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Microsoft gears up for small-business push

As large companies clamp down on their tech spending, smaller firms are spending more. And the software giant--along with many other companies--wants a piece of the action.

Small business does not mean small potatoes.

That's the conclusion reached by an increasing number of technology companies. Both hardware makers, such as Hewlett-Packard, and software makers, such as Oracle, have been pledging devotion to the small- and midsize-business market. As large companies have clamped down on their tech spending, smaller firms have started to spend more, in part because the larger companies they deal with are demanding that they be more tech savvy.

The markets are especially important to Microsoft, which earlier this year put then sales chief Orlando Ayala in charge of a $2 billion effort to boost sales to small and midsize businesses.

"This is a space that everyone is rushing into," Ayala said. "There have been announcements by everyone, pretty much, coming into the market--for good reason.

Ayala said the market, made up of businesses that have fewer than 1,000 workers, currently accounts for more than $420 billion in spending, with that figure projected to reach more than $690 billion by 2008. The figure includes hardware, software, services and other IT spending.

But before Microsoft can sell customer relationship management software and other high-end applications to smaller companies, it has to get them to install servers, Ayala said. According to the company, two-thirds of small businesses have more than one PC, but only about one-fifth of such companies has a server.

"Server technology has been very complex, very cumbersome," Ayala said in a telephone interview Wednesday.

In order to try to change that, Microsoft next week will start selling a simplified bundle of its Windows Server operating system and Microsoft Exchange e-mail software. Ayala said both Microsoft's internal sales force and resellers will have their compensation tied to their ability to sell the bundle, which is called Microsoft Small Business Server 2003.

"For our sales forces around the world, this is basically a barrier that they have to clear before they get paid (bonuses for selling) any other type of product," Ayala said, adding that Microsoft is also planning a new program for resellers that will tie their pay to the ability to push the small-business product.

The new program--dubbed the Next Generation Partner Program--is designed to look at the different ways Microsoft's partners do business and also the areas in which they specialize. Microsoft will divide its partners into 16 specialties, with areas such as information worker software and security.

Security issues are likely to get an inordinate amount of attention at Microsoft's partner conference, with executives planning to outline a revised strategy in the wake of recent Windows vulnerabilities and attacks. The new security effort, Ayala said, will shift the focus from patch management to "securing the perimeter," which will see Microsoft more closely tied to the world of Internet firewalls.

Security is just one area where Microsoft can do a better job of serving small and midsize businesses.

Ayala said tech companies have not done enough to make technology that appeals to smaller companies, instead offering scaled-back versions of the same programs that are sold to large businesses.

Microsoft faces a host of competitors in its effort to win new small- and midsize-business customers. The strongest competition comes from software maker Intuit and from Linux and other open-source software.

Ayala said he is somewhat encouraged that the battle between Linux and Windows seems to be shifting from an emotional one to a more fact-based one--the type of competition he said Windows can win.

"I am ready to take up that challenge any time," Ayala said, adding that with a set-up time of 15 minutes, the Small Business Server package is an example of how Microsoft can make it easier for customers and harder for rivals.

"Price is an element, but in the end, it is all about resolving customer pain," Ayala said. "If Microsoft doesn't do it better than the Linux stack, then, sure, we will be in trouble."

In the middle market--companies that have more than 75 but less than 1,000 workers--Ayala said the competition is more diverse, with IBM and Oracle among Microsoft's chief rivals, along with business applications leader SAP.

Ayala said the online world, in which software is provided as a hosted service, is also important to Microsoft, although he sees it remaining just a small slice of the overall software market during the next two years. "You will hear from us in the next six months," he said.

Microsoft also wants to partner with new types of companies, such as telecommunications companies that can offer Internet service that's bundled with Microsoft software.