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New MS threat in small business

Microsoft is looking to crush rivals such as Novell in the booming small-business market.

SAN JOSE, California--It doesn't take a rocket scientist to understand Microsoft's (MSFT) drive to sell its server-based software to small businesses. But it may take some smarts for rivals such as Novell to quell the monolith's ever-expanding sales to this market.

Research from a variety of sources indicates that businesses with fewer than 25 users are ripe to be connected to the Net and each other with a variety of software tools that allow them to share information. A recent Forrester Research report found nearly 8 million businesses in the United States with fewer than 20 employees. Internal Microsoft research indicates there are 75 million small-business customers worldwide with 70 million desktops. Even a portion of this huge pie means huge dollars for companies that can articulate a strategy for the niche.

Why are small businesses receiving so much attention? Microsoft released a new package of software today based on the Windows NT Server operating system that includes the entire portfolio of BackOffice products, including the SQL Server database and Exchange messaging tool, in a 25-user configuration, for a street price of about $2,500. (See related story)

The move is expected to continue NT's onslaught on the low end of the market and should worry competitors such as Novell, low-end Unix-based players like the Santa Cruz Operation, and peer-to-peer networks that do not rely on a traditional server and house data on client machines.

"In particular, Novell is going to get a lot of direct competition on this," noted Jean Bozman, analyst with International Data Corporation.

But what seems to make Microsoft executives so giddy is that, from their perspective, there is no particular software package addressing small businesses today. "I don't think there's a dominant solution is this space," said Jim Allchin, senior vice president of Microsoft's personal and business systems group. "There is no product that is comparable to this."

Steve Ballmer, Microsoft's executive vice president of sales and support, explained Microsoft's rationale: "Small businesses want everything big businesses have."

The company's focus on the Small Business Server, as the product is called, is also due to the more than 200,000 resellers that cater their technology integration services to small businesses. Interest from these resellers was evident in their dominant presence at the event.

But it doesn't stop there. Executives also included in their strategy the incorporation of Windows NT Workstation and the Office suite of personal productivity applications, leveraging the company's desktop platforms to maximize Microsoft's position in small-business accounts. The sprawling strategy even provoked a Small Business Server-related Justice Department investigation question from the audience.

Likely targets for the Small Business Server bundle include health care, distribution and retail operations, manufacturing, real estate and construction, and professional services, according to company officials. Microsoft is also pitching the application suite to the Internet service provider (ISP) market as a set of tools for outsourcing and Web development and hosting services.

"It's integrated, it works, it's got everything there," Ballmer stressed in a raspy voice. "We know we have a job in front of us to continue to evangelize this platform."

Novell officials were quick to discount Microsoft's approach, highlighting price as a determining factor for the small-business consumer. The company is planning a new version of IntranetWare for Small Business later this year that includes electronic mail, back up, and fax services. Novell also boasts a large installed base of small-business NetWare customers running older versions of the operating system.

"Small businesses are much more price conscious, not database conscious," said Jim Greene, manager of product marketing for the platform services group at Novell.

IntranetWare for Small Business has a street price of $340 for five users compared to about $1,500 for the Small Business Server. Greene said Novell research indicates that customers with small numbers of users are not looking for a database-driven suite.