Guild Companies

Hewlett-Packard claims to be the dominant supplier of information technology to small and midsized businesses, with over $21 billion of its $72 billion in annual revenue in fiscal 2002 coming from customers in this market. HP thinks these customers don't get enough hand-holding as they choose technologies or get enough support from vendors. That's why HP plans to spend $750 million to chase the SMB market with a new set of products and services called Smart Office.

If you have a channel of 210,000 hardware and services partners in your channel, as HP does, you have to figure out some way to leverage these companies in order to compete against Dell's direct-sales model (which leaves customers to figure their own way around different technologies). You also have to compete against IBM's direct-channel hybrid model, which targets customers with simplified products (which have the Express moniker, like DB2 Express or WebSphere Express), as well as against the combined IBM-partner services. About the only choice HP has is to somehow use those partners to give SMB customers, who are still mostly ignored after they pay their invoices, some help in choosing the technologies and onsite support that local partners can bring to the game. Dell doesn't have a channel, so it can't hold many hands. And IBM has lots of partners, but it can't sell entry server or storage products at the same volumes as HP, and therefore its channel is thinner on the ground and less able, in theory, to give the personal attention and hand-holding that HP thinks will give it a clear competitive edge.

It would be interesting to see how HP is really going to spend that $750 million, but all that it has said is that it will be spent on research and development, marketing, sales programs, and services. Carly Fiorina, HP's chairman and CEO, was vague about the term of that spending as she rolled out Smart Office yesterday, but it will probably be spent over many years. John Brennan, who has been named senior vice president of small and midsized business at HP, did not further clarify what that big bag of cash would be doing, either. But odds are that HP already had these funds earmarked for projects, and that they are not being pointed specifically at the SMB market and the Smart Office initiative. In this regard, Smart Office is like the $10 billion investment in on-demand computing that IBM was bragging about last October. IBM was going to spend that $10 billion, but is now focusing on how to combine several projects into one in order to make computers more reliable and flexible.

The SMB market is a slippery one to characterize, but Fiorina and Brennan fleshed it out a little bit. It is really, as Brennan correctly pointed out, two or more very different markets, since a company with one computer and one or two employees is very different from one with 800 employees and 800 desktops or laptops, plus a slew of servers. What Fiorina said is that 50 percent of the spending that HP itself does on goods and services to run its business operations ends up going to SMBs like the ones HP is targeting. She said further that SMBs consumed some $460 billion in IT hardware, software, and services in 2002, and that the analysts who put together these numbers reckoned that this number would grow over the next few years to $640 billion at an annual rate of 10 to 11 percent. Interestingly, according to surveys, 9 out of 10 SMBs have at least one HP product, so the company already has some brand recognition in this market. It's the new SMBs that are just as interesting as the established and presumably growing ones, though. Every year in the United States alone, Fiorina said, some 700,000 new businesses are formed. There are probably millions of new businesses established worldwide each year, and there is a vast installed base of SMB customers worldwide, in the range of 80 million. HP is projecting that SMBs will grow faster than other businesses, which is why HP and other IT vendors that has ignored small customers, specifically in the past two decades, are suddenly calling themselves friends of the little guy.

Fiorina got to the heart of the matter in describing what Smart Office was about. "There are some companies that claim their products are easy to use," she said. "The 'easy' starts with the choosing and ends with the buying. Easy to buy is not enough." What SMB customers want, she said, is three things: someone to tell them what they need to buy, and only what they need to buy, to solve business problems; someone to give them the kind of financing options that big businesses use to not mess with their cash flow as they invest in IT infrastructure; and someone to actually come to their shop and fix something immediately when it breaks. This is what HP is promising to do, and to do in conjunction with its partner channels, with Smart Office.

One of the first Smart Office products will be an HP ProLiant server preconfigured with Microsoft's Small Business Server variant of the Windows 2003 operating system. This will start shipping in mid-October. On top of that, HP is going to work with partners to bundle and support vertical applications aimed specifically at doctors' offices, law firms, accounting firms, and other professional offices, which tend to run themselves using a cobbled-together set of applications, if they are lucky, or an Excel spreadsheet if they are typical. HP is also going to bring in its StorageWorks NAS products, which can grow as a small business grows. Perhaps most significant, HP is establishing an SMB IT help desk that gives each customer a single point of contact for HP and its partners, to discuss hardware and software technologies and to get support for over 160 products from HP and its partners. Presumably a big part of that $750 million is to pay partners to provide these hand-holding services. The Smart Office initiative also includes an online backup/data vault service so that SMBs can store their data offsite, and an extended maintenance warranty on HP ProLiant servers that covers them for natural and man-made disasters. These latter three items will be sold by HP and by its partners under the CarePack umbrella moniker for services.