The next action arena in enterprise software is going to the small and medium enterprises (SMEs) segment. SMEs typically lag the big companies in technology adoption by 3-5 years. The Internet is enabling companies to interact much more closely across the value chain, and SMEs are now the weak link in the chains of the bigger companies.
The SME opportunity is significant because this has the potential to be a huge mass market for enterprise software. Leave aside the 10,000 big companies of the world, and there are about 25 million SMEs. Their spending power can rival or even exceed what the big companies have spent in the past few years. But to target these enterprises, it will be important to rethink on how software is delivered to them. Few companies have sold successfully to SMEs.
The nature of SMEs differs across markets; what may be considered as a medium-sized business in India is perhaps a small business in the US. What SMEs do have in common is the need for cost-effective enterprise software solutions which help them move ahead into the eBusiness era. SMEs need a whole solution which provides them an integrated information and transaction system across the enterprise. SMEs do not have the time, inclination or expertise to patch together various specialised vertical applications. So, while the bigger companies are more likely to go for best-of-breed applications, SMEs are going to prefer software suites.
The notion of software as a service is best applicable to this market segment: they can pay for software (and perhaps other technology requirements) on a monthly basis, like they would pay for the other utility services they use (electricity and telecom). So, in theory, ASPs should have done well targeting SMEs no up-front payments, no upgrade hassles, no need to hire specialists. But even the best known of the ASPs (Salesforce.com) has only succeeded in garnering just over 4,000 customers in its 3 years of existence. This is because they may be focusing on the wrong markets the real opportunity lies in the emerging markets of the world. SMEs in these markets have far fewer choices and a much greater need to automate or risk being left behind.
But to target these SMEs, an ASP solution by itself is unlikely to work. It needs to be complemented by software which can run as a service on the local network within the enterprise. This eliminates two problems that have plagued ASPs Internet connectivity issues and the reluctance for SMEs to have their company data residing elsewhere. So, one approach to tackling the SME enterprise software market is to create a distributed computing environment, with the software available on local networks on a server (think of this as a LAN ASP) and data being replicated across locations to provide a near real-time computing environment.
If we look at India and at the software usage among SMEs, the opportunity becomes evident. Most SMEs have built their software platforms using a mix of email, MS-Office (predominantly pirated) and an accounting application like Tally. To this are added custom applications developed by local software companies on a need basis. The market is very fragmented. Besides Tally in Accounting, no other company has established dominance in any of the segments. The international enterprise software companies have not succeeded in penetrating beyond the bigger companies because of the high costs of their applications and customisations not many in India can afford dollar-denominated pricing.
The SME market segment is there it needs disruptive thinking in terms of how the software needs to be developed, packaged and distributed. One source of help is coming from the growth in standards both for software and for business processes.