What's a small business to do?
March 31, 2000
by Bronwyn Fryer
Diane Heyford, owner of a small landscape design firm, is no acronym-spouting, PC-futzing geek.
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Small businesses will spend $71.2 billion annually on information technology products just as plush corporate accounts are drying up.
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"I'm not computer literate," she admits almost proudly. Nor, like most small office, home office (SOHO) types, does she have the inclination, time, or patience to "hold for the next available technical representative" when the inevitable "fatal error" message freezes her PC.
"I always want my computer to work, and I certainly don't want to fiddle with it myself if something happens," she insists.
International Data Corp. (IDC) research estimates that many owners of the nearly 28 million small businesses in the U.S. -- growing to 37 million by 2002 -- feel the same way. Since these small businesses will spend $71.2 billion annually on information technology products just as fat corporate accounts are drying up, computer manufacturers should be more interested in them than ever.
Nuisance -- or goldmine?
But PC makers have a lot of courting to do. In the past, they've counted on corporate IT departments to clean up Windows crashes, and viewed providing support for the Heyfords of the world as a profit-sucking nuisance.
Left to suffer lost time, money, and productivity all on their lonesome, MIS-less small businesses make $3.9 billion worth of help desk calls a year, according to industry research firm Dataquest.
"For years, all the industry cared about was speed and feeds, and about ramming boxes down small business buyers' throats," admits Michael Gale, Micron PC's (MUEI) chief Web officer for strategic business development.
Faced with shrinking margins and muddled or moribund sales channels, PC makers are finally waking up to the reality that they will have to move to a new model: subscription for services. "How else can anyone make money?" asks Gale.
Under the subscription model, the PC business will become "very much like the cell phone business, where vendors will compete on quality of service," says Rob Enderle, VP for research firm, Giga Information Group. "Buyers have indicated they wanted something like this for a long time," Enderle notes.
Subscribe, not buy
For monthly fees starting at just $15 a month for Internet-based support or Web-hosting services, small businesses can finally avail themselves of the kind of computing support that corporations enjoy. Providing these subscription services will be either mainstream PC vendors such as Micron, Dell (DELL), or Gateway (GTW), or a new wave of service companies like Everdream and CenterBeam that woo small businesses with a variety of soup-to-nuts computing services.
Micron PC, for example, has committed itself to subscription services after failing to become a PC powerhouse along the lines of Dell or Gateway. With Micron's "subscription computing" business, customers can get computer hardware, Web-hosting services, e-commerce capabilities, Internet connectivity, and more for monthly prices ranging from $15 for Web hosting to $1,500 for a full NT BackOffice setup. "Our new business model is all about providing customers with services," says Gale.
PC vendor Gateway, long a favorite with consumers, joined the subscription game in 1998 with its Your:)Ware program, which allows consumers and small businesses to get hardware, support, and upgrades. Compaq (CPQ) and Dell, meanwhile, promise to let users access machine-specific support via the Internet with a push of a button.
Though Compaq's direction is "not clear," according to IDC senior analyst Mary Porter, the troubled Houston-based PC manufacturer is showing signs of moving in the services direction. "There will always be the basic PC business, but the future will depend on what else is lying on top of that," says Leslie Adams, VP of consumer marketing for Compaq.
Dell recently signed a deal with IBM (IBM) that will allow its customers to take advantage of Big Blue's Global Services. Meanwhile, IBM is spending $100 million on a marketing campaign touting hardware, software, Web services, and e-business tools for small businesses.
PC vendors lag behind
It might take a while for the PC vendors to make the transition, though. Moving to subscription computing means that "computer makers will have to completely reorganize their business models, and that could take a number of years," Enderle observes.
The reason for the slow change, he says, is that "the underlying concept of giving away the equipment and charging for service is diametrically different from selling hardware." Nevertheless, it's clear that all these vendors, most notably Micron, have already begun to turn their battleships around.
Heyford isn't looking to the brand-name folks, though. She thinks she's found her salvation in Everdream, a startup run by Gary Griffiths, who spent 17 years as a PC product developer for IBM (he's also the former CEO of SegaSoft Networks). Last August, Everdream outfitted then-beta tester Heyford with a computer, unlimited Internet access, remote computer system service, and small business applications.
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