Emergic

One approach to the distribution challenge to reaching Small and Medium Enterprises (SMEs) is to build a franchise network of “7-11” type kirana (neigbourhood) “eStores”. These serve two purposes: the last link in the distribution chain, and also locating the Enterprise Servers in case they cannot be bought by the very small enterprises (in this case, the SMEs will have the Enterprise Clients; the last-feet connectivity will be via wireless through 802.11b). These eStores also serve as “showcase” points for the enterprise technology infrastructure that we are proposing. The aim should be to make computing like a utility service for SMEs. (It is also worthwhile noting here that people rarely change utilities!)

The Enterprise Client-Software mix is akin to a “razor-blade” combo. The Enterprise Clients are needed to multiply the number of users in the enterprise, and work like the razors. The blades are the monthly charges for the use of the Enterprise Software. Even at USD 5-10 per person month for the Enterprise Software, the rewards can be large in targeting the “world’s corporate poor”.

There is also a potential for two extensions to the SME market – one which builds on the SME market, and the other which extends the Enterprise Clients to the Consumer market.

Deepen Relationship with SMEs via Outsourced Services: Services offer the advantage of locking in the SMEs by understanding their business processes. These services must make it easy for SMEs to start and manage businesses by taking care of the “non-value-adding” services as far as the SME is concerned. Business Process Outsourcing is going to increase going ahead, and this can also leverage India’s skillsets well.

Extend Devices to build the Mass Market Consumer Market: The Enterprise Client can be extended to the Consumer market, to build out a mass-market vision of offering low-cost computing to the world. The consumer market volumes for the devices can also help in bringing down the unit cost dramatically. Seeding first in the Enterprise market helps build out some volumes, along with word-of-sight (i.e., people start seeing these devices). This will create the pull from the mass market. The eStores can also serve as 802.11b wireless hubs, thus creating a near-ubiquitous wireless network. Today, there are cybercafes in India. The problem is that one has to go inside the cybercafe to use the computing resource. Since the Enterprise Clients will be 802.11b, users could be standing 100 feet outside the cybercafe and still use the connectivity from the cybercafe. This can dramatically multiply usage.

Targeting SMEs in a range of diverse Emerging Markets with a bouquet of custom-built hardware and software is undoubtedly the counter-intuitive business strategy. The risks and odds against success are high. But, then, with a potential market of tens of millions of SMEs across the world, so are the rewards.

Can companies make money selling to the Small and Medium Enterprises (SMEs) in Emerging Markets? Do the Enterprise Hardware and Software solutions provide the platform to build a large, successful company? What is the business model in selling to SMEs? How do you reach SMEs?

By SMEs, I mean those companies outside the Global 5-10,000 biggest companies. These large companies will be targeted by all the world’s big software and b2b players. That still leaves 25+ million SMEs in the world. SMEs are defined as companies with 1-500 people, or companies with upto USD 50 million in revenue. There are estimated to be 8 million such SMEs in the US, and another 8 million in Europe, with a similar figure in Asia. My guess is that in Asia the number of SMEs will probably be much larger as a percentage of the companies.

There are lots of these smaller and medium companies who all are faced with one big challenge: Survivial. They need to compete and live. Yes, they are hard to reach, especially the ones in the emerging markets. No one really cares about these companies in these countries. At the same time, SMEs in Emerging Markets are also aspirational.

Many of them are exporters, and part of global supply chains. Adoption of effective technology is very important for their business. Just buying a PC and a Net connection is not the answer – what they need is a “whole solution” which is what we are putting forth / postulating here.

The solutions which are good for the “developed” market will not necessarily work for the emerging markets. One has to rethink how the technology infrastructure (software, hardware and services) can be provided but at a fraction of the price. What is proposed here is exactly that – a “whole solution” comprising of the Enterprise Server, Enterprise Client, shareable monitors, and the Enterprise Software stack. One needs to go in with a “whole product” to target these enterprises. The message: Do you want to be an “eBusiness winner” (or even a survivor in tomorrow’s world). If so, we have the technology and services mix for you.

