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Discovering the Midmarket Opportunity

Microsoft is gearing up for a lovefest with medium-sized businesses

A couple years ago, a midsized company's vice president responsible for IT told me that his company wasn't investing in IT. Why? Because "productivity" doesn't show up on the bottom line. I was appalled at his attitude. That VP is no longer at that company, but if he were, I'd tell him about a study, "Strategic IT Investment in Midsize Firms," that Stanford University conducted for Microsoft. Here are some key findings from this study:

  • Strategic IT investments in midmarket businesses increase a company's overall revenue by 30 percent.
  • Midsized businesses that invest in IT have revenue-per-employee of $254,000 as compared with revenue-peremployee of $164,000 for midsized businesses that see IT as a cost center.
  • Companies that invest in IT are twice as likely as other companies to also have great capabilities in other functional areas such as sales, marketing, and finance.

The Midmarket Opportunity
I recalled that conversation about investment in IT because I'm seeing how Microsoft is rallying behind the midmarket as the company prepares to launch its new Longhornwave midmarket server product codenamed Centro. Over the next year, we'll see Microsoft investing heavily in the midmarket as the company promotes Centro along with its existing midmarket offerings.

Why is Microsoft suddenly so excited about the midmarket? Some statistics can answer that question. Microsoft defines the midmarket as businesses with 25 to 499 PCs or 50 to 999 employees and estimates that there are 1.4 million midmarket companies worldwide. (Small businesses, of which Microsoft estimates there are 39 million worldwide, are defined as having fewer than 25 PCs and 1 to 49 employees. The "corporate" segment consists of approximately 16,000 companies worldwide that have 500 to 1,000 PCs and 1,000 to 5,000 employees. At the high end, the approximately 2,000 enterprise companies have more than 1,000 PCs and more than 5,000 employees.) The midmarket currently spends $113 billion on software and IT services, and that amount is predicted to grow to $152 billion by 2010. IDC research projects that worldwide small-to-midsized business (SMB) software spending will outpace that of the enterprise segment over the next three years.

Reduce Complexity
Because midmarket companies have 1 to 5 IT generalists dealing with all IT responsibilities, Microsoft sees reducing complexity as the highest priority in this segment. The company has several resources, tools, and products aimed at solving the complexity problem:

The Centro set of server products, which is based on Longhorn Server and modeled after the successful small business offering Small Business Server (SBS), is a major part of the midmarket strategy. Centro aims to reduce complexity from setup through management by integrating such technologies as Exchange, Forefront security products.

Middle-Child Syndrome
I asked Davide Vigano, Microsoft general manager for midmarket, to comment on Microsoft's interest in this segment. Davide said that the industry, including Microsoft, created a "middle-child syndrome" by focusing on the enterprise and small business. Midsized companies have enterprise needs but small-business resources, and Davide said, "The industry has not done a good enough job of offering simple but still very powerful and compelling solutions to midsized businesses because we have not traditionally looked enough at the people working within these environments."

If your company hasn't realized the importance of investing in IT, maybe Microsoft's attention to the midmarket in the next year will help you talk to your business management. IT pros know that investment in IT increases the bottom line. Now you have data to prove it.

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