For software companies at the smaller end of the spectrum, the appeal of the mid-market is obvious. Times are tough, so corporate customers keen to cut costs may be prepared to take a chance on software vendors they wouldn’t have looked twice at before. And in the process, they are offering smaller vendors the prospect of an impressive new reference site and a larger-than-usual licence fee.
For the giants of the enterprise software world, the appeal is equally clear. In a rapidly maturing market that is approaching saturation, the mid-market is a whole new world of deals in the making. Consequently, software companies such as Oracle, PeopleSoft and SAP have all tried to exploit what may be the best growth prospect in years. But for both small and large enterprise vendors, disappointment is likely.
Take the problems faced by larger vendors. “All the big vendors have announced a mid-market strategy, but the results suggest these aren’t working,” observes Beth Barling, an analyst at London-based analysts AMR Research. Why? According to Paul Massey, consulting services director at High Wycombe-based mid-market vendor IFS, “While mid-market companies deal directly with the software company they are buying from, larger vendors would rather sell through resellers and implement through implementation partners. The reaction of the mid-market is to say, ‘If we’re so important, why don’t you talk to us directly?'”
Certainly, that’s the reaction of Nick Williams, financial director of Aylesford-based G Costa & Co, a £60m, 350-employee manufacturer of ethnic cooking sauces. A user of mid-market vendor GEAC’s System 21 enterprise resource planning (ERP) solution, Williams is sceptical about the depth of larger vendors’ commitment to the mid-market. “For companies like us, they are less customer-focused,” he says. “It’s as though they are saying, ‘If you’re not a half-million pound project, we’re not interested.'”
Breaking into the mid-market is difficult. To begin with, there’s the matter of finding a way to make shorter, less profitable implementations attractive to their implementation partners and resellers – a hurdle that may prove easier to annunciate than surmount. Smaller companies are less attractive to the likes of Accenture, CSC and EDS.
And then there’s the need for large ERP companies to slim down their applications in order to make them attractive to mid-market companies.
“The larger vendors might offer 50 ways to credit check, because larger companies employ specialist credit controllers. But in the mid-market, the person doing the crediting usually does many other things, such as pay the MD’s expenses,” says Simon Bragg, research director at ARC Advisory Group.
No wonder, then, that larger vendors are finding the mid-market something of an uphill struggle. “The main issue is that products and channels that were not originally engineered for the mid-market simply won’t scale down,” says Eduardo Loigorri, chairman of the Business Application Software Developers Association and MD of Exchequer Software. “There are countless examples in the past of hard times prompting ‘ERP-lite’ versions to be developed, only for their users to be left high and dry when the good times return.”
Smaller companies, too, face an uphill struggle in tackling the mid-market – although less of one than the major vendors, as many mid-market businesses are happier trading down to a smaller vendor than trading up to an SAP or Oracle. The reason is simple – support. “Niche players are known in the industry for their support and play that hard against the larger vendors,” says Jakub Wawszczak, a director at management consultancy PRTM.
Even so, smaller vendors lack breadth, often being oriented around niche products targeted on niche industries, which is why many analysts are watching with interest the arrival of Microsoft into the arena. In the past 18 months, the company has snatched up two leading mid-market vendors – Navision and Great Plains – both of which were targeted at the lower end of the scale.
Attention first focused on the obvious assets of the companies’ customers and code bases. Instead, insists Simon Edwards, Microsoft Business Solutions’ UK general manager, “Microsoft is in the mid-market for the long term and, for a long-term investment, skills are what matter most.” At a stroke, Microsoft has acquired thousands of software developers with in-depth knowledge of the mid-market and intends to mine that wealth.
So it seems the competitive tussle is only going to get worse – just ask fallen stars such as WordPerfect, Lotus and Netscape. Rarely, it seems, has the phrase ‘window of opportunity’ appeared so apt.
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