SMEs are also the hardest market to reach and that is why few have succeeded in targeting them. The margin on each sale is low. The problem needs to be treated like an FMCG product selling. A distribution pipeline, which can be fed with incremental products and services for the SMEs, is needed.

The complete Enterprise Hardware solution consists of the following four components:

Enterprise Server	PC	Enterprise Client	Monitor + Keyboard
Connects to the Internet, Telephone Network (built-in PABX and Voice Mail), Cable TV Network; Storage; also runs the Enterprise Software; Price-point: USD 1500 (Rs 75,000)	1 for every 5-6 people, full-featured desktop; Price-point Rs USD 800 (Rs 40,000)	PDA+Phone; one device for everyone in the company, mobile “always-on” connectivity with the enterprise; can also be used from home or outside via RJ11 Tel Line connection; Price-point: USD 100 (Rs 5,000)	Shared infrastructure including monitor, keyboard and perhaps a webcam (1 for every 5-6 people), provides a bigger viewing area for the Enterprise Clients and Video (TV); Price-point: USD 500 (Rs 25,000)

SMEs (Small and Medium Enterprises) need to reliably connected to the Internet and its services. The key here is to create a nearly “always-on” (intermittently connected) infrastructure – without this, they cannot be offered software as a service. The solution for this is to offer an Enterprise Server which sits on the company’s LAN, and takes care of not just connectivity and communications needs, but also has the enterprise software stack running locally. This way, the company feels more secure and has access to the service even if the network connectivity is not available. It also gets the benefit of speed and “always-on” connectivity.

The Enterprise Server can connect to three networks: the Internet, the telephone network (also serving as a PABX for the enterprise) and the cable TV network. It also gives the service provider the ability to help manage their local IT infrastructure. Data should be replicated on servers on the Internet also, thus offering redundancy and availability from other locations also.

The cost of a PC at USD 600-700 is still significant for SMEs in emerging markets. The result is that PC penetration in enterprises is low (for example, in India, there are only 3.5 million PCs for a workforce in excess of 100 million). Yet, to get the full benefits of the Internet and collaboration, everyone in the enterprise needs to be enabled with computing and communications. The solution is the Enterprise Client.

The Enterprise Client is basically a low-cost (less than USD 100) PDA with wireless support (802.11b), and supports voice/data. The software needed on the Client is a Web browser, which can interface with the Enterprise Software and other Web servers elsewhere on the Internet. The Client is the window to all the Enterprise Software applications.

The shared monitors (1 for every 5-6 people) create shared resources which can be used as and when desired by employees for needs which require a bigger screen and full-sized keyboard (e.g. attachments, substantial typing).

SMEs (Small and Medium Enterprises) need a complete solution. The pure-ASP solution will not work because of issues of trust and connectivity challenges. We need a solution which combines the best of the software CD with the ASP. We also need this to be on a robust hardware platform, which is remotely managed. So, software applications and data need to be available locally, but also replicated remotely on the server. This means, we need to create a very low-cost and footprint server which is extremely robust, and which has the software applications as components. This server has to take care of all business needs. Data also needs to be entered only once, which means an integrated XML database is needed at the backend.

The real value of the Internet is in helping businesses becoming efficient, in helping them grow their revenues while cutting costs at the same time, about getting access to information in real-time and leveraging it in ways previously not even thought of. This wave in enterprise software is only just beginning. There are millions of companies using computers across the world, but few are using it in an integrated sense.

This is where the opportunity of tomorrow lies: creating a set of standardised applications for companies which can be used across their functions internally, and collaboratively externally – with suppliers, customers and partners. Organisations need to be beyond using Messaging and Collaboration – they need to e-enable the enterprise, create the “intelligent, real-time enterprise”. This means having a suite of applications to support ERP, CRM (Customer Relationship Management) and SCM (Supply Chain Management) – but from an SME viewpoint.

SMEs globally need an e-business suite for automating and integrating not just their internal functions, and also helping them collaborate with its partners. The suite should provide a single offering covering internal processes (ERP) and external interactions (CRM, SCM). It should be modular and Lego-like: SMEs can use it the way they want, piecing together the building blocks. Also needed: a library of business processes, models and architectures which SMEs can draw upon, and put in place not just its internal processes but also the software support for them through the suite.

