Segmenting "Small Business" for IT Needs

With so many small businesses worldwide, it's no wonder that large IT providers are going after the small business market.



CRN magazine has an interesting piece about Cisco's efforts to move down market and sell to small businesses. Cisco will be competing -- at least in part -- against lower priced vendors including its own Linksys division.



I think Cisco has taken a very smart approach to this market (although I may be the only one other than Cisco who thinks so -- the article itself sounded doubtful). Cisco has segmented the small business market according to buying behaviors -- instead of the more typical employee size and/or revenue size. CRN magazine (subscribe free) says:

Cisco is targeting the SMB segments that are looking for high value and high feature sets, he said. Cisco breaks the market into four tiers: enterprise adopters, or small businesses that behave like enterprises; cutting-edge adopters that value technology and use it as a strategic advantage; value-price adopters that use technology but are driven by price; and "laggers," companies that adopt technology late in the cycle because they have to remain competitive.



According to research from AMI Partners, the 470,000 enterprise-type companies that comprise the first group account for about 45 percent of annual IT spending by SMBs; the 1.3 million companies in the second group, the cutting-edge adopters, represent about 31 percent of the money spent; the 1.8 million price-driven companies in the third group account for 16 percent of the market; and the 3.6 million companies in the latecomers group represent just 8 percent of the market.



Cisco's SMB offerings will be targeted at the first two groups, Mountford said, while Linksys is aimed at the third.



"We can talk about a 20-seat company, and we have, but what really matters is what tier that company falls into," Mountford said. "A 20-person financial services firm will require more sophisticated technology than a car wash with 200 people."

Meanwhile, as Cisco approaches the SMB market from the high end, its Linksys division is making headway moving up from the low end. Linksys seems to be proving a philosophy I've long held: that it is easier to take a low-end tech product and move up market, than to adapt a full-featured premium-priced product to move down market.



For a crisp explanation of this behavior-based segmentation visit the AMI Partners website. [UPDATE: link now fixed]