Let the battle for the mid-market commence

Enterprise software vendors have traditionally targeted large Global 3000 / FTSE 250 companies with revenues of $1bn+. However, as the competitive pressures in corporates intensify and customers consolidate their suppliers, the ‘mid-market’ is becoming an increasingly attractive target for vendors, especially as it fits well with the emerging SaaS (Software-as-a-Service) business model.

The mid-market is loosely defined as those companies with revenues in the $50m–$500m range. These are typically manufacturing companies and subsidiaries of larger entities. Currently mid-market companies are best served by smaller vendors in performance management area such as Cartesis, Prophix, and Applix, who have all achieved excellent financial results for 2006. Similarly, LogiXML and QlikTech in the business intelligence market have thrived. Judging by their references and testimonials they are all doing a very good job of serving the mid-market.

Normally these companies compete with the channel partners from the likes of Business Objects and Cognos, and quite often win. Mid-market companies like their suppliers to take ownership and responsibility for the success and ongoing maintenance of their systems. Direct suppliers are in a stronger position to offer this than resellers.

Mid-market suppliers typically optimise their offer around the needs of mid-market companies. Such companies want a stronger packaged element that requires less customisation, consultancy, and systems integration. They want a good service from a single source. They want a c. $50,000 entry level total cost of ownership. They want the system to be relatively simple and not too onerous on the limited IT resources available. They want it up and running quickly, with an absolute minimum of disruption to business continuity.

Unfortunately for the mid-market specialists, these are also the benefits offered by SaaS, which will enable the larger suppliers to target the mid-market directly.

Business Objects has a big ambition to grow its mid-market revenues using its on-demand SaaS services both from crystalreports.com (for business reporting) and using its latest acquisition, Nsite, as a delivery mechanism for other online products. SAS has expressed an interest in the mid-market, as has Cognos. “SAP is (now) for great companies, not just great big companies” SAP’s advertising proclaims. Oracle has just launched a version of its Daily Business Intelligence for small and mid-sized customers.

But the biggest fly in the mid-market specialists’ ointment is likely to be Microsoft. Over two-thirds of the mid-market companies use Excel for their financial management. Microsoft’s PerformancePoint builds off the Excel legacy to offer budgeting and planning, financial consolidation and more. “Office will be the face of Microsoft BI… a complete offering… and a new economic model” said a Microsoft spokesman. Low cost, compatible with existing office systems and SQL Servers, out-of-the-box and has the possibility of being sold through 600,000 Microsoft channel partners world-wide. Scary stuff.

Of course we have heard this all before in the ERP market 5 years ago. A few small specialist vendors like QAD remain, but the vast majority were acquired by venture capitalists or larger vendors long ago. Could the same happen to the mid-market specialists in the BI and CPM markets? Very likely given the continued acquisitive behaviour of the likes of Cognos, Business Objects, and Hyperion. We shall watch with interest.