Try to identify a software vendor that isn't interested in the SMB space and the chances are you'll be searching for a long time. As any reseller will tell you, vendors are desperate to get deeper into this burgeoning segment and increase their market share, as well as form relationships that they hope will lead to years of additional revenue from renewed licences and upgrades.
The first issue any vendor faces when attempting to penetrate this lucrative market is defining what an SMB actually is. Katie Spurgeon, channel and alliances manager at security software powerhouse Symantec, admits an SMB in this region is typically smaller than what the rest of the world may be accustomed to: "In this region we define an SMB as a company that has up to 500 users. However, Symantec globally defines an SMB as any company with up to 999 users. SMB markets are collectively the largest and fastest growing markets for Symantec and will continue to be markets of strategic focus," she added.
Database powerhouse Oracle, meanwhile, employs perhaps the most simplistic approach, defining an SMB as any business that does not use its resources in the way that a large business does. Hussein El Gueretly, director SMB applications at Oracle Middle East and Africa, elaborated: "In the Middle East, we took a very simple approach. There are large accounts in the Middle East to which we've dedicated direct sales people. Anything that falls outside this list of named accounts is what we call the ‘white space'. In the Middle East and Africa, we consider this an SMB." He added that these companies typically have annual revenue below US$100m and fewer than 500 employees.
So why does the SMB market present such a large opportunity for the software channel? One reason is the apparent lack of in-house expertise in this segment. According to Zaid Abunuwar, small and medium solutions and partners director at Microsoft Gulf: "If an enterprise organisation wants to deploy a very complex or sophisticated solution, they can afford to ‘in-source' the resources for those projects, train them, skill them and have them part of their employees. SMBs cannot afford to make those sorts of investments so they depend more on the partner space, so partners are more relevant to the SMB space than maybe the upper or enterprise spaces."
That doesn't mean it is as simple as a reseller turning up at a customer's door and persuading them that need to buy a certain piece of software. The onus is firmly on developing the skills to be able inform the customer, offer technical assistance, and provide support and licence renewal services.
Marc van der Ven, managing director at ERP and accounting software giant Sage Software reckons that the foremost quality that a reseller must have is the ability to understand the customers' needs. "First of all the reseller needs to be able to explain the benefits of technology to customers and understand what the customers' problems are. One of our solutions is CRM software and a lot of clients come to us and don't know that they need CRM software, they just have a problem and they're trying to find a solution for it," he explained.
Deepak Prakash, senior general manager at financial accounting software vendor Tally Solutions, reinforces the view that an understanding of the SMB mindset is crucial to reseller success. "Resellers need an understanding of the specific issues that affect SMBs, which are significantly different to the demands of the personal PC user," he said.
The race for the SMB market has seen a lot of smaller ISVs joined by enterprise-level vendors that have either scaled down their high-end solutions or developed modified versions to cater for small businesses.
CA's regional director, Abdul Karim Riyaz, acknowledges that while most people perceive it as a large enterprise software provider, the vendor has also endeavoured to become a major player in the SMB area in the last few years. "We have actually come out with some specific product-sets and offerings targeted at SMBs by understanding some of the unique challenges that the SMB faces," he claimed. "Most people have just taken their enterprise products and branded it as an SMB product. We assessed the needs of SMB and actually designed products for SMBs, addressing their specific issues. We took around 18 to 24 months to develop these new solutions rather than just create a marketing bundle with these products," he added.
Most vendors concur that ‘fulfilment' resellers are able to sustain profitable business from the SMB segment by providing software solutions that are simple to implement and require little specialist knowledge. However, the more successful resellers are those that are willing to work with the vendor to go the extra distance. Take Adobe, for instance. It has certain solutions which not only provide a staple diet for proximity resellers, but offer scope to those who wish to do more.
"Most of our desktop products are easy to use and general IT resellers can handle it, there is no problem," said Jacob Alex, Middle East channel manager at Adobe. "For example, Acrobat is a product for the general IT reseller - it is typically only used to convert word documents into PDFs. In those cases, any reseller can sell it, there's no value-add involved. But a lot more can be done with Acrobat. Resellers need to know the features and understand how to project those features to solve the customer's problems," he said.
While there is still a huge role for the box-moving channel to play, software vendors are clearly more enamoured by partners who are willing to engage at a higher level. Symantec's Spurgeon said: "We can partner with any kind of reseller and if they don't want to focus on selling a solution, they can sell the product. But obviously the more skilled the partner the more support they get from Symantec, such as a direct relationship with our pre-sales team and access to our global technical support," she said.
Kalpesh Desai, COO at software vendor 3i Infotech, insists the company is looking for channel partners that invest in certified sales, pre-sales and delivery resources. "The attitude towards making this investment and acquiring these skills is more important to us than the size of the reseller," he admitted. "Our channel partners have grown their businesses with us and are long-term players."
