Microsoft’s SMB Dominance Is Under Threat

For the vast majority of solution providers in the small and midsize business market, the world is still pretty much dominated by Microsoft. Being practical people, solution providers take the world as they find it. And because most of the applications in this market run on the Windows platform, that’s the world they live in.

But a curious thing is starting to take shape in the SMB market as the loyalty to Microsoft among ISVs in this space becomes increasingly strained. The process that drove a wedge in that loyalty was Microsoft’s decision to acquire a number of companies and begin aggressively marketing applications targeting the midmarket space. This naturally set ISVs on edge, with many of them shifting their stance from being pro to neutral about Microsoft to being neutral or against.

For instance, the folks at Cognos could once be described as being pro Windows, but today are probably neutral at best, while the conglomeration of companies that make up Sage Software are increasingly pro Linux.

The reason solution providers need to pay attention to what’s happening in the ISV community is that about one-third of all infrastructure is sold at the time of application deployment. Given that, the influence that ISV exerts on what infrastructure is chosen by the customer is immense. And what solution providers are going to see a lot more of is ISVs trying to push their customers toward Linux and open source.

When Microsoft moves to compete against ISVs, it typically drives down the pricing in that application category as part of an effort to boost volume and drive others out of the market. But ISVs in this space have discovered that they can make a pretty compelling counter argument that the total cost of the solution is a lot less when using their software running on open-source software versus Microsoft applications running on top of Microsoft databases and related software.

Of course, the pied piper of all this reasoning among the ISVs is IBM, which is preaching the open-source mantra to ISVs. It is part of a concerted effort to usurp Microsoft by converting developers based on the fact that Microsoft has designs on their business and that customers need a lower-cost solution.

Microsoft will argue that for IT shops that are already committed to .Net, its application stack is less expensive to deploy than a new open-source infrastructure. But as yet, most SMB customers are not deeply committed to SQL Server and all things .Net. They like the packaging around the small-business and midmarket servers from Microsoft, but ISVs still have more clout with the typical SMB customer when it comes to the application server because customers remain more wedded to their application providers than they are their software infrastructure vendor. And Linux vendors, such as Xandros, are beginning to show how much can be done to make Linux easier to install and manage in SMB environments.

The end result of this titanic battle is that while Microsoft is not going to fade into oblivion, ISVs will exercise enough clout with their customers to require more solution providers to have a deeper knowledge of all things open source. That may come with some additional cost for solution providers, but the days when a solution provider can focus on exclusively one platform in the SMB space appear to be coming to a close.

Michael Vizard is editorial director of Ziff Davis Media’s Enterprise Technology group. He can be reached at michael_vizard@ziffdavis.com.