The solution is to build out a complete Enterprise Software Stack as follows:

Industry Applications	CRM SCM Marketplace Auctions ePayments CollaborativePlanning ForecastingReplenishment(CPFR)	eBusiness Suite
Enterprise Applications	Finance HR Admin Procurement Content/CatalogManagement Analytics Website/eCommerce(Storefront) Marketing Sales EnterpriseInformationPortal ProductDevelopment Logistics InventoryManagement Training
Enterprise Platform	OfficeApps(Word,Excel,Powerpoint-equivalent) Calendar Scheduling InstantMessaging ContactDatabase Forums Collaboration VoiceOverIP GlobalAddressBook VirtualPrivateNetwork WebConferencing UnifiedMessaging	Business Operating System
Core Infrastructure	Database Mail FaxServer FileSharing/Server PrintServer ApplicationServer Backup DialIn/Out InternetAccess Anti-Virus WebServer Proxy Caching Firewall Router Anti-Spam ContentReplication FileTransferProtocol Internet-PABX
Integrated XML Database
Linux Operating System
Physical Layer	Ethernet Telephone ISDN Printer WirelessLAN(802.11b)	Interfaces

Software upgrades should be seamless and transparent to the end-users. There should be no customization. What is needed is a minimalist system which is built ground-up from the OS. Strip out all that is not needed, adhere to standard protocols, and store everything in an XML database to achieve integration.

This full-featured set of applications for the core enterprise processes should be priced at about USD 5-10 per person per month, thus making it extremely affordable. Such a solution would be at least 10 times more cost-effective.

SMEs (Small and Medium Enterprises) need a complete solution. The pure-ASP solution will not work because of issues of trust and connectivity challenges. We need a solution which combines the best of the software CD with the ASP. We also need this to be on a robust hardware platform, which is remotely managed. So, software applications and data need to be available locally, but also replicated remotely on the server. This means, we need to create a very low-cost and footprint server which is extremely robust, and which has the software applications as components. This server has to take care of all business needs. Data also needs to be entered only once, which means an integrated XML database is needed at the backend.

The real value of the Internet is in helping businesses becoming efficient, in helping them grow their revenues while cutting costs at the same time, about getting access to information in real-time and leveraging it in ways previously not even thought of. This wave in enterprise software is only just beginning. There are millions of companies using computers across the world, but few are using it in an integrated sense.

This is where the opportunity of tomorrow lies: creating a set of standardised applications for companies which can be used across their functions internally, and collaboratively externally – with suppliers, customers and partners. Organisations need to be beyond using Messaging and Collaboration – they need to e-enable the enterprise, create the “intelligent, real-time enterprise”. This means having a suite of applications to support ERP, CRM (Customer Relationship Management) and SCM (Supply Chain Management) – but from an SME viewpoint.

SMEs globally need an e-business suite for automating and integrating not just their internal functions, and also helping them collaborate with its partners. The suite should provide a single offering covering internal processes (ERP) and external interactions (CRM, SCM). It should be modular and Lego-like: SMEs can use it the way they want, piecing together the building blocks. Also needed: a library of business processes, models and architectures which SMEs can draw upon, and put in place not just its internal processes but also the software support for them through the suite.

The solution is to build out a complete Enterprise Software Stack as follows:

Industry Applications	CRM SCM Marketplace Auctions ePayments CollaborativePlanning ForecastingReplenishment(CPFR)	eBusiness Suite
Enterprise Applications	Finance HR Admin Procurement Content/CatalogManagement Analytics Website/eCommerce(Storefront) Marketing Sales EnterpriseInformationPortal ProductDevelopment Logistics InventoryManagement Training
Enterprise Platform	OfficeApps(Word,Excel,Powerpoint-equivalent) Calendar Scheduling InstantMessaging ContactDatabase Forums Collaboration VoiceOverIP GlobalAddressBook VirtualPrivateNetwork WebConferencing UnifiedMessaging	Business Operating System
Core Infrastructure	Database Mail FaxServer FileSharing/Server PrintServer ApplicationServer Backup DialIn/Out InternetAccess Anti-Virus WebServer Proxy Caching Firewall Router Anti-Spam ContentReplication FileTransferProtocol Internet-PABX
Integrated XML Database
Linux Operating System
Physical Layer	Ethernet Telephone ISDN Printer WirelessLAN(802.11b)	Interfaces

