The small and mid-cap stock indexes have been very good the past couple of years and with good reason; as we came out of the recession and the war on terror it was the SMBs that led the way, like always. Of course with the economy as strong as it is, it was only a matter of time before the large-cap companies started to churn. Even though they don't grow like they used to, these companies, with the exception of those in the Auto sector, can swell with cash fast in a 4%+ economy. Last week Friday I saw a big article in the Wall Street Journal (could not find it online), and also a similar story in MarketWatch, about how the tech sector is poised to benefit from the cash that the large caps have been accumulating. If it was just this easy. Actually, Vinnie Mirchandani, The Deal Architect, has been noting for some time that companies like Oracle, SAP and Microsoft do benefit from large company largesse, all year round and every year. This is more of a problem than a news item. Large companies spent billions in the 90s and beyond installing and maintaining large, very complex ERP and CRM systems. Even today they continue to spend some 20 - 25% of the original license fees in yearly maintenance. With this much of their IT budget targeted to utility requirements there is little left for innovation. Large companies and their IT budgets are in hock to the large IT vendors. The spend on these systems was so severe, and the systems so complex, that it has locked them into the vendors market for a generation. They cannot escape. If you have innovative technology to sell, package it for the SMB market, because large companies are setup to mail the bulk of their IT budget to one of the IT giants this year. And as the big IT companies show little interest in innovation these days anyway, companies are not inclined to just throw more money at them. Why people at WSJ or MarketWatch believe that a large cash pile means that Oracle, SAP or Microsoft are going to smell like roses this year is beyond me. What do they have to sell that's new? I haven't seen any great announcements, lately, about new products (Microsoft CRM 3.0, for example, was notable for its lack of innovation)? There is going to be spending in the tech sector this year, but it will largely concentrate itself in SMBs buying from tech SMBs. Companies like NetSuite, salesforce.com - even with sf's outages and all - will continue to make large gains in the marketplace. And a lot of Web 2.0 companies will find customers in the SMB market. Since they did not tie up their IT budget in large complex systems, the SMBs are poised to spend on newer technologies, with greater ROI and less of the ball and chain effect that large companies experience with SAP, for example. So what? SMBs buying technology solutions from innovative SMB tech companies is news? Well, yes, in fact it is, because with the Internet at the core of much of the new technology, the SMBs are not just purchasing tech solutions but innovative ways of doing business; operational efficiencies once enjoyed only by large companies; in a word, they are purchasing a level playing field with their bigger brothers. Large companies have large stockpiles of cash and they may spend a good portion of it on IT this year, but it will be for discrete systems that offer real innovation and have huge ROI. I don't see how SAP, Microsoft and Oracle make out here, other than collecting their normal ransom. Likewise, SMBs use 2006 as another year to level the playing field by buying innovative technology that makes them operationally efficient and enables their own innovation. I'll cover the new innovations in the next post. |
