Serving SMBs is not so simple

FRAMINGHAM (10/09/2003) - With large companies drastically cutting back their IT spending, many IT vendors and service providers have shifted their attention to small and midsize businesses (SMBs). While it might be relatively straightforward for vendors to re-architect their IT products to make them fit SMB needs, restructuring a service provider's sales and service delivery structures to appeal to SMBs is much harder.

Many SMBs are getting fed up with the hassles of IT and are considering outsourcing their IT operations. This has attracted an array of specialized service providers, telephone companies and major outsourcers attempting to gain a foothold in the SMB market.

Electronic Data Systems Corp. (EDS) and Microsoft Corp. recently entered into a joint venture, called myCOE (my Consistent Office Environment), to offer utility computing services to SMBs. MyCOE is a Web-based desktop utility computing product built on Microsoft's Solution Accelerator for Business Desktop Deployment (BDD). Microsoft says BDD can automate many Windows XP, Office XP and Office 2003 deployment tasks with scripts and templates to reduce the challenge of installing desktop applications and upgrades. And, as with other on-demand computing solutions, EDS promises SMBs will be able to utilize myCOE on a pay-as-you-go basis.

However, myCOE gives SMBs the same BDD software distribution and administration capabilities they can get for free directly from Microsoft. Why should SMBs pay for a service when they can download the functionality at no charge?

EDS suggests that SMBs gain its expertise and experience from its long history of managing the complex IT environments of many of the largest organizations in the world. In truth, EDS' outsourcing systems and staff are not geared toward the more narrow technical requirements of SMBs. The company's consultants are too expensive and accustomed to complex IT environments, and its sales team is too costly to succeed in the price-sensitive SMB market.

This isn't EDS's first foray into the SMB market. The company partnered with BellSouth Corp. in 1998 to offer e-business and Web hosting services to SMBs and was replaced by IBM Corp. in 2001. EDS lacked the field staff to support BellSouth's SMB sales efforts, and its cost of services was too high to appeal to BellSouth's SMB customers.

EDS has done little to remedy these issues. In fact, the company is facing severe financial challenges because of recent problems with its traditional outsourcing business. Given EDS's limitations in the SMB market, the company should have used Microsoft's BDD capability to enhance its desktop outsourcing capabilities in its traditional large enterprise target market rather than overextend itself into a new market.

The EDS-Microsoft partnership serves as a warning to both SMBs and large companies to examine carefully whether the service provider pursuing their outsourcing business is properly structured to satisfy their needs and whether its services are really better than what users can get on their own.

Kaplan is managing director of Thinkstrategies, a consultancy in Wellesley, Massachusetts. He can be reached at

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