Software upgrades should be seamless and transparent to the end-users. There should be no customization. What is needed is a minimalist system which is built ground-up from the OS. Strip out all that is not needed, adhere to standard protocols, and store everything in an XML database to achieve integration.

This full-featured set of applications for the core enterprise processes should be priced at about USD 5-10 per person per month, thus making it extremely affordable. Such a solution would be at least 10 times more cost-effective.

Small and Medium Enterprises (SMEs) in Emerging Markets cannot afford the high cost of computers and software. Yet, to survive and thrive in the Internet Age, they need to use computing, communications and software. They are part of the supply chains of larger companies, they face competition not just within their country but from other players globally. So, it is important for these enterprises to use technology to empower become intelligent and real-time, so that employees can be empowered to make decisions rapidly and the decision-makers have all the necessary information available to them from across the value chain.

What are the characteristics of this Intelligent, Real-Time Enterprise? A viewpoint from an Asera (http://www.asera.com) white paper:

The Real-time Enterprise facilitates spontaneous transaction flow and information transparency throughout the extended enterprise, minimizing latency and labor. The Real-Time Enterprise:

• Provides 24×7 availability, flexible demand-driven scalability, security and administration
• Enhances revenue through superior market access, intelligence and time-to-revenue
• Reduces costs by streamlining every process using the Web
• Decreases excess inventory through improved analytics
• Enables device-independent mobile commerce
• Makes its information transparent
• Assumes a dynamic network, enabling instant collaboration and low-cost, real-time interaction
• Uses a distributed architecture that works with the applications, systems and processes a business already has in place
• Allows non-intrusive customization and configuration, enabling businesses to better differentiate their brand
• Is highly adaptive-because change is constant and it happens fast
• Integrates data, applications and workflow
• Gives customers a single user interface across disparate applications

Small or big, every enterprise needs to think of how it can leverage technology to embed intelligence in its processes and leverage real-time information. The challenge for SMEs is to do so in a cost-efficient manner. What SMEs need is a new technology infrastructure – both hardware and software – which can help them create the foundation for the Intelligent, Real-Time Enterprise.

One of the key requirements for the real-time enterprise is to ensure that the power of computing and communications are available to each and every employee. Email, for example, is not effective if half the enterprise has it and the other half does not. The limited availability of computing infrastructure also reduces the demand for bandwidth and applications which can work across the enterprise. Organisations need to adopt technology as “DNA”, if they have to become more competitive in the face of increasing international competition.

Enterprise Software: Messaging, Collaboration and eBusiness are the key applications which an enterprise needs. Value-added email is the killer application. Collaboration enables information to be shared across the enterprise. eBusiness applications are at the heart of the processes – within the enterprise, and in its interactions with other enterprises.

Enterprise Hardware: The Enterprise Server on the LAN becomes the hub of the enterprise. In the “bandwidth-challenged” emerging markets, the Server becomes the computing service provider. It has the applications and data, which can also be replicated on servers on the Internet. The Enterprise Client is a low-cost, wireless device (like PDAs) which is available to everyone in the organization, and connects to the Server. Shared monitors with keyboards provide the big screens necessary to view attachments.

The recent communications revolution driven by optics promises huge bandwidth across the world. Even India, which has a total of 1 Gbps connectivity to the Internet, is likely to see this explode manifold, driven by undersea cables. This still does not bring enough connectivity to the enterprise. While a mix of cable, optics, fixed wireless and even lasers offer promising answers, a dark horse is emerging to offer the last-mile and last-feet connectivity. The answer lies in an extension of the protocol we are all so familiar with on the LAN – Ethernet. The use: creation of wireless networks in the office and neighbourhoods.

