IBM Maps out Mid-Market Plan

It's official. The mid-market is the place to be. If anyone needed more evidence that the mid-market is the CRM sweet spot, IBM's aggressive plan to stake a claim and spend more than $100 million in marketing should be proof enough. IBM, long perceived as a player in the largest of global corporations, plans to focus more acutely on delivering solutions to the small and medium-size business market. Big Blue, which defines the SMB market as 100 to 1,000 employees, is using a three-prong combination of business solutions developed by certified partners, IBM middleware, and IBM point products like IBM hardware and Lotus software, according to Elaine Lennox, director of marketing, global small and medium business. IBM CEO Sam Palmisano recently said the mid-market would be a greater focus for the company and is where it expects the bulk of revenue growth to occur over the next several years. Currently more than 20 percent of IBM's annual revenue of $86 billion comes from the SMB market. Lennox says the company plans to spend more than $100 million in marketing for its mid-market push, but she declined to provide any growth projections for IBM's SMB business. Lennox also declined to specify how it would distribute the $100 million slated for marketing. The more detailed focus on the SMB market dovetails with IBM's new e-business-on-demand project that attempts to combine IBM's strengths in technology, hardware, and consulting to give corporate clients computing muscle when they need it. Andy Bose, chief executive of AMI Partners, a New York--based research firm, says the mid-market is a natural target for a lot of solution providers and vendors that have traditionally focused on the enterprise. No matter how you slice the numbers, research shows positive growth for the mid-market, while the enterprise CRM space is stagnant. Market researcher Jupiter Media Metrix estimates that the purchases of CRM, e-commerce and financial management applications by small to medium-size businesses in North America will grow to $3.4 billion in 2006, up from $971 million in 2001. AMR Research says the SMB market, combined with divisions of enterprises, is a $44.1 billion CRM opportunity over the next 10 years. There are almost six million companies needing CRM in the SMB and mid-market segment, according to Karen Smith, research director of CRM at Boston-based market researcher Aberdeen Group. The sharpest increase in CRM deployments will occur in companies with revenues ranging from $500 million to $1 billion, according to Gartner Dataquest. Gartner Dataquest research also shows that SMBs accounted for 41 percent of e-business purchasing in 2000 but that is expected to grow to 57 percent in 2005. AMI's Bose estimates there are 100,000 mid market companies, with fewer than 20 percent already having CRM solutions. That adds up to opportunity. IBM plans to attack the market by focusing on a handful of vertical industries, such as banking and financial services, manufacturing, distribution, life sciences, retail, and services. Once IBM has identified potential customers in those segments it would contact them. However, IBM would them work with the customer to choose a solution from an IBM--sanctioned list of CRM solution providers. Lennox says she expects IBM to partner with an average of five to seven third-party vendors in each CRM segment, such as call centers, sales force automation, and customer facing applications. IBM will supply any needed middleware, such as DB2, and its Web Sphere server. In some cases the middleware will be part of the applications as vendors standardize applications on IBM's middleware platforms. Monday, collaborative commerce solution provider QAD announced it has standardized its eQ suite of order management applications on IBM's middleware. IBM also plans work with the solutions provider to find a systems integrator or value added reseller to implement the solution. "This lets businesses have the comfort of dealing with someone approved by IBM, but local to them to give them the best service possible," Lennox says. Bose says partnerships are the way to go. "The best way for IBM to be a player in the mid-market is to have a strong ecosystem of partnerships," he says. "The reliability of the solution and compatibility is the key. IBM's blessing for a solution provider could potentially be viewed as positive. For this to work, IBM needs to define high-value customers; be able to offer scaled-down versions of CRM solutions through partners; and build an effective network of channel partners." IBM is hardly alone in eyeing the mid-market. Enterprise players like Siebel Systems Inc., Oracle Corp., SAP AG, and PeopleSoft Inc. are moving downstream to the mid-market, while traditional mid-market CRM providers like Onyx Software Inc., Pivotal Corp., FrontRange Solutions Inc., Best Software Inc.'s CRM Division, Salesforce.com, and UpShot Corp. are all jockeying for position. Microsoft Corp. will also enter the fray at the end of the year with its MS CRM offering. Lennox says IBM perceives its advantage to be in working with CRM players, especially since many of those players are worried about Microsoft's entry into the CRM space. She also says that if the Microsoft offering meets the rigorous criteria for being a certified IBM solution provider that IBM will consider recommending MS CRM to customers.
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