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Quocirca's Changing Channels IBM, a high priest of enterprise IT delivery, wants to spend more time ministering to the needs of small and mid-sized businesses (SMBs). Will it find a receptive flock?

IBM has transformed itself in the last 15 years by turning into a services-led organisation. Sure, it still sells software and hardware, but this is on the back of a range of business and technical consultancy services that it offers to enterprises. Can IBM scale this model down for SMBs or is an alternative approach required?

What are the alternatives? IBM’s legacy is as a hardware supplier. But this is now the most highly commoditised area of IT delivery. IBM itself admitted this last year by selling off its personal computer division. But IBM still has a strong server business – albeit focused mainly at enterprises. The trouble is that to reach the SMB market with a hardware message IBM runs directly into the king of the tin shifters – Dell – and into the long-term incumbent – HP. Dell is taking an increasing share of the SMB market without even bothering to have a reseller programme. Resellers, who tend to the day-to-day needs of SMBs, are increasingly buying servers from Dell, rather than IBM or HP, because it is often the cheapest source for a well known brand. To sell hardware to SMBs IBM must add value through software and/or services.

Three of IBM’s five software brands are based around deployment and collaboration software (the other two, Tivoli and Rational, are for systems management and application development respectively). All three are well known and respected names: Lotus for collaboration and email management, DB2 for data management and WebSphere for application deployment.

IBM has been busy producing “Express” versions of products from the Lotus, DB2 and WebSphere brands targeted specifically at the SMB market. These are aimed to be easy to deploy, manage, install, learn and use with a competitive price point. They are also packaged to be easy to demonstrate, pilot and sell, hopefully making them attractive to resellers. To simplify things further IBM has also released “IBM Express Run Time” a single environment for running all of its Express offerings

IBM’s problem with a software led sale is that it will find itself head to head in the majority of sales with Microsoft who already dominates the SMB market and has software solutions in all the same areas. For IBM a “me too” strategy will be hard grind, it will find it hard to convert the faithful – resellers and SMBs alike – on a software message alone (although, if any have lost faith, IBM and its press team will welcome them with open arms).

So what about IBM scaling down its enterprise success and going for a service led sale? Dell and Microsoft don’t have a huge service capability like IBM, but this in itself is part of the point. They don’t have services capability because they rely on resellers to deliver services. IBM marching in with a services offering could be seen as a threat to resellers themselves who, as has been said, tend to the day to day needs of SMBs.

IBM sees a way round this. Nearly all IBM’s consulting, be it business or technical is delivered large scale and bespoke for enterprise customers, so it plans to bundle up its capabilities into service packages which its resellers can deliver to SMBs. IBM will use its enterprise experience to help build the content for “IBM Express Managed Services” but the resellers will deliver them, their own skills only being supplemented by IBM’s when required.

This may well work, but resellers are fairly bullish about their own capability to deliver services and Microsoft and HP can certainly respond to this, although they would not be able to claim the same enterprise experience on which to base their advice to resellers, especially when it comes to business consulting.

But IBM has one final trick up its sleeve, also under the guise of services. It has started accumulating a series of applications that it will resell as hosted services. Is this IBM re-entering the applications market that it stepped out of several years ago?

Then its plan was to focus on delivering applications to its customers though independent software vendors (ISVs). This move does not change that, IBM is simply providing a platform for its ISVs to deliver hosted solutions to the SMBs through its “Application Enablement Programme”.

Microsoft is also working on delivery of hosted applications to SMBs through some of its larger partners. The difference is that IBM will be hosting the applications itself and its sheer size will mean, if successful, it will achieve economies of scale that Microsoft’s partners will find hard to match. IBM will be able to sell its hosted applications via any resellers, including the smallest, who would not be able to build up hosted offerings themselves, and who spend their time tending the remotest parts of the SMB flock.

Of the four approaches IBM can take, a direct hardware push would almost certainly fail, a direct software approach will be hard, slow and will probably fail, the pure services play will be an interesting punt, especially if IBM leverages its business consulting experience, but the one that could out flank all its main competitors is hosted services. IBM should speed up its deployment of these – and when possible they might as well be based on IBM’s own hardware and software – the nature of hosted service is such that the end user organisations, whatever their size, probably won’t know or care.

Bob Tarzey is a service director at Quocirca focussed on the route to market for IT products and services in Europe. Quocirca (www.quocirca.com) is a UK based research and analysis firm with a focus on the European and global markets for IT.

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