unit sales going into the corporate market. There is little or no fresh business in this sector now. ?When you talk about standard office products, we have reached a saturation point and it?s really only an upgrade opportunity,? says John Wakeman, Symantec sales and marketing director for Northern Europe.

Roy Howitt, sales manager at Business Systems Group (BSG), a London-based corporate dealer, thinks this is an extreme view. While the corporate desktop is dominated by Microsoft, he says there are opportunities to sell other vendors? products. Novell?s Groupwise is successful because of its good voice and data integration, and Lotus Notes is still used widely.

But aside from these few morsels, most of the standard products business is done on licences now, and much of it is ?suite? business, fulfilled through a select group of high-volume resellers. Microsoft defines corporates as companies with 500 or more desktop PCs. It estimates there are 33,000 such companies in the UK and its business with them is handled through an elite set of large account resellers.

The number of dealers handling the Select licence programme was cut last year, and this has allowed companies like BSG to achieve volume and make some profit out of the business. BSG has just set up a business unit to handle the management of licences for customers, which Howitt says is a rapid growth area.

Internet and, more particularly, intranet systems are sparking a lot of interest in the corporate sector but, while large dealers can provide these services, Howitt says many customers have their own internal developments going on.

In the corporate sector, dealers still earn their margin from software integration and support. ?You make your money out of providing the infrastructure and in the classic deployment of the products,? says Howitt.

Training is also an opportunity, but it?s now tailored courses that make money, ones that focus on the applications a business uses and on its particular needs. Scheduled training is becoming too competitive.

To provide software services of any kind to large companies you need considerable resources. BSG has 15 Microsoft certified professionals and numerous staff with qualifications from all the leading vendors. But relatively few dealers can address this market because of the high cost of maintaining this level of coverage and of funding the business and supporting the customer.

The small and medium enterprise (SME) market is the major opportunity for most resellers, according to David Smith, Microsoft UK channel sales and marketing manager. Microsoft puts any business with fewer than 500 PCs into this category, and it estimates there are about 2.5 million of them in the UK.

Smith says companies with about 25 desktops represent the biggest opening for dealers. He believes most traditional dealers are well placed to attack this sector. ?The selling propositions are very similar to what they were in the corporate market six years ago. People need to understand the benefits of using the graphical interface and of multitasking and of the increased productivity,? he says.

Pam Mills, UK desktop products manager at Lotus, also sees the SME space as the major opportunity for new sales. ?There are a lot of people still out there who don?t have a suite of products, so there is a lot of opportunity there.

?SMEs still need wordprocessors, spreadsheets and databases, but they also need to expand and get their business known to the rest of the world. They need products that allow them to get on the internet.?

Smith says many smaller businesses are still migrating from older systems and, even in 1997, he believes it?s all about selling in the benefits of networking. ?In SMEs it?s still about file and print and resource sharing, linking PCs together and putting some simple mail in. Because it?s all new, that?s where the opportunity for new business exists.?

Hill agrees with this view, and says that what users need now is integration skills. ?Putting together a solution and installing it is quite complicated and there are not that many people that can do it effectively.?

People are less price-sensitive than they were, he says, largely because they find the latest technology difficult to fathom. They are more willing to pay for the expertise of the reseller. ?They are not sure of themselves with products like Exchange. We?ve seen signs that they are willing to pay for service and expertise.?

At all levels of the market, messaging and groupware-related opportunities seem to trigger the curiosity of users. But they need help, says Hill. ?Email, communications and the internet are all new to customers and behind all that there?s the whole Novell and NT thing, which I don?t think is as clear to some people as it was a few months ago.?

The pace of change in the market and the conflicting messages that seem to come from vendors can make it hard for customers without dedicated IT functions to keep track of the market. In effect, resellers like Greengage are providing them with an IT department service and guiding them forward. The choice of application software and platform is central to this service.

Even though there are 1.5 million of them, sole traders represent less of an opportunity for resellers. This space, it seems, is to be left largely to the retail and direct channel. It is only in this area that there is any significant interest in products other than Microsoft Office, says Peter Greenall, software business development manager at Ingram Micro. Companies like Corel are much more attuned to the needs of the retail market.

But it?s the business-to-business market that most software vendors and resellers are pursuing. Increasingly, with the exception of a select few, resellers are focusing on the SME sector.

Most corporates now participate in either the Microsoft Select or Lotus Passport schemes. While Lotus remains popular in the corporate sector, it is increasingly dominated by Microsoft, says Greenall. Price does not seem to be a factor, even though users can make considerable savings by taking Lotus or Corel licences instead of a Microsoft scheme.

Most of the licence programmes are administered and managed by a handful of large dealers. Microsoft has a specific volume products authorisation. Smaller dealers get few opportunities to fulfil larger customers and tend to stay away from licensing schemes.

