The Impact of HP’s New Direction—An SMB Market Perspective

–by Sanjeev Aggarwal and Laurie McCabe, SMB Group

After HP’s announcement that it would ditch it’s new Touchpad and put WebOS in mothballs, rumors leaked about it’s intentions to spin-off or sell it’s Personal Systems Group (PSG) PC business and acquire information management software vendor Autonomy for $10.2B. Combined, these moves confirm HP’s CEO, Leo Apotheker’s strategy to get out of the low-margin device business and create a bigger footprint in the higher margin software and services arena.

On the surface, perhaps, not a bad plan. After all, margins in the PC business will only continue to shrink, HP has a (very expensive) white elephant on its hands with WebOS, and Apotheker is of course a software wonk. Furthermore, IBM made what turned out to be a great decision when it sold its PC business to Lenovo back in 2004— and it seems like HP has been an IBM-wannabe for at least the last 20 years, so why not follow suit?

But, there are some very significant reasons that the outcomes resulting from HP’s decision are likely to be very different from IBM’s— many of which revolve around the SMB market.

Being in the Right Place at the Right Time, with the Right Strategy

Unlike IBM, HP has had a significant presence in the SMB and consumer segments. Although PSG accounts for less than 15% of profits, it comprises about one-third of HP’s revenues. In contrast, IBM has always been an enterprise-focused company, with no intentions to make a big play in the consumer market. IBM had been selling off PC-related assets, and had already tipped revenue and profit scales in favor of services and software before it sold its PC division as part of a long-term strategy to exit commodity markets. The Lenovo deal also provided IBM with a partnership opportunity to make huge inroads into selling higher-value products—software, servers and services—into the burgeoning Chinese market.

There’s also the matter of being in the right place at the right time. This is 2011, not 2004. The consumerization of IT is well underway. Employees (whether in small, medium or large businesses) are increasingly choosing to spend their own money to BYOD (bring your own device) instead of using a company-issued brick. And more companies are giving employees an allowance to purchase their device of choice.  This trend will only accelerate as younger employees—who expect cool gadgets—graduate and enter the workforce.

What’s HP’s SMB Entry Point Now?

To be truly successful in the SMB technology market—especially at the low-end—vendors need both a compelling entrée and solutions that can help these businesses grow. You can do it with a must-have business solution—ala Intuit—or with a solid line-up of IT infrastructure products and services. But, on the infrastructure side, PCs and notebooks have historically been one of the first IT products that small businesses buy. This is changing with the rise of smartphones and tablets, but these too are client devices. And SMBs will continue to buy PC and notebooks for the foreseeable future.

Which begs the question, what entry point HP will have into small business without PSG? HP lacks compelling small business solutions and has scrapped its plans for mobile devices. Printers—which HP will presumably hold onto—are even more of a commodity solution at the low-end of SMB than PCs.

HP’s Weak SMB Prognosis

Our prognosis is that without PSG, HP’s value proposition will be much weaker in SMB with this exit. PSG not only provided an entrée to upsell servers and services, but has been, for all intents and purposes, HP’s major marketing arm and “voice” to these businesses.

Meanwhile, since SMBs lack IT resources, they typically don’t want or can’t deal with multiple vendors supplying different pieces of the puzzle. This means that when HP hands off its PC business, both SMBs and the HP VARs that serve them—many of whom are small businesses themselves—will have the opportunity to rethink whether they want to stick with HP on the server side.

Who Gains

PC makers such as Lenovo, Acer, SONY and Toshiba should get a good bump, but Apple and Dell are the big SMB winners.