The two protocols to watch are 802.11b (also called Wi-Fi) which uses the 2.4 Ghz spectrum and offers connectivity at up to 11 Mbps, and the much faster 802.11a which uses the 5.4 Ghz spectrum and can offer speeds of up to 54 Mbps. These technologies will serve as the basis for the creation of “wireless Internet Access Points”. Connectivity from these points to the Internet will be at high-speed via fibre or DSL.

(Of course, there is the other alternative: 3G, for which cellular companies worldwide have bet tens of billions of dollars. If history is any precedent in technology, keep an eye open for the dark horse!)

In the next year, computers, especially laptops, will come built-in with 802.11b connectivity. Internationally, many public places will have 802.11b networks. In India, the 600,000 telephone booths (the Public Call Offices – PCOs), the million-plus kirana stores and the tens of thousands of petrol pumps can serve as 802.11b hubs.

The second development to watch for will be the availability of devices which can plug into these wireless networks. From cellphones to PDAs to sensors, there will be millions of these “data devices” which will use the wireless envelope to communicate with each other and with Web services.

These wireless devices become important considering the low penetration of PCs in the “emerging markets” of the world. In India, for example, there are less than 4 million PCs in corporates. The high cost of the PC (and the associated costs of software and maintenance) have stunted use. Data devices enabled with wireless connectivity at price points which are much lower than PCs can help in ensuring computing and communications for the entire enterprise, thus making technology a utility.

These then are the two key building blocks of the New Enterprise: Software as a Web Service on a subscription-basis and low-cost, wireless-enabled Internet Access Devices. Taken together, they form the foundation for a new technology architecture for small and medium enterprises in emerging markets.

The other shift is towards charging subscription fees for software. Microsoft is the latest and most important company to push towards the software subscription model with its new licencing policies for Office. Writes Rebecca Buckman in the Wall Street Journal:

With sales of traditional desktop software not growing like they used to, Microsoft is shifting toward a revenue model based on subscriptions. That means old, cash-cow products like Office will soon be retooled so Microsoft can sell them — as well as their separate features such as e-mail and word processing — for recurring fees.

The crucial piece of Microsoft’s new strategy: Many of [its] businesses will sell subscription, Web-based services instead of charging a set price for a box of shrink-wrapped software. “The future of software is subscriptions,” Microsoft Chairman Bill Gates said at a company event in March.

Writes Amy Wohl:

Access to products or services will ultimately be secured not by purchasing permanent licenses (which is why so many customers still use Office 95), but rather by annual subscriptions that include the use of base software, its upgrades, support, and some level of web services.
Premium services will probably – not unlike cable TV offerings – be charged separately, in groups or singly. So you might purchase an annual premium subscription for graphic services or statistical analysis, but “pay per use” for the budget software you need once a year.

At the same time, there is another interesting trend. Our world on the desktop has now coalesced into four primary applications: Email, Web, Instant Messaging and Productivity Applications. In fact, in the past few years, one distinct shift has been the increasing amount of time being spent in the Email client.

What is therefore clear is there is a discontinuity happening in the world of software which is being brought about by the Internet. Open-source software has also added to the disruption. While so far all this has not yet made much of an impact on the software used on the client side (most of us are stuck with Windows, Internet Explorer and MS-Office), there is an opening for innovation driven by Web Services, which is all about software components being aggregated together from the Internet.

What this mix of Web services and subscription model for software will do is to make state-of-the-art software affordable for a lot of the world which does not either use it. It also creates opportunities for creating software for the New Enterprise. We will explore this further next week.

There are two other interesting developments which will have a major impact on the enterprise: the creation of an envelope of ubiquitous network connectivity, and devices which plug into this network.

Software is at the heart of the enterprise. So far, it has been quite
simple: the software companies have been selling shrink-wrapped
software. This is about to change. Software is becoming a
service. What this means is that both applications and data will
reside on the Internet (in the “cloud”) – software as a “web service”.

