Big Software Aims Small in 2003

Total U.S. small- and medium-business spending on sales force automation, customer relationship management, enterprise resource planning and supply-chain management software topped $1.3 billion in the 12 months ending in July, registering a 21% increase year over year, according to AMI.

The firm forecasts a compound annual growth rate of 33% from 2002 to 2006 in spending on licenses by U.S. small and medium businesses for automation software.

In sharp contrast, Gartner has found that worldwide enterprise application sales have been falling since 2001, and it forecasts a mere 3.1% compound annual growth rate from 2002 to 2006.

Worldwide, AMI estimates that spending on packaged and customized software by SMBs will reach $65.4 billion in 2002. That's about six times larger than the $10.6 billion that Gartner estimates enterprises will spend on software licenses worldwide in 2002.

More than their larger brethren, SMBs are looking for relatively simple, inexpensive software that is quick and easy to install yet is also customizable. That means that enterprise software companies like SAP, Oracle and PeopleSoft can't just dumb down their products designed for larger companies; in some cases they must be re-engineered, analysts say.

"It's not good enough for me to say I have a financial vertical," said Best Software CEO Ron Verni. "You have to say I have business-to-business banking mortgage vertical [software]."

Sage, which has 1.6 million customers in North America and 2.9 million customers worldwide, has responded to this need for specialization by establishing partners that have customized their products for various verticals.

Needed: New Ways to Sell

Another type of partner, resellers, is also crucial in selling to small and medium-size businesses. It's fine to have an expensive direct sales force to drive six- and seven-digit deals. But it's unaffordable and impractical to have those same people selling to small and medium-size businesses, because that market is driven much more by volume, analysts say.

Sage, which has been selling accounting software for 25 years, and Microsoft, through its Great Plains and Navision acquisitions, have a leg up in the reseller department. Sage boasts 19,000 resellers worldwide, including 6,600 in the U.S.