Are SMBs Feeling the Love?

With an estimated 12-24 million small businesses in the United States, the SMB segment accounts for a large percentage of the nation’s economy. That’s why service providers keep spouting off about the opportunities SMBs present to them. But, how, if at all, is the SMB space really changing in terms of communications offerings, customer service and market share? Are SMBs feeling the love?

It depends on who you ask, of course.

“I don’t think market share is changing very dramatically,” says Kneko Burney, president and chief strategist of market research firm Compass Intelligence. While the MSOs have for years talked about their intention to target SMBs, Burney says “they’ve never been particularly successful in SMB, and I don’t expect that to change at this point, at least not from what I’ve seen coming out of the marketing programs.”

Despite the opportunity the SMB space presents, Burney says, selling to this segment is a big challenge. SMBs have a hard time making decisions and need someone — such as a dedicated solutions provider — to walk them through every choice. Not all providers offer such extensive resources.

Every now and then, as Burney explains, public companies get seduced by the SMB opportunity, attracted by the niche’s sheer size. But the love affair often ends when SMBs become too expensive for operators to focus on individually and companies, like Cox Communications Inc., fold those customers into other units and turn to other markets.

Other analysts, however, offer a sunnier outlook on SMBs and communications carriers. Among them is Lisa Pierce, vice president of Forrester Research Inc., who says some small companies “are finding happier relationships with some of the CLECs” and that using indirect channels can help service providers better cater to SMBs.

Serving an SMB can become murky, however, when that company has multiple locations, some of which might not be in major markets, she adds. “If you want to limit the number of providers, that becomes very hard to do without going to either one of the big boys or going to a VPN,” Pierce explains.

Of course, there are many happy stories of SMBs that are getting just what they need. Classique Floors Inc., a 30-year-old, high-end flooring company in Portland, Ore., serves as one such example. Owner Judith Huck switched carriers two years ago, from an unnamed company to CLEC Eschelon Telecom Inc., swayed by its products, service and pricing. “It’s no good to me to pay $25 a month less if what I have doesn’t work for my business, and when I have a problem if they’re not Johnny-on-the-spot taking care of it for me,” she explains. “That costs me a lot of money, or it can. If my phone system was down for a day, I don’t know how much that could cost me, but it could be a lot.”

Curtis Daffern, owner of Daffern’s Auto Service and Repair in Lawton, Okla., finds telecommunications is not top-of-mind, but it is crucial. He is an AT&T Inc. customer. “I make at least one phone call for each customer to a parts supplier, and many times an Internet search is necessary,” says Daffern. “AT&T’s competitive telephone pricing and AT&T Yahoo! High Speed Internet help me run a cost-effective business. I have more time to focus on prompt, quality work.”

Small business owners want reliable infrastructure and services at little risk, says Russell Morgan, president and founder of the Information Technology Solution Providers Alliance (ITSPA), a consortium that helps SMBs with technology concerns. That’s why many choose the incumbents as their communications providers, he says. Those carriers have been around the block and even though the customer service might be less than stellar, the products are trustworthy. “If there was a way for competition to occur with a strong emphasis on reliability, I think you’d see [SMBs] shift to choices other than the ILEC,” Morgan says.

Convincing SMBs to move to competitive offerings hinges on offering discounted bundles and educating potential customers on new products and services, particularly managed service, according to Forrester Research. But it should be noted that it’s not just the CLECs that are seriously aiming at the SMBs. Qwest Communications International Inc. also is taking real steps to appeal to — and serve — SMBs.

The company recently launched a midmarkets group to target customers spending between $1,500 and $5,000 per month on telecom. Each mid-sized customer gets its own Qwest account manager, who helps the business choose the most beneficial voice and data services. Qwest mainly sells converged packages to this market, says Ken Smith, vice president of midmarkets for Qwest. He says the company’s 300-plus account managers report SMBs are demanding higher-end WAN technologies, too, which led the company to roll out its iQ Networking WAN service to the segment. These customers also can choose from other Qwest products, such as long-distance and satellite TV plans. SMBs are looking “for a provider that offers some depth and breadth of product so they can consolidate services and consolidate vendors,” says Smith. “We’re seeing people willing to put their eggs in one basket because it’s easier to manage their businesses.”

