IBM and Microsoft woo small shops with cloud-based services

In terms of running IT operations, 2010 may be a good year for small to medium-sized businesses (SMBs).

At least two major vendors, IBM and Microsoft, are starting to focus on the SMB market with their latest offerings. The only question for businesses is whether to run their applications in the cloud or use a prepackaged offering that can be run in-house.

Both approaches offer advantages heretofore largely unavailable to SMBs, which have traditionally been underserved by large IT vendors, analysts said.

While details of its cloud computing offering are still emerging, one area that Microsoft sees as ready for the cloud services is the SMB market, said Birger Steen, who is the Microsoft vice president for SMB.

Microsoft views SMBs as one of the largest untapped markets for the company, Steen said in an interview.

An SMB is widely defined as an organization with one to 500 employees and can include, for instance, a dentist’s office or a home business hawking hand-made jewelry.

Microsoft estimates that there are over 150 million SMBs in the world, only 10 million of which use IT in any but the most rudimentary way.

“A lot of these businesses really are underserved,” Steen said, noting that this segment is looking for relatively low-cost options that are easy to maintain. “We want to bring [Microsoft software] to them in an affordable way,” by using cloud computing.

Cloud computing offers previously unavailable advantages to small businesses, Steen said. Typically, SMBs have had to settle for stripped-down versions of enterprise software from the large vendors, or software from lesser-known smaller providers. In either case, the software could be more troublesome to maintain, compared to the software enjoyed by companies with larger IT budgets.

So, cloud computing allows smaller companies to benefit from “enterprise scale” in terms of features and reliability. It also allows organizations to cut capital expenditures for new equipment, which can prove to be a costly and unnecessary expense should business decline.

Microsoft is taking such a bullish stance on the cloud that, earlier this month, the company discontinued development of its Enterprise Business Server (EBS), a software package aimed at smaller SMBs.

EBS didn’t work out for a variety of reasons, Steen said. First, small organizations tend to buy their software piecemeal. They may purchase a file server this year and an e-mail server next year. So deploying an integrated package would have meant replacing perfectly working software, something organizations were reluctant to do.

Another factor that played a part was virtualization, which companies have been increasingly using to consolidate software on a smaller set of servers. Finally, cloud computing is offering a more appealing alternative, he said.

Microsoft is now advising small businesses to consider the company’s office productivity cloud offerings, including the Business Productivity Online Suite (BPOS). Organizations can obtain BPOS either through a reseller or from Microsoft. Cost is based on a per-user per month, starting at US$10 per user.

BPOS features a number of different online components, including Microsoft Exchange (for e-mail and calendaring), SharePoint (for file sharing), Office Live Meeting (for virtual meetings) and Office Communications Online (for messaging).

Thus far, over a million users have tried BPOS and “a lot” of them have been SMBs, Steen said.

Eventually, “there will be a cloud component to every product we offer,” Steen said.

Not everyone agrees that SMBs are best served from the cloud, however.

“The concept that everything will move to the cloud is a bit naïve. Particularly with small businesses, we’ll still see the need for on-site data storage and processing for the foreseeable future,” said Caleb Barlow, who is IBM’s SMB director, in an interview about IBM’s recently enhanced appliance-based SMB package, called Lotus Foundations.

Barlow noted factors such as bandwidth limitations that can hamper performance of any sort of cloud offering.

With Lotus Foundations, a small business or branch office can run a server, or appliance, with all the software needed for office duties. It includes software for e-mail, calendaring, contacts, file storage and backup, as well as the Lotus Symphony business productivity suite. The latest version adds a copy of the DB2 database.

The appliance model solves many of the same problems that cloud computing does, noted Laurie McCabe, who is a principal of the IT analyst firm the SMB Group.

For instance, new programs can be easily added and updates can be automatically downloaded. A reseller or contractor can maintain the appliance and fix problems remotely as they arise.

It should be worth noting that IBM, like Microsoft, also offers many office collaboration services as cloud services as well, through LotusLive. Likewise, Microsoft continues to offer the Windows Small Business Server (SBS) package for midsized businesses that want in-house equipment.

And both companies are competing with other cloud service providers both big and small, such as Google and Zoho.

Whether the small business should use the appliance model or the cloud depends in large degree on the specific business requirements, said Brad Shimmin, who is a principal analyst covering collaboration technologies for IT research firm Current Analysis.

A business with a lot of regulatory requirements, especially those around security, may not find all of them met online.

Another approach may be the hybrid model — to run services both in house and online, Shimmin said. A university, for instance, may want to offer students the online e-mail and calendaring, but keep faculty and staff on an in-house service, for better security.

Both Microsoft’s and IBM’s new approaches, however, are good news for SMBs. “Both companies are realizing that one size doesn’t fit all,” McCabe said.

As a result, both companies are offer pricing models that weren’t available in years past, based on more nuanced usage models that should help keep costs down. “The licensing is becoming as flexible as the deployment model,” Shimmin said.

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Jim Love, Chief Content Officer, IT World Canada

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