Technology Gives Small Business A Double Take Shifts In
Strategies Let Tiny Firms Wield Bigger Stick Among
Industry Leaders
Date: 3/10/99
Author: Doug Tsuruoka
Large computer companies are cozying up to small-business clients in a big way. Just ask actress
Cheryl Ladd.
Ladd writes and publishes children's books when she's not working in television. One reason she
started her own home page in November was to sell books online.
''I wanted to expand my reach through my fans and my art,'' Ladd said. ''But I wasn't computer
savvy in any way.''
So IBM Corp., the world's largest computing company, quickly lined up to help Ladd's tiny
business. Big Blue, which also sells electronic- commerce systems to small businesses, sold Ladd the
basic technology to create a Web site and gave her tips on how to do business online.
Orders for Ladd's work are piling up. Lee Warren, a manager for IBM global services, says more
than 14,000 people have visited the page.
Ladd's success contrasts with the situation that faced small businesses five years ago. Most
small-business owners looked on technology with fear or indifference.
''Technology was seen as a cost,'' said Eugene Lee, vice president of marketing for the small and
midsize business unit of Cisco Systems Inc. Networking giant Cisco also is wooing small-business
clients.
Lee says there's been a big shift in thinking.
''The role of technology is now front and center in the minds of these businesspeople,'' Lee said. ''My
customers look on technology now as an investment.''
Big Profits
And computer firms have discovered big profits in small-business technology. The category includes
small home businesses like Ladd's on up to companies with 500 employees.
IBM and Cisco are just two suitors in this growing market. Others include networking giant 3Com
Corp., computer makers Hewlett-Packard Co. and Compaq Computer Corp., and software leader
Microsoft Corp. Hundreds of other computer hardware, software and Internet-related firms also are
sprucing up products and services to court small-business clients.
Edgar Masri, senior vice president of 3Com's enterprise business unit, estimates small-business
technology is an $8 billion market that's growing at 25% to 30% a year.
A study by consulting firm Yankelovich Partners Inc. last year found that companies with 100 or
fewer employees make up 51% of private sector output in the U.S. These firms also employ 47% of
the nation's work force.
Profits from small business sales splash across all sectors of the computer industry. A 1998 study by
International Data Corp. in Framingham, Mass., says small businesses account for 45% of all PCs
sold in the U.S. Small- business users also are the fastest-growing segment of the PC market.
The products and services offered cover everything from inexpensive networking technology that
runs all aspects of a business to e-commerce Web sites. There's also software that helps smaller
companies do business with each other. Microsoft, for instance, sells small-office software that can
be bought off the shelf in computer stores.
E-Commerce
Another driver of small-business technology is the explosive growth of e-commerce. While few
consumers shopped online a few years ago, small companies - especially retailers - now realize
those customers are pouring billions of dollars into online shopping. Retailers also know they can
save bundles on overhead by adopting the new technology.
''The catchwords in Internet commerce are ease of access and cost-effectiveness,'' 3Com's Masri
said. ''On average, mall businesses) cut their bills by 40%. This includes what they save on capital
equipment, plus their telephone bills by using Internet access and running voice and data traffic on the
same network.''
Web technology also allows small firms to level the playing field with bigger businesses. It catapults
small businesses' products and services onto the Web and can make these firms appear as large as
the big boys.
Peter Rowley, general manager of IBM's global small and midsize business unit, says the Net is the
fastest-growing spot for small-business technology. Rowley says that of 3 million to 4 million small
businesses online in North America today, about 1 million started Web sites in early 1998.
''We think the numbers of small businesses that have just gone on the Net since early last year will
(reach) 2 million by the end of 1999,'' Rowley said. ''I don't think anything is going to stop this. And
e-business is going to change everything about the way we do business. This is because time is
becoming the most critical thing about life.''
In today's fast-moving economy, saving time is crucial for small businesses and consumers. Recent
surveys show hordes of consumers turned to online shopping this Christmas because of time
constraints.
Cheaper and more powerful PCs also are helping make small- business technology popular. This is
especially true in the case of cut- rate network servers.
Cisco used to focus on big enterprise software clients for its networking gear. But the technology's
growing affordability has encouraged Cisco to reach out to small companies.
''Some pretty amazing tech is within the budgetary grasp of small businesses,'' Cisco's Lee said.
The jury is out on how much small businesses will exploit the new technology. But there are signs
small business soon will be a thriving market for tech firms.