  • Apple basically owns the tablet space until someone comes up with a way to beat them at their own game (which obviously is tough to do!). But its not just iPads. IDC reports that Apple sold 1.66 million Macs and reached an 8.5 percent share of the market, up from 7 percent in Q1 2010. While a lot of these sales are a result of the BYOD to work movement, more SMBs are also buying them because of their reputation for reliability and security. With HP’s imminent departure,  Apple which has the cool factor and typically affords  higher profit margins than PCs–may be very appealing to some VARs.
  • Dell is now clearly poised to be the #1 SMB infrastructure brand. Since Michael Dell came back in 2008, Dell has surged in the SMB market. Not only will Dell take advantage of market uncertainty, but it is well-positioned in its ability to serve the end-to-end IT needs of SMBs, from PCs to servers to managed services. In the last two years, Dell has made a significant investment in listening to and understanding the needs of SMB customers, and it’s paying off. At the Dell Take Your Own Path event we attended in December 2010, SMB business owners told us that they selected Dell precisely because it could provide the broad range of infrastructure solutions and services that have enabled them to out-perform their peers. Dell continues to extend its SMB strategy and portfolio, with acquisitions and solutions such as it’s KACE infrastructure management appliance; Boomi, for application integration; and storage solutions, such as EquaLogic.  This gives it a solid foundation for extending its SMB footprint beyond PCs and servers.

While it hasn’t fared as well in the mobile device area to date, Dell is building a range mobile devices–laptops, tablets and smartphones–layered with a consistent user-interface called Stage. Over time, and allowing for mid-course corrections, this strategy has more potential to pay off for Dell with HP out of the picture. And, just as Apple will appeal to some disgruntled HP VARs, Dell will appeal to others, particularly those that want to pitch a complete solution from a single vendor rather than piecing together a patchwork of components from several vendors—not only because it’s easier, but because they’ll get better margins by concentrating their business with one supplier.

HP’s departure also opens the door wider for some less likely suspects. For instance, a vendor that already has an ongoing relationship with a large swath of SMB customers, a focus on mobility and the cloud, and willing  to place a strategic bet on the huge SMB technology opportunity. Perhaps a telco, such as Verizon? Finally, the ambitions of Amazon and Google, and their potential to disrupt the SMB market with whatever they have up their sleeves can’t be discounted.

Summing Up

HP’s move to increase its focus on high-margin software and services solutions will definitely impact its ability to maintain a strong position in the SMB market. Unfortunately for HP, it is also likely to find itself outflanked by IBM and hunted down by Oracle in the large enterprise space. Ironically, after growing to be the largest technology vendor in the world by acquiring vendors from Compaq to 3Par to Palm, and now Autonomy, HP appears to be headed back where it started from when it made the Compaq acquisition in 2001: in an uncomfortable middle ground with formidable competitors ready to pounce on all sides.

Small Businesses Want to Go Mobile–But Need Less Expensive Data Plans

We just published our latest SMB Group survey study, “2010 Small and Medium Businesses Mobile Solutions Study,” which reveals that although just a small percentage of U.S. small and medium businesses (SMBs) currently use mobile applications, they are revving up plans to implement mobile business applications to help fuel growth.

Judging from the types of mobile business solutions that these businesses are most often planning to deploy–mobile marketing, customer service management, social media marketing, time management and field service–it’s clear that they want to use mobile solutions to help them meet their top business goals of attracting new customers, growing revenues and improving customer satisfaction.

SMB plans to implement mobile business applications are very strong–in some cases, plans to deploy are almost triple current use. However, the high cost of mobile service plans threatens to stall SMB adoption of smartphones and other devices that enable employees to take advantage of mobile business solutions. This is particularly true in very small businesses (1-19 employees), where 40% cite high voice and data costs as a the top barrier to broadening mobile solution use by employees. Even when we look at the total small business group (1-99 employees), 37% say these costs are their top obstacle. As a result, 43% of small businesses currently provide voice-text phones and plans only to employees.

Of late, service providers are offering more limited choices for voice-text only phones. This will give some small businesses the push they need to bite the bullet and invest in data service plans. But, these findings underscore that small businesses need more flexible and affordable data plans in order to take advantage of the mobile applications that can help their businesses grow.
It will be interesting to see what types and which vendors will be willing to shake up the status quo with some new pricing schemes, bundles and incentives to help small businesses act on this opportunity.