There is also a major opportunity on offer to those resellers who choose to specialise and focus on a particular niche of the SMB software market, such as construction or education. According to Microsoft's Abunuwar: "The more niche the partner's focus is, the better the profit margins and return for offering those solutions. If you want to compete with the masses in fulfilment and very elementary processes, then you're going to be squeezed with your profit margins."
3i Infotech says its partners have evolved from systems integrators who carried its Orion Advantage solutions as a service offering to enhance their overall value proposition to resellers who see this as a critical area in their customers' business. "Resellers are being encouraged and are transitioning towards becoming fully-fledged service-oriented houses that provide consulting, training and the first line of support to our customers," said Desai. "Our customers rely on them to run almost every aspect of their technology initiative rather than having just another vendor to interact with."
He added: "Resellers now need to move up the value chain in meeting up with this challenge. It would be of immense value to have resellers specialised in specific verticals where their domain expertise can leverage the deployment of our solutions in different vertical industries."
While the sale and delivery of software still earns resellers a decent margin, the real money comes from providing implementation and software management services. Oracle's El Gueretly said: "A reseller, who is also a system integrator, selling a complete solution would also make a margin on the implementation. The figure would vary according to competence, skill level and industry knowledge of the partner, as well as the perceived risk of the project, but it would generally offer a higher margin. Typically, good implementers with a strong track record can easily make a 40% margin, maybe higher."
Naturally, any discussion on the SMB software market will at some point turn to the issue of piracy. According to the BSA, for every US$2 of software purchased last year in the Middle East, US$1 was pirated.
Alex at Adobe admits that the masses of users who use copied or unlicenced software present a huge barrier for the legitimate channel. "We have lots of anti-piracy activity and have different strategies that vary between countries such as the UAE, Saudi or the Levant region," he said. "We aim to bring value to those customers by educating them about the value of the original software and the benefits of buying original software."
Bernhard Braunetter, director of marketing alliance SMB at ERP giant SAP, claims strict control over the subscription of software is imperative. "When we close a deal with an end-user, they have to sign a legal document which states that they are legally bound to tell us when they want to increase their number of licenses," he said. "We have the right to carry out an audit whenever we want and if we believe that a customer has under-subscribed licenses, we can check their system."
Abunuwar at Microsoft agrees that under-subscription of software licences - which is an entirely separate issue to piracy - is a problem, and concedes that much of this is to do with a lack of awareness in the region: "We realise that there are two parts, one is enforcement, and the other part is awareness and education. Customers, and even resellers, often do not know what will constitute a breach in intellectual property. If they offer the wrong licence level or give the wrong advice regarding licensing it can pose problems, which is where awareness plays a major role."
He adds that the vendor works closely with national governments to ensure adequate enforcement is in place. "If a customer makes an investment in software, you don't want that customer to be at a disadvantage because somebody else was able to pirate the software," he added.
The need for a highly qualified sales and technical staff is also becoming an increasingly important component in the battle for SMB market share. With end-users making sizeable software investments that may outweigh anything they have done before, vendors must ensure that their channel partners are properly educated to handle the sale.
"It is important to make sure that the client's personnel are qualified to work with such high-end solutions," observed Van der Ven. "The main challenge is to have capable people on both sides, and to focus on the benefits of the technology."
One of the more tricky challenges facing resellers addressing the SMB space is that small customers have a habit of looking to cut corners wherever possible. SMBs will often opt out of purchasing everything they need in order to save on costs, leaving the reseller with a big job on its hands to convince the customer otherwise.
"Sometimes, being a bit price-conscious might impact the completeness of the solution that you're getting," said Abunuwar. "SMBs need to realise that when you deploy a solution, it really doesn't matter if you're an SMB or an enterprise, you need to go through the same steps. I have noticed that companies in this segment tend to skip certain steps because they want to cut costs and save money. That sometimes ends up going back hurting the solutions deployed."
While pricing remains one of the SMB software channel's most emotive topics, there is also a strong role for brand to play as it brings credibility to a sale. "Brand is one of the most important aspects in this market - it opens up the door to a market which is difficult to get into," said SAP's Braunetter. "It assures resellers and end-users that we'll be there for them for another 10 years. SAP is not the cheapest brand, but that's not what we're focusing on. We're delivering a promise and when we strike a deal, the focus is on the quality we offer," he added.
CA's Riyaz prefers to disagree, arguing that SMBs are not willing to pay a premium just because the software is from a bigger brand. "They can find a number of very small local players with little brand recognition," he said. "Often these products are good products, but they don't have a strong reputation. When you have such a mixed market, SMBs do not go for unknown products just because the price is very low, they often take a mid-path, a good brand at an affordable price." he concluded.
From pricing to piracy, the Middle East software channel faces many challenges in the SMB space. But with upgrades and renewals a central part of the software environment, resellers that get the sales formula right can look forward to a lifetime of repeat business.
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