White Boxes
This can be seen in the growing market for so-called ''white boxes,'' or low-cost PCs made by
smaller computer makers that carry no brand name. The machines are priced $100 to $200 below
name brands and are sold by retail outlets called value-added resellers. Analysts say white boxes
make up 60% of all PCs being sold to small businesses.
''That has helped proliferate this technology to small businesses,'' said Eric Schmitt, analyst for
Forrester Research Inc. in Cambridge, Mass.
Rather than watch market share erode, big computer makers like Compaq are turning out low-cost
PCs to compete against white-box rivals. PC makers also are trying to give small-business clients
more for their buck. IBM in January introduced the PC300GL, the industry's first desktop equipped
with speech-recognition technology for small businesses.
Schmitt expects a raft of new products from big vendors like IBM and HP in coming months. That
should make the Internet easier to use for small businesses.
''Most of these businesses don't have an information technology team. So these products will make
shared Internet access, e-mail account management and data backup easier for the small-business
person,'' Schmitt said.
Big players also are dreaming up new ideas to woo small-business customers. IBM, for example, is
pushing a concept called ''supply-chain management'' for small to midsize businesses. The concept is
an information technology system that knits small manufacturers and materials suppliers together.
These links help small firms supply each other and meet the needs of larger businesses.
A big drug firm like Bayer AG, for example, might want its small suppliers to be tied together in
cyberspace to coordinate activities. This would allow Bayer to churn out finished drug products in
the shortest possible time.
Challenges
But there are challenges mixed in with the promise of small-business technology. One hurdle is
getting various technologies to work together seamlessly in a small-business environment. This
involves making things like Web sites, faxes, telephones, data storage and PCs operate in a single
system that isn't too hard to use.
''It's not easy from the implementation side,'' said Marc Johnson, analyst at Jupiter Communications
LLC in New York.
Another problem: Not every small-business client has the same needs. The cookie-cutter approach
won't always work.
''At the low end, you have home-based businesses with one to three people sharing an America
Online dial-up account. Then you have 500 employees at the bigger end and the need for some kind
of infrastructure,'' said Forrester's Schmitt. ''This is a hard market to define.''
Jupiter's Johnson says larger businesses succeed by spending lots on marketing to let customers
know about buying on the Internet.
''But it's a lot less clear how the local stationery store can move a lot of product online,'' Johnson
said.
Most small businesses approach technology piecemeal. Last year's Yankelovich study found 46% of
small businesses buy technology as individual pieces and not as a bundled system.
Some analysts say there's too much hype on what technology can do for small businesses -especially
where the Web is concerned. Some say it's better for both buyers and sellers of the new technology
to keep their feet on the ground about how sales will be impacted.
''The notion that the mom-and-pop store in San Jose (Calif.) is going to be selling online to everyone
in New York is a bit hyped,'' Schmitt said. Like anything, it takes time for new technology to shake
down to small businesses and consumers.
Using The Web
Many small businesses also are adjusting to the reality of selling products and services on the Web.
Bonnie Ott runs her own New York firm that makes promotional items such as pens and clothing for
clients. Ott was ecstatic after IBM set up a Web page business for her. She claims a fair amount of
business through the Net.
But she says potential clients still are turned off by the impersonal nature of cyberspace.
''People can look at my Web site and my products, but they still want to know if there's a viable
business or person at the other end,'' Ott said.
Ladd says it was bewildering to wade through the number of options she had in doing business on
the Web.
''There were so many choices. Narrowing the areas where I really wanted to go can get a bit
frustrating,'' she said.
Online retailing for small businesses also faces unique challenges. As online shoppers become more
like mass-market consumers, they may demand easier-to-use and fail-proof technology. This makes
them harder to woo.
''A tech-savvy shopper will be forgiving when a server goes down. But a more mainstream consumer
isn't,'' Johnson said. ''This raises the bar for the seller as far as customer service goes.''
Despite such challenges, Cisco's Lee says the environment for small-business technology is maturing.
Lee sees three long-term goals for companies involved in small-business technology. The first is that
companies must continue to simplify the technology for clients. Second, these firms also must keep
slashing the cost of delivering this technology to customers.
The third goal concerns financing. Lee says companies like Cisco must devise leasing and other
creative financing to make it easier for small-business clients to absorb the new technology. He adds
none of the goals is unusual in a market that's still expanding its reach.
''We're going through adolescent growing pains,'' Lee said. |