Reading the Top Trends Barometer at the 2009 Small Business Summit

Just got back from Small Business Summit 2009—an awesome event put on by Ramon Ray (www.smallbiztechnology.com) and Marian Banker (www.primestrategies.com ) at the Digital Sandbox in New York City. Turn out for the Summit was terrific, and attendees were treated to a great, interactive agenda including speakers, experts, sessions and networking—hosted by Ramon, who is a terrific at working a room.

On the train ride back up to New Hampshire’s frozen tundra, I started writing a blog about the hot topics that jumped out at me during the event. A feeling of déjà vu quickly came over me as I realized I was getting a great read on the trends I had blogged about in my last post, 2009 Small Business Trends: No Longer Business as Usual (just scroll down to the next post for this one). Based on the interactions I had with small business people and vendors at the Small Business Summit,  I think these trends are gaining momentum even more quickly and forcefully than I’d anticipated just last week. So in this post, I’m revisiting these trends with new, fresh evidence from the Small Business Summit that underscores how quickly they are taking shape.

1. Catch the social networking wave. Social networking took center stage at the Summit. Keynote speaker Bob Pearson, chief social media guru for Dell, kicked off the event with his presentation and set the tone for the rest of the day. Bob explained why social networking is so important, and provided down to earth recommendations that your grandma could understand about how small companies can get in the game. He encouraged people to “just get in and do some science experiments” and learn as they go (check out this link for Dell’s primer on social media: http://www.facebook.com/dellsocialmedia). Attendees couldn’t get enough information, asking lots of questions about where and how to set up blogs, how often to post, how long their posts should be, what does Twitter work best for? A few people said that they were going to start blogging right away, and the tweet volume rose through the roof! Furthermore, the vendors at the show are walking the walk themselves, creating, monitoring and responding across the social media spectrum.

 2. Demand solutions that do more for less. Well duh! Of course this is big. Gene Marks, Marks Group PC, emphasized that now is the time to re-negotiate everything, high tech or low, from insurance and rent to IT vendors and consultants. Ramon’s discussion of how to get free publicity through media coverage was spot on, of course.  Panelists and speakers representing a diverse group of vendors and solutions highlighted the abundance of free and low cost solutions available, designed especially for small businesses.  For example, on demand and software-as-a-service vendors were well represented, with the likes of Microsoft Office Live, Google, Campaigner and InfusionSoft on hand. Intuit was promoting its free QuickBooks SimpleStart, and free six-month trial for Intuit Payroll Online.

3. Find fresh technology alternatives more appealing. The audience at this event knows that they will have to work smarter, not just harder, to survive and thrive through this downturn, and come out ahead of the competition when things turn up again. Elance presenter Brad Porteus made a compelling case for using online freelancers for all those pesky jobs you need to do—but don’t have time for. This generated a lot of buzz—one of the attendees piped up that she was going to get an Elancer to track her brand across the Web. Attendees also asked a lot of questions about how they could use technology to become more relevant and create more value for their brands and businesses. They wanted to know things such as how and when to use videos, podcasts and polls, and how to use collaboration tools to foster improved communication and project management build the group dynamics they’ll need to rise above the competition.

4. Favor software-as-service (SaaS) over packaged software that they have to buy, install and manage. As I noted above, many of the vendors at the show were featuring SaaS solutions. What I didn’t hear were many attendees voicing concern about SaaS security or data ownership issues. What I did hear were many conversations between attendees and vendors, with attendees trying to figure out if a particular on demand solution would work to satisfy a specific business requirement. A clear signal that  that the issue of on demand versus on premise is becoming a moot point. Campaigner, which offers on demand email marketing, was a hot spot. Email marketing—like most application areas—is still very underpenetrated in terms of small business adoption. But economic conditions are sending these companies a loud wake up call to take action. They’ll look for an easy, fast on ramp to try, buy and get results—and find SaaS solutions fit the bill.

