IBM sets small business as new target
Big Blue is set to announce sales initiatives and a massive marketing campaign to raise its profile in an important sector of the computing industry.
IBM will marshal a panoply of existing products and services and fuse these with some new ones to target "very small businesses" with employees of 100 or less, according to IBM executives. The programs will be tied closely to the Web, where Big Blue already offers many e-commerce software products and services. IBM will back the initiative with a $100 million marketing campaign as it begins a full-scale assault on companies like Gateway, Dell Computer, and Micron, which benefit heavily from online direct sales.
Big Blue's interest in small business reflects the industry's growing emphasis on this market. With competition for large corporate customers becoming more fierce, small businesses, which have in the past been served by a variety of manufacturers, are increasingly seen as a lucrative opportunity for "name-brand" PC makers. Both HP and Compaq Computer have released dedicated small-business product lines. Micron, meanwhile, has targeted nearly its entire corporate strategy on these customers.
Next week, IBM will also announce a product for building and managing an electronic "virtual" storefront using its AS/400 business computers.
IBM is ranked No. 3 in the small-business market based on the percentage of these businesses that own a particular company's product, according to International Data Corporation (IDC). IBM is behind Gateway, ranked No. 2, and Compaq, which is No. 1.
"A lot of people think that IBM is a big business for big business. We want to change this perception," said Judy Smolski, vice president of small and medium business marketing at the personal systems division.
The strategic move also calls attention to IBM's positioning of its Aptiva line of consumer PCs firmly in the small business market, where profits tend to be higher compared to the ruthless price-cutting competition in the consumer retail market.
One of the main pillars of the new program is CustomConnections, a tool for organizing the Web. Using it, a small business could get, for example, personalized news and Internet-based market research and access to information on public relations, customer service, and computing, legal, and financial resources, IBM said.
In addition to using traditional computer resellers, called VARs, IBM will target customers directly via the Net and through retailers such as OfficeMax and CompUSA. Big Blue will also recruit IBM business partners--businesses authorized to offer IBM products and services--to support very small businesses and link them up with customers.
Analysts say that while IBM has been selling to small businesses for a long time, this a much-needed crystallization of strategy in a market that is estimated at about $50 billion in the United States and close to $140 billion worldwide, according to IDC. The market is also growing at a pace that is about three times the information technology market in general, according to IBM.
"The message seems to be that they have finally gotten it together. IBM has kind of been there but not with an overarching strategy, not with a philosophical underpinning. But this is finally emerging," said Ray Boggs, an analyst at IDC.
Trying to demonstrate IBM's existing strengths, Peter Rowley, general manager of IBM Global Small Business, said that IBM's Web site already provides access to "diverse products, services and solutions, as well as online consulting and education programs."
Highlights of the sales initiatives include:
IDC's Boggs said that IBM has both a promotional and technical advantage with its e-business strategies. "They have diverse capabilities, redounding to their benefit. Here's an area where it's not a negative to be big."
IBM's move also comes at a time when Compaq, another Goliath pushing forcefully into this market, is grappling with managerial changes and there is some doubt in the marketplace that "maybe everything isn't working out as well as planned," Boggs said.
Smolski emphasized that the Web is important for small businesses because it allows them to expand instantly outside of their local areas. "Currently, maybe they have email. The next step is to communicate with customers and suppliers with the Internet."
Smolski also said that the Aptiva line is an important part of IBM's small business product line since this is the reason many customers buy Aptivas.
National retailer OfficeMax offers a line of snazzy, well-designed Aptiva PCs that are noticeably different from some of the consumer PCs IBM has offered at other retailers such as CompUSA. IBM is also expected later this year to cut a deal with OfficeMax where it sells IBM PCs exclusively in certain locations. In the future, IBM may also set up a store-within-a-store at some OfficeMax outlets.
Hunting rabbits
But the challenge of selling to small business is clear. "You are rabbit-hunting as opposed to big-game elephant hunting," said Boggs.
IBM agrees. "We have to be efficient about how we do it," said Smolski.
Boggs says the trick is "touch them once and make them very happy" so they will come back. He points out that no PC maker can afford to spend too much money serving a customer because very small businesses may not end up buying very much.
Boggs is also quick to raise the specter of Dell, which sells directly to small businesses. Many small businesses like the direct approach--which is not an IBM hallmark. "There is strong brand loyalty in this market. Gateway has done well with this [too]," he said.