Greenall says that while the Select and Passport programmes work for the larger users, not that many businesses are using the sliding scale of volume discounts, mainly because resellers are not pushing them.

?At the top end, corporate resellers have realised that licensing is cost-efficient. There is a major growth opportunity in the Molp area because there are many SMEs that could benefit from the schemes but don?t as yet.?

He says only a small number of resellers actively sell licensing, and those that do sell them every month.

Licence volumes are still less than 20 per cent of overall sales, and most vendors are well behind their targets for these programmes. There seems to be a difficulty in getting away from the delivery of a box, says Greenall. Many SME users feel that once they have paid their money they should get something in return. This may be one reason why mail-order is flourishing as a route to market for software. Mail-order customers are now a significant customer set for Ingram in software.

Smith says being near the customer is still a factor in the SME market. The smaller the business, the more localised the opportunity may be, but larger opportunities won?t necessarily be confined to local dealers. Businesses are more willing to travel to get the business and electronic communications are vastly improved. Dealers can?t depend on being the only qualified reseller in their areas any more and vendors are doing little to protect them geographically.

The key in all markets is to have the right skills. In the corporate market, says Smith, ?the biggest inhibitor to sales of Exchange is not the number of resellers, it?s the lack of integration skills?.

Several vendors run programmes that identify and authorise resellers with what they see as being the right skills. Microsoft?s solutions provider scheme is the most important in the market at present. It is not an easy programme to qualify for and it can cost a considerable amount to get the necessary qualifications. You need at least two Microsoft certified professionals (MCPs), which cost about #2,000 each to put through the course. Then there is the annual licence fee of #2,500.

For small dealers, the outlay represents a major commitment. Hill estimates that, taking into account all the costs and the time spent on courses, Greengage spent close to #30,000 in the past 12 months on training related to the solutions provider programme. ?But that?s the sort of commitment you need to make. To be honest, it probably needs to be more. You?ve got to have MCPs to supply products like Exchange and Backoffice,? he says.

Specialist resellers can also benefit from being part of the solutions provider scheme.

Exel Computer Systems, located just outside Nottingham, specialises in manufacturing systems and, says marketing manager Richard Thomas, uses the solutions provider accreditation to set itself apart from the competition. ?People don?t question the quality of the organisation and that?s what Microsoft is giving us really. We can put the badge on our letterhead and we feel that it?s definitely the way to go,? he says.

One of the reasons why it?s the way to go for Exel is the rise of NT as a platform in the manufacturing sector. Thomas says 75 per cent of installations are now going in under Windows and only a quarter under Unix. The Unix systems are generally bigger, but the trend is clear.

Increasingly, the manufacturing system is being integrated with Office products, and Exel needs to be able to offer the integration as part of its services. It is working with Microsoft to get its system working with Backoffice as well.

Microsoft is trying to bring more dealers into the solutions provider programme through the Net Results schemes. These focus on different areas of technology ? the latest is on the Net/intranet ? and try to give resellers a leg-up in acquiring the skills. For about #200 they can get all they need to provide a service with a little pre-sales support and training thrown in. It?s a taste of what they would get as a solutions provider.

The solutions provider scheme is clearly working for resellers, but it requires considerable commitment. Microsoft adds modules to the MCP qualification as its products move forward. An MCP might be required to learn about Exchange integration with Office to retain the MCP badge, for example, and the dealer needs individuals with the qualification to retain the solutions provider status.

Like all accreditation schemes, the solutions provider programme is in danger of developing complications. Cost is a problem, not only in keeping staff trained and qualified, but in paying them and holding on to them. Howitt says that some grades of MCPs command salaries in excess of #50,000 a year. There seems to be no way around this problem. The law demands that accreditations be attached only to individuals, not to companies.

There are potential problems with the main accreditation as well. As more resellers come into the solutions provider scheme, some kind of differentiation becomes necessary, otherwise qualification becomes a tick-box on the tender rather than an outstanding feature

The scheme involves almost 700 companies in the UK. Last year, about 70 of them were made into solutions provider partners; the rest were designated members. The higher level of accreditation requires more resource commitment from the reseller. In exchange, Microsoft provides more sales and marketing support.

According to one dealer, this has left some members feeling that they have been sidelined. More recruitment may increase this feeling, but the solutions provider badge is still worth something, so no one wants to surrender it.

One way around the problem is for the vendor to invent bolt-on qualifications for particular markets or products, for example, Microsoft manufacturing solutions provider. But this will mean more outlay for the dealer and for small businesses. This makes life very difficult indeed.

The commitment is already considerable. One dealer comments: ?I really don?t know how the channel does it and I don?t think Microsoft do an awful lot to help, to be honest. The message they send out is that you?ve just got to skill up.?

