Feature Story

April 3, 2007

By David Barry, News@Cisco

Only a few years ago, small and medium-sized businesses (SMBs) were considered at the periphery of the IT market. Not so today.

"The bottom line is the SMB marketplace is shifting from a backwater of IT adoption to the epicenter of IT market growth and innovation," says IDC market researcher Frank Gens in his December, 2006 report IDC Predictions 2007: Prospering in an Era of Hyperdisruption.

SMB market growth is being driven today by companies such as D.W. Morgan Co, a leading supply chain consulting and logistics firm with 100 employees in nine offices worldwide and $50 million in annual revenues. Only a few years ago, D.W. Morgan was a package shipping business with 20 people in two offices and approximately $6 million in revenues. Its use of IT and networking technology were critical in its efforts to reinvent itself.

"Our 'Eureka' moment came in 2002 when we realized that we didn't only move packages, we moved information," says company founder and president David Morgan. "Our customers wanted information more than the goods themselves. We helped them track all their packages--not only ours--including packages being shipped through proprietary systems such as FedEx and DHL through a single sign-on web site."

Today, D.W. Morgan serves "nine out of 10 of the most admired Fortune 500 companies," says Morgan, and is enabling these

companies to view crucial information about their manufacturing lines and sales figures and to track assets right from a Cisco IP Phone on a desk or on the manufacturing floor.

Cisco Charts Path for Growth

The success of D.W. Morgan is indicative of the results Cisco is achieving in the growth of its SMB business. In 2004, Cisco first announced a major increase in resources targeting the SMB market, which the company defines as all businesses with 250 employees or less. Since then, Cisco's share of the SMB market has grown to more than $1.5 billion.

"In the late 90s, enterprises aggressively adopted newer IT applications that made them more like small businesses," says Peter Alexander, VP of worldwide commercial marketing at Cisco. "Customer relationship management or enterprise resource planning put resources at their fingertips to better understand customers and to create more intimacy. Now, SMBs are looking to IT to help them be more like enterprises by enabling them to access broader resources and create effective communications on a global basis."

Today, more than 40 percent of Cisco's $1.5 billion SMB revenue is generated by registered partners that focus on these under-250 employee SMB businesses (the remainder comes from Cisco mid-market resellers that primarily serve larger customers but have recently begun serving smaller customers as well). It is these SMB-focused resellers that Cisco sees as the engine of growth for the SMB sector in the coming years.

Toward this end, Cisco is announcing at its Partner Summit 2007 event in Las Vegas, Nev., its continued commitment to this sector with the introduction of the Cisco Select Certification, the first certification Cisco has introduced in ten years. Cisco also will be announcing the new SMB Specialization. These offerings include a comprehensive range of tools, training and incentives to meet the needs of today's SMB-focused partners and help foster growth and differentiation.

In its efforts to continue the strong growth it has achieved in the SMB market, Cisco intends to double the number of SMB-focused partners who are trained and certified from 5000 today to 10000 in the next three to five years

"Before we created our new program, we surveyed 2500 of our SMB partners to better understand their needs and how we could help motivate them to invest in selling Cisco solutions to this segment," says Andrew Sage, director of worldwide channels marketing. "At the top of the list was the desire for Cisco certification and recognition. The problem, however, was that the investment they were required to make to achieve our premier certification was too high for a reseller focused on SMBs with fewer than 100 employees. This is why we created a new certification focused specifically on the SMB reseller."

Whereas before resellers might have specialized in a technology such as voice or security, the new certification provides a series of training options that allows partners to become specialized in the SMB market as a whole--from both a sales and a technical perspective. Those that achieve this level of training become Cisco Select certified and can use the Cisco brand for marketing and take advantage of a range of services and incentives. [To read about the new Cisco Select channel program, please visit www.cisco.com/go/select. To read about the new SMB Specialization program go to: www.cisco.com/go/specializations/smb.]

Cisco Select Reseller Challenge: Diverse Market

The SMB market is tremendously diverse and ranges from customers with a few employees to those with 250 employees, from businesses with one or two offices in the United States to those with 15 or more located in the U.S. and abroad. Technology sophistication is varied; some run simple applications such as email or Internet access, while other businesses run highly sophisticated applications involving secure remote VPN access or voice over IP (VoIP).

