On the Cover

Facing goliath

Thursday, 12 October 2006 00:00 Written by Kimberly Guest

Can IT`s SMEs put up a good fight? Competition is hotting up in the IT sector. As the big players turn their eyes to the SME and lower-value vertical sectors, IT`s SMEs are standing tall and preparing to win the battle. THE IT SECTOR has undergone significant change in the last decade: box droppers have evolved into solution providers, IT requirements have turned into business needs, and software is now accessible on a pay-per-use model. But that`s not all. Unsatisfied with the revenue growth to be had from the enterprise space, IT`s big players have turned their eye to sectors which a decade ago they would not have considered. The question is what does this mean for the smaller players that make their livelihood in these areas? Can they compete with industry goliaths? And what will this mean to the companies who now have greater choice?

FINDING THE SWEET SPOT

, Business Con-nexion GM of the industrial and commercial cluster for the Johannesburg region, says while the company is still confident in the enterprise space it has recognised that the sector, in South Africa, has very few players.

"We have to understand the definition of the different business levels. By definition, South Africa only has 50 to 60 enterprises, including the banks, Sasol and large mining houses. And while we believe that there is still a lot of growth in this area, we know that from a services perspective, the mid-market is in a ramp-up phase and has the potential of being a sweet spot for us," he explains.

Of course is not the only large IT company to pursue the small and medium enterprise (SME) sector. A quick run through the Web sites of Ast, Faritec, , , and various companies within the Bytes Technology Group reveal the inclusion of the SME sector in the game plan.

UNDER PRESSURE?

Speaking of software developers, `s developer and platform director says that the marketplace has become infinitely more competitive.

"It is certainly challenging for our local software developers aving built a product based on deep insight and knowledge of a niche sector or area of interest, these developers get time with their desired customers and along comes a bigger company offering to do the same thing. However, this does not mean that these companies lose all their advantage. The large software vendors cannot get down to every niche and by virtue of their size, smaller players are far more agile, which ultimately results in a better solution for the customer."

Additionally, , senior research analyst of IT services at BMI-TechKnowledge, says that smaller IT players often provide a better service to SMEs than their larger counterparts.

"For all sectors, service is important, but for SMEs, service is even more important as they cannot afford for problems to be resolved in any other time than immediately. Accordingly, SMEs are often concerned that they may be overlooked by larger suppliers as they chase those customers that bring in more revenue.

"That`s not to say that bigger companies neglect their smaller customers. It just that smaller providers have a handful of customers which they look after fastidiously because they are the business` bread and butter," she notes.

Compute MD Peter Ladner agrees: "Sometimes the bigger companies can offer a slightly lower price which, of course, is very tempting to the price-conscious SME. However, once they make their first call into the service centre, wait in the queue for a consultant, only to be told they can only get someone out there next week - the company changes its mind very quickly. SMEs need fast turnaround - within minutes, not days - and smaller providers can do just that."

WHAT`S IN A NAME?

Nevertheless, quality - or priority - of service can only be discovered after the deal has been done and rather too late for the smaller player. The biggest challenge that smaller IT players face when competing with their goliath counterparts is that of weight and trust in the eyes of the customer.

, MD of specialist consultancy BUI, explains: "Of course we can compete with the big guys. In fact, we often help them out because we are able to attract and retain the really specialist security skills that they can`t. However, you can`t discount the weight of a big company name in a customer`s perception and to them large and well-known often equals trustworthy and capable."

Without a marketing budget that extends to highway billboards it can often be difficult to convince potential customers that the company, is in fact, established, qualified and competitive enough to provide the appropriate solutions. After all, SMEs can be seriously damaged by the fall-out from fly-by-night operations.

Which is why Naidoo strongly recommends vendor and industry certification.

"Certification can provide that foundation of confidence that SMEs so critically require. That certification assures the customer that the company knows what it is doing and, if from a vendor, has the backing of that vendor. Additionally, large vendors such as ourselves are often looking for smaller players to join us on deals and if we know about the company we are able to put our weight behind projects which fall into our areas of specific focus," he says.

SMALL IS THE NEW BLACK

Few of the smaller companies that iWeek spoke to about the increased focus on the SME market from bigger players were concerned about the growing . Instead, the general buoyancy of the IT sector, together with the greater agility and flexibility inherent in the smaller players has these companies optimistic about the future.

"We are seeing more and more companies requesting more solutions; the demand really is great. We`ve noted the interest of larger value-added resellers in the SME sector, but they just don`t have the logistics and turnaround time to compete with the likes of the smaller providers," says AdvanceNet sales manager .

"The SME sector is defined by its need for immediate gratification - it`s not that they are greedy but rather that their needs become apparent overnight and must be serviced accordingly. They just don`t have the luxury of a planned roll-out - they need it tomorrow, if not sooner," he explains.

NEW ENGAGEMENT MODEL

This may be why Business Connexion is developing an additional channel which aims to see its services on-sold by smaller players.

Explains Purbrick: "We are looking at developing a franchise model that would enable smaller players to leverage off our technologies - like our new data centre, our risk mitigation profile through our various certification and governance programmes, and our managed services offerings. This would be an optimal mix for the customer - Business Connexion`s infrastructure and technology expertise together with the vertical or niche insight of the smaller player."

Although the company has yet to put firm guidelines in place for this partnership model, it has already partnered with smaller companies - in excess of 20 for the SARS contract alone - to great success, and would be more than willing to engage with interested companies.

And if the partnership model doesn`t work, there is always the acquisition route, one which the cash-rich IT giants are eager to explore. Nevertheless, money can`t buy you love and it certainly isn`t buying the likes of BUI, which has received no less than three offers in the last six months.

"We`ve been approached by several of the IT corporates but we haven`t seen anything that has interested us. It`s not about the money or about being stubborn; we recognise that if we are to go to the next level we will need to engage in some kind of `partnership`; it`s about finding the right fit. We have a distinct culture that works for us but clashes with the traditional corporate way of doing things. And we are not going to let go of that; it`s what makes us successful," concludes Roseveare.

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