5. Increasingly turn to non-Microsoft desktops and servers. Ok, this wasn’t a topic that came up at all during the event, so this is all based on my very casual observations. It just seems that everywhere I go, and at this show as well, there are more and more people pulling out MacBooks instead of Windows notebooks. I think that many of the new solo entrepreneurs that will emerge from the layoffs will opt for Macs. Sure, Macs cost more than Windows PCs, but many people suffered a lot of problems with Windows PCs. When  they have to spend their own hard earned money, I think these newbies will turn to Apple in greater numbers.

6. Innovate beyond what we can anticipate.  What can I say, other than spending a day with small business people and vendors who are committed to the success of small businesses is inspiring! Small businesses didn’t get us into this mess, but they will pull us out. Many of the vendors had great examples of their small business customers using their solutions to innovate. I could see the gears spinning as people thought about ways they could apply a couple of the tricks they learned when they got back to their office–or just as likely, their home office. Their drive, energy and creativity will lead to new business models, products, services and solutions that will revitalize the economy.

I’m already looking forward to the 2010 Small Business Summit to see how fast these businesses will run with some of these things, and will be very interested to see where they’re at next year. In the meantime, if you are part of a small business, let me know what’s at the top of list to help your business in 2009.

 


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2009 Small Business Trends: No Longer Business as Usual

In 2009, it’s no longer business as usual. The sharp economic decline has led many small companies to slash operating costs and cut staff to the bone. In the wake of small businesses’ initial shock and awe, uncertainty has become the new normal.

With little fat left to trim, small businesses that want to stay in business will turn to technology solutions to help optimize talent and streamline business processes to get back on a growth trajectory.

Some of the technology trends that will take shape as a result are that small businesses will:

1. Catch the social networking wave. Reduced marketing budgets and headcount will tempt more small businesses to social networking to spread the word about their businesses—and tap into customer and market opinion and demand. Look for small businesses to start figuring out how to take advantage of blogs, Twitter, Facebook, LinkedIn, YouTube, etc. for no and low cost viral marketing. These businesses will also tap into the mobility angle, as vendors extend more social networking capabilities to more mobile devices.

2. Demand solutions that do more for less. With economic anxiety growing and budgets shrinking, “Easier, cheaper, better, faster” is the bar that vendors must meet. Transparent pricing and service agreements are a must; and vendors must  prove early on in the sales cycle that their solutions increase revenues, improve profitability and/or reduce risk. Those with blurry value propositions will not survive.

3. Find fresh technology alternatives more appealing. Barack Obama’s election signaled one thing loud and clear—people are ready for change. Small businesses are too. Their minds will be much more open to a new generation of solutions to help differentiate in the market, reach more customers, and pursue new business models and opportunities.

4. Favor software-as-service (SaaS) over packaged software that they have to buy, install and manage. The SaaS model is now about 10 years old. To date, adoption has been steady but gradual. Dramatic reductions in capital budgets and headcount mean that companies will be much more likely to consider SaaS alternatives seriously than ever before. The fact that all the big guys—Microsoft, IBM and Google—now have on demand offerings will also accelerate adoption.

5. Increasingly turn to non-Microsoft desktops and servers. Despite the price premium, those small businesses that are tired of dealing with Windows problems, will turn to Apple in greater numbers. At the same time, netbooks will pick up share in small businesses when workers are using the Internet most of the time and don’t need a lot of desktop horsepower. Likewise, value-priced plug and play server and software appliances (usually built on open source software), which bundle up a complete solution and require no IT management, will start eroding Windows server sales. Look for security, storage and collaboration appliances, along with pre-packaged solutions that zero in on specific vertical industry needs.

6. Innovate beyond what we can anticipate. Continuing economic uncertainty is a recipe for the unexpected. Hundreds of thousands of people are being laid off every month. After a few months of sending their resumes into the black hole of Internet job sites, many will decide to strike out on their own and do something new. Business innovation among both startups and established small businesses will be on the rise, and so will the opportunities for technology vendors that can create solutions to enable this innovation.


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