According to Cisco VP Alexander, the key to Cisco success in this market is that "we have to do things differently. We need to deliver technology that has value within it--everything expected of Cisco from the depth of technology to service richness, but the complexity must be completely abstracted out. We have to make sure that the technology is consumable in this space--easier to use, install and operate, yet retain all Cisco value."

Jocelyn Faust, analyst at Gartner, also notes that to succeed in the SMB space, vendors must answer the following SMB concerns:

1. Will it save money? Faust maintains that the IT projects that "save money are the projects that get funded."
2. Will it work with existing equipment? Investment protection is critical in the SMB space, says Faust. If it's plug-and-play it's more likely to be adopted.
3. Will it grow with the business? Small and medium-sized businesses tend to envision business growth and want to know the technology will grow with them.
4. Understand my business? SMBs contend their needs are very different from enterprises and want to be sure the vendor or reseller understands their unique demands.

Cisco's recent introduction of the Cisco Unified Communications Appliance, the Unified Communications 520 reflects its awareness of the unique needs of this market. The Unified Communications 520 voice appliance is purpose-built for the SMB market and integrates into one platform previously separate components including:

• Cisco CallManager Express for VoIP call processing
• Cisco Unity Express offering integrated voicemail, greeting, and interactive voice response (IVR) services
• Full portfolio of IP phones
• Basic security built in

But even as it pursues more intuitive and integrated offerings such as the Unified Communications 520, Cisco also realizes that its solutions will not appeal to all SMB customers.

Retail Moves Up to Better Serve Lower End of SMB

A number of key retailers are forming unique partnerships to serve the low end of the SMB market with more than shrink-wrapped products. CompUSA, for example, recently formed a partnership with NetSuite, which offers software-as-a-service (hosted) ERP and CRM applications to SMBs. CompUSA also announced recently its intention to offer hosted telephony services to its typically small-business (under 100-employees) customers with the help of partners. It recently joined with Sylantro Systems and Bandwidth.com to offer hosted voice over IP (VoIP) to the SMB market. The offering will use Sylantro Systems' VoIP platform hosted on Bandwidth.com and be offered through CompUSA.

Also offered through retail are products and services from Linksys, a division of Cisco, which now can also serve smaller businesses with offerings such as Linksys One, a hosted communications service offered through a service provider, much like CompUSA with Sylantro. Linksys One appeals to many small business customers that may not require the level of scalability or in-depth management that other networking-intensive customers demand.

Cisco Registered Resellers Offer Value Add

The higher end of the SMB market includes customers that require specific expertise and specialized knowledge that transcend what the retail channel offers. These customers tend to view networking technology as an enabling vehicle, and it is in this segment where Cisco registered channel partners are most effective. These SMB customers also tend to view the reseller as a trusted resource that will keep them abreast of newer technologies that are becoming main stream and can help them grow in the next 12 to 24 months.

Martin Gendell is a principle at Apogee Technology Services in Alexandria, Virginia, and a Cisco registered channel and SMB Select partner. Apogee provides many services to the SMB market, including network infrastructure deployment, security such as VPNs and firewalls, email systems, and more recently IP telephony and managed services.

"The difference between us and CompUSA is that we provide a higher level of expertise," says Gendell. "Our experience allows us to go beyond simple installation and break-fix services. Customers look to us as trusted advisors to design solutions that meet their business goals. We have more experience which allows us to see down the road where a solution will take one of our clients. While another option may be less expensive now, it might pigeon hole them in the future. "

Large Market for All

In the final analysis, the SMB market is approaching the "tipping point" of spectacular growth. To serve it, vendors, resellers and retailers are all repositioning themselves and creating new partnerships and operating models.

"Our goal is to help our SMB resellers profitably serve the unique needs of a large segment of this market," says Cisco's Alexander. "This will require a new type of 'scalable intimacy'--advanced networking capabilities such as Unified Communications or mobility offered with real-time remote diagnostics and four-hour spare parts delivery--to many customers who each feel closely supported by a framework of efficient and profitable operations. How is this achieved? Using the technologies themselves, of course."

David Barry is a freelance journalist located in Princeton, NJ.