KEY POINTS:
The giants of the IT industry are showing an increasing interest in snuggling up to the minnows of the business world.
Global software and IT services companies like IBM, SAP and Oracle, traditionally focused on selling to large corporates, are paying more attention to the potentially lucrative small-to-medium business market.
This doesn't mean the lone director of a start-up business, beavering away in his garage, should expect a call from an IBM sales rep anytime soon. A "small-to-medium enterprise" (SME) business in this context still means turning over something in the order of $50 million to $200 million a year.
What it does mean, however, is the big IT guys have realised it's getting tougher to make sales in the large-business patch. And, at the same time, there is a thirst for sophisticated software solutions among companies working away a few rungs down the ladder.
SAP New Zealand managing director Ian Black says despite the challenges posed by the high dollar, local SMEs are being buoyed by this country's relatively high GDP growth rate. Such business optimism means good growth potential for SAP.
"There is a growing level of confidence about their [SMEs'] growth opportunities so they're feeling more bullish about making investments. They're also being strategic, looking at what is going to help them grow for a few years, not just fix a problem for today," says Black.
"There's also a general awareness that technology can become a real constraint for a small business if they're not careful. They're now prepared to invest ahead of the curve so they don't have a problem when they're growing."
A new deal between SAP and IBM typifies how the big vendors are angling to get a slice of the action resulting from this willingness by SMEs to invest in IT.
The two companies said last month that IBM would begin selling SAP's All-in-One software package here.
All-in-One is the brand name for SAP's small-to-medium level enterprise resource planning (ERP) software package. At the risk of swamping this column with three-letter acronyms, ERP software aims to unify a business's various software technologies and requirements.
SAP's pitch around All-in-One is that it gives smaller organisations access to the company's large-enterprise experience at an affordable price. IBM takes a similar line.
"We're looking to work together to take what we have done in larger more complex environments and produce a solution that is fit for the small to medium enterprises," says Andrew Tubb, associate partner with IBM Global Business Services, the company's consulting division.
He says the SME sector is "increasingly the area of the market where there is a large amount of untapped demand.
"We wouldn't have made this investment and worked with SAP to get this far if we didn't think there were plenty of organisations out there that had this need."
While there is still plenty of money to be made selling technology to large organisations, relying solely on big sales is a risky strategy, particularly in a small-business dominated market such as New Zealand.
IBM learned that lesson the hard way in the late 1990s as the main player in the Police's ill-fated Incis IT project.
In the SME market, the opportunity to buy big name branded software and services appeals to smaller business buyers if the price is right and the vendors can deliver on one of their key sales pitches of getting their systems up and running relatively quickly.
So the SAP/IBM move seems sensible, especially given Black says SAP has had good success this year selling software to local retailers.
Retailers are a notoriously tight-fisted bunch who tend to put off spending on items like technology upgrades for as long as possible. But the high dollar, and shoppers' unwavering desire to spend, is providing a boom for many with cheaper imports leading to increased margins.
This has seen several open their own wallets to fork out for the type of technology enhancements SAP is touting.
If even the miserly retailers are interested in spending on ERP, the market must be good.
* simon@businesswriter.co.nz