Verizon Communications Inc. describes similar trends. Along with customized voice and data products, Verizon offers its SMB customers value-added services such as e-mail monitoring, security and online storage. “That’s the reason why they come to us and stay with us,” says Mike McLaughlin, director of marketing. The incumbent has served companies with anywhere from one to 500 employees for more than 100 years now, McLaughlin says, and it is receiving recognition from analysts such as Frost & Sullivan for its efforts.

AT&T also long has targeted the SMB space and is making inroads in that market. “AT&T is very serious about small and mid-sized customers,” says Burney. The provider has remained relatively quiet about its SMB strategy because of its pending merger with BellSouth, Burney says, but once the deal goes through, “you’ll start to see some things really machine-gun out of AT&T.”

Several studies show SMB interest in IP applications — not just traditional landline products — is on the rise, although many companies are not comfortable with the technology. Many don’t understand it, says Chuck Sharp, president of the Small and Medium Business Technology Alliance (SMBTA). “Our sense is that small businesses may feel the technology is too complicated or expensive to consider, even though neither is true,” he says.

Therefore, it’s up to providers to educate SMBs about economically advantageous products, says John Macario, president of research and consulting firm Savatar. Small companies will buy from the provider teaching them about VoIP, he says. “The good news is once SMBs are converted, they tend to be highly satisfied with VoIP, would recommend it to their peers, and are interested in buying complementary services, such as wireless,” Macario notes.

Vendors also need to be aware that if the benefits of a new system are not clear to a business owner, and if nothing is broken, SMBs are inclined to stick with existing infrastructure, says ITSPA’s Morgan.

But adoption rates for new technologies generally increase according to company size. In a recent study of 804 companies with six to 999 employees, Forrester Research found the more populous willing to install IP PBXs, IP Centrex and unified communications. “VoIP suppliers that are interested in serving SMBs will find the most fertile ground at the larger end of the SMB spectrum — businesses with 500 to 999 employees (medium-large businesses),” writes Pierce. “The communications requirements for these larger SMBs are more akin to those of enterprises than they are to small businesses, which have fewer than 100 employees.”

SMBs with multiple locations also are keen on IP technologies, according to a survey by Deloitte’s Technology, Media & Telecommunications practice. “Many SMBs are too large to be satisfied with a T1 line and too small to afford or to manage a DS3 connection,” says Jan Woodcock, principal of Deloitte Consulting LLP.

Surveying the Small & Medium Business Market

A survey of 289 decision makers at small businesses found:

• A survey of 289 decision makers at small businesses found:
• More than two-thirds of small businesses buy bundled services, with price benefits leading the reasons for purchase.
• More than one-third of small businesses buy a combination of local voice, long-distance voice and broadband.
• Eighty percent of respondents are either very or somewhat satisfied with their provider.
• One-quarter of respondents plan to increase spending on bundles this year.

A survey of 515 decision makers at medium businesses found:

• Two-thirds of medium businesses use at least two carriers to supply a majority of their fixed/landline voice and data services.
• Primary carriers provide the overwhelming majority of respondents with their local (80%) and long-distance phone services (70%) and broadband (60%). Almost half buy their WAN services from their primary carrier.
• While most medium businesses prefer to use one carrier for their service, they are unable to do so cost effectively. In fact, more than half cite price benefit as “very important” when purchasing services from the same carrier.
• Less than one-fifth purchase Web site hosting, security, audio-, video- and Web-conferencing, wireless data and e-mail services from their primary or secondary carriers.

Source: Forrester Research Inc.

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