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Small and midsize businesses will spend an estimated $163 billion on technology in 2005, more than two thirds of which flows through channel partners.

It is no wonder, then, that vendors are practically tripping over themselves to launch channel programs aimed at SMB buyers. In the past month alone, SMB offerings have come from a parade of vendors, from Novell Inc.’s Linux SMB suite, to IBM and Hewlett-Packard Co. blade servers, to SAP AG’s SMB-focused ERP (enterprise resource planning) solution.

For years, and with varying degrees of success, IT vendors have vamped and revamped programs designed to increase their SMB revenues through the channel.

In the current wave, vendors more skilled at selling to the enterprise than breaking into the rich and dynamic small-business market are trying every combination of downsized product, co-marketing dollars, training funds, lead generation and financing to entice SMB-friendly VARs into their camps.

“Everybody wants it and is investing huge amounts of money in it, but nobody has won it yet,” said Joe Lewis, executive vice president of Business Edge Software Services Inc., in Dunwoody, Ga. “It’s this wide-open territory. It’s this vast expanse that nobody’s been able to really tap yet.”

To succeed in the SMB space, say channel experts, vendors must forge true partnerships with the channel by forgoing direct sales strategies that compete with partners, offering reliable pre- and post-sales support, maintaining face-to-face contact with partners, and providing quality products that address the business needs of end-user customers.

Click here to read Channel Insider Columnist Elliot Markowitz’ take on whether SAP is finally getting serious about the channel.

Often vendors have failed to build a strong presence in the SMB market because they lacked a fundamental understanding of the market, pushing products that didn’t quite fit the needs of smaller businesses.

“Many companies try to take scaled-down enterprise products to sell to SMBs without recognizing the specific needs and requirements of the small business,” said Shari Marion-Hoff, president and CEO of Hawkeye/Cohesion, a Seattle-based channel marketing and strategy firm. “Products should be designed around the specific small business requirements to be successful.”

The new crop of channel SMB programs looks more promising, said Helen Chan, manager of SMB strategies and consulting at AMI Partners Inc., a channel research and consulting firm based in New York.

To read Channel Insider Columnist John Moore’s evaluation of programs from HP and IBM to offer additional funding to VARs, click here.

Rather than just scaling down enterprise-focused products for smaller companies, more vendors are either acquiring SMB-appropriate technology through acquisitions or developing products from scratch to better penetrate the market, Chan said.

The strategy vendors need.

In addition, more vendors have sharpened their focus on how their technology interplays with that of other products, and are developing services and strategies around solutions instead of individual products, she said. That means sometimes partnering with other vendors to build the solution, she said.

“Vendors must have a strategy of being able to target the right partners with the right types of solutions for the right types of end users,” Chan said.

Paul Bay, senior vice president of vendor management at distributor Ingram Micro Inc., said SMB is a dynamic market whose needs have evolved over the years. “Manufacturer programs used to simply be about building brand awareness and running promotions, but now we’re working with manufacturers to design and execute programs that help VARs sell, provide them resources and show them how the product or technology solves a business need,” he said.

Using VARs and distributors is the best strategy for vendors to reach the SMB market, Bay said. “The channel is on the front line with today’s SMB and in many cases sees or anticipates change before it happens. That’s a value manufacturers just can’t get with direct sales.”

AMI Partners estimates the number of channel companies such as VARs and integrators that do at least 50 percent of their business in the SMB marketplace at more than 44,300. The SMB channel accounts for $117 billion in IT products and services, according to the analysis company’s reports. Total SMB spending, inside and outside the channel, will reach $163 billion this year, according to AMI Partners.

The SMB market is huge and diverse, and as such, it can confound vendors. For one thing, said Marion-Hoff, vendors must understand the difference between “small”- and “medium”-sized business.

“They are two separate segments and can operate very differently,” she said. IT purchases at small businesses are made by owners or office managers. “They typically do not have as high a level of technological understanding or sophistication, so ease of understanding and implementation are key,” she said.

Conversely, larger medium-sized businesses employ CIOs or IT directors who make purchasing decisions with a higher level of sophistication. They take into account total solution fit, ease of integration, and return on investment, she said.

Darren McBride, president of Reno, Nev.-based VAR Sierra Computers Ltd., said small businesses with 60 or fewer computer seats need someone they trust locally to implement the solutions they need. Sierra does 97 percent of its business in that market, he said.

“Small business is incredibly price-sensitive and needs to feel comfortable they are getting the best deal,” said McBride. “Unfortunately, they also require a high level of support, so these customers are the worst possible combination. The practice in the computer industry of limiting warranties and making the customer wait on hold for long periods of time to interact with them is unacceptable.”

To succeed in this market, McBride said vendors must work closely with VARs and integrators, and make sure direct-sales forces never offer better deals to customers than those channel partners can muster.

Vendors should offer channel partners free technical training and make sure their sales and marketing staffs understand the technology. Vendors should also offer special pricing and dedicated support lines to resellers getting training in their products, he said.

Lewis, of Business Edge Software Services, said to succeed in the SMB space, vendors need to take a true partnership approach to channel partners instead of marketing to them as customers. Vendors must be flexible, offer cost-effective technology and have a vertical-market approach that recognizes different businesses have different needs.