Business applications like MS-Office have so far been on the desktop
(the client). In contrast, applications like MS-Exchange and file
servers store data on the server. Enterprise applications like SAP and
PeopleSoft run off servers and also store data there. In recent years,
applications like Hotmail have moved data (in this case, mail) to
servers also. The next logical step in this progression now is to move
the applications and data onto the network.

Ludwig Siegele, writing in the Economist, gives a glimpse of this
world:

Imagine, says IBM’s Stuart Feldman, that you are running on empty and
want to know the cheapest open petrol station within a mile. You speak
into your cellphone, and seconds later you get the answer on the
display. This sounds simple, but it requires a combination of a
multitude of electronic services, including a voice-recognition and
natural-language service to figure out what you want, a location
service to find the open petrol stations near you and a
comparison-shopping service to pick the cheapest one.

But the biggest impact of these new web services, explains Mr Feldman,
will be on business. Picture yourself as the product manager of a new
hand-held computer whose design team has just sent him the electronic
blueprint for the device. You go to your personalised web portal and
order the components, book manufacturing capacity and arrange for
distribution. With the click of a mouse, you create an instant supply
chain that, once the job is done, will dissolve again.

This shift to Web services is what the future of software is
about. Says John Robb of Userland Software:

The move to Web services implies the need for desktop service
aggregators. Demand for client software (that acts like a peer) that
can aggregate Web services on the desktop is going to be huge.

We will have hundreds of thousands of services available in the next
several years. These services will do all sorts of things: calculate
P/E ratios, find album playlists, or conduct credit card transactions.
You can either access a suite of services from one supplier or you can
mix and match services to produce a new application. You also have
the option of either building a Website to deliver the functionality
through a remote browser or by building client software that delivers
the functionality from the desktop.

I think the trend is towards delivering these services from the
desktop. Why? It is less expensive (centralized server architectures
killed most .coms), it is much faster (which means better personal
productivity), and it empowers end users (if there ever has been a
trend in technology this is it). It is the equivalent of
client/server for the Web.

The New Enterprise thus needs to be both electronic and extended: electronic, because it has to move information in the fastest possible manner among its employees, suppliers, partners and customers; and extended, because it has to work with the other enterprises as though they were one, single enterprise. Says Peter Graf of SAPMarkets, “People now understand that you have to help business processes cross the boundaries between organizations to unleash their true value potential.”

For every large company, there are a thousand small and medium enterprises (SMEs), which are integral parts of the supply chains of the large companies. The big opportunity in the next few years will be to convert existing organizations which are individual, isolated enterprises into Intelligent, Real-Time Enterprises. The opportunity is greatest with the “Corporate Poor” of the world: the SMEs in the emerging markets, who are today the weakest link in supply chains. A new Technology infrastructure needs to be built to target these enterprises.

An Asia-specific view from business research firm Strategic Intelligence:

The supply chain — the organised flow of goods and information between supplier and customer — can account for up to 70 percent of a product cost.

As the world’s largest manufacturing base, Asian companies need to adopt an Internet-based supply chain management (SCM) system that enables firms to cut costs through better planning and monitoring of inventories and delivering goods faster.

The task of modernising and wiring their SCM systems has become even more pressing as Asian manufacturers struggle with the consequences of a global high-tech slowdown.

However, the high cost of telecommunications in Asia and the lack of infrastructure are preventing especially small and medium enterprises (SMEs) from taking advantage of the Internet’s potentials.

There is also a need to harmonise and integrate Asia’s heterogeneous software systems which use different languages and document formats, and ranging from state-of-the-art modules to homegrown solutions and manual systems.

Currently, SMEs in Asia are not yet full aware of all the benefits supply chain management systems offer. They also believe SCM solutions to be unaffordable or too generically designed to meet their specific needs.

The lack of technological sophistication in Asian manufacturing means that even Internet access can be a luxury.

Clearly, a lot needs to change. What Asian and other SMEs (estimated to be 25 million worldwide) need is a new infrastructure which can take advantage of technology and yet work around its limitations. One of the starting points is to look at how the Internet is going to change the way we buy and use software.