But by skilling up, solutions providers get training, support and a continuous stream of leads that do, eventually, result in opportunities and pay-backs. All the solutions providers we spoke to agreed that the scheme rewards them for their commitment and said they would continue to maintain their status.

Resellers need to stay close to Microsoft at the moment as it is such a key player in the software arena. In the future, it seems increasingly likely that Microsoft will be the central pillar of just about every applications server and desktop system in use. This will make Office, as well as NT, a platform around which software houses and developers can build their systems ? in much the same way as Exel is with NT and Backoffice.

In the future, Microsoft sees the area of content being key for resellers. It defines content as the ability to provide Web sites and set up intranets, to create and manage information services and to provide applications such as contact management. It is encouraging dealers like Exel as much as it can, while perhaps giving less emphasis to the more conventional business solutions dealers.

Increasingly, Microsoft is also seeing other software vendors, such as Oracle and Sage, as partners for its resellers. This is encouraging news for vendors that are going with the flow of the market, like Symantec.

?We supply products that you don?t get in suites in the areas of security and remote management,? says Wakeman. He thinks dealers are not aggressive enough in seeking out the complementary solutions. There is, he claims, plenty of money to be made in these areas, but dealers need to select a partner.

?There are thousands of complementary solutions. We have about 25 products focusing on two main areas. Users need good communications solutions and good security solutions. Someone should be telling them about it?.

If they don?t select a partner and provide additional tools and integration services, resellers need their own software. Smith says: ?The question dealers have got to ask themselves is ?do we want to be in the more horizontal intranet area or in the more vertical market ? contact management, accounting systems and so on???

Operating systems and platforms of any kind ? even if they are basic applications ? don?t sell unless there is specific application software support. This has always been one of the pillars of Microsoft?s strategy. If you can get the software running, people have a reason to use your system. Hence Microsoft?s enthusiasm for independent software vendors.

It is working with major software vendors such as SAP, Oracle, Tetra and Sage, to get their software running with its platforms and trying to get them working with resellers. This means changing almost everyone?s attitude. Software companies like SAP have always sold direct, and are only now being dragged to the table with third parties. Even Oracle, which has made a commitment to third-party channels, retains a list of major customers which it services directly.

As they have not had a look-in on the specialist areas, dealers have in general tended to be very horizontal, says Smith. The approach of both software houses and dealers needs to change now.

?Line-of-business systems ? payroll, accounting, contact management, databases ? have traditionally always been developed in-house and used on top of Office. What companies are saying now is that they can?t afford to maintain all these systems and they need someone to come in and supply the whole lot.?

Microsoft wants to bring together the software vendors and the resellers with knowledge of a particular industry or with particular skills in an applications area to create a channel that can fulfil all the line-of-business requirements.

The internet is seen as a key area of attack. Hill says there is already a lot of interest among SME users, although the market is still somewhat immature and there is probably a lack of skills in the channel.

In the corporate sector there is also a great deal of interest and, says Howitt, more curiosity about non-Microsoft applications. ?We do get people asking about Core, especially on the internet. We are seeing a different set of questions there and a lot is being asked about Java.?

Another growing area of interest is integration of groupware products with intranet and internet systems. Dominic Storey, director of technology at Novell, believes this is and area of tremendous opportunity for resellers in the future. ?When you are building a business office system, you need to think in terms of the document management, communications and the range and consolidation of data,? he says.

?That?s where we would pitch Groupwise on the basis that it?s a platform-independent service.?

Storey claims users are starting to think about these issues, which could open up new areas of development and integration in document management, workflow applications and other communications-dependent areas.

These will be systems that, rather like Exel?s manufacturing software, will sit on top of the office applications and integrate and share data with them. Regardless of the platform or client device, the integration of such systems will undoubtedly be fairly complex.

Howitt believes that the growing interest in this sort of application, in network computing and in Java, indicates that the shape of the corporate software business may be about to change. This might give Microsoft some new competition.

?The question is, what are they going to do? Are we going to see a cut-down version of Office for the intranet?? he asks.

A switch to applet-based software would cause problems for large resellers in particular. Corporate companies are the most likely adopters, and they will almost expect to pay less for implementation and support of these products. The whole idea of them, after all, is to reduce ownership costs.

A company like BSG would then have to skill up to provide integration services for the new infrastructure, and for legacy system migration and security. It would mean a new approach, says Howitt.

?It?s going to be a matter of making the most of what you?ve got rather than saying where do you want to go to the customer.?

To some degree the reseller?s job is already about making the most of the software that is being made available, rather than just getting it in, up and running.

Whatever happens in the future, BSG, Greengage, Exel and thousands of others like them, will increasingly be providing the external expertise required to make the software deliver benefits to the business, rather than simply supplying the box.