About the Author

Geoffrey Moore

Managing Director, TCG Advisors Venture Partner, Mohr Davidow Ventures

Geoffrey Moore is a best-selling author, a Managing Director at TCG Advisors and a venture partner at MDV.  More...

November 2008

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Very Small Businesses: Stuck in the Middle (with Mossberg)

It’s so much more fun to read The Wall Street Journal on vacation because you get to linger over pieces that you only have time to scan otherwise.  Case in point: a 12/29 column by Walt Mossberg entitled “Computer Makers Cater to Big Business, Slight the Rest of Us.”  Well, yes they do, but not for the reasons that Walt proposes.

Mossberg argues that computer systems vendors are overly infatuated with enterprise IT customers and inappropriately inattentive to the rest of us.  Baloney.  First of all, computer vendors for the most part are complex systems vendors, not volume operations vendors, and as such their primary job is to tackle the kind of complexity that entails when enterprises seek to operate of a global scale.  But to be fair, Mossberg was not really thinking of these folks so let’s just set them aside.

The vendors he really has in his sights are Dell and HP.  They both do run volume operations businesses around the PC, and both do strongly prefer enterprise customers to consumers, for reasons of profitability.  (Reminder to Walt: This is a key value espoused by your editors who routinely reams these folks when they are not profitable)

That still leaves hanging, however, the question of what happens to the entrepreneur caught out in between these two models.  The truth is, as Mossberg notes, direct vendor-to-customer service to this customer is inherently compromised.  The reason why, however, is not inattentiveness on the vendor’s part.  It is that neither the complex systems model nor the volume operations model is designed to meet their needs—and there is no third model to draw upon!

In other words, volume operations PC vendors are appropriately neglecting the VSB customer because their business model allows no other option.  Very small businesses (VSBs) need more complex functionality than consumers but cannot afford the dedicated IT infrastructure to implement it. 

There are two solutions to this problem.  The first is to leverage a disaggregated value chain and let the resellers provide the necessary services.  Specifically, independent value-added resellers use the resale of products as an entrée to establish an ongoing service provider relationship with the VSB owner/operator.  It is not a great solution, but it does all the VSB to leverage a lot of horsepower at pretty close to free pricing.

The long-term solution to the VSB dilemma, however, involves transitioning to a new business model altogether.  This model will combine complex systems hubs with volume operations outlets—akin to the telephone network—creating a business model people are calling software as a service.  In this model there will be IT, but only at Service Central where it belongs.  The VSB will act as a utility customer.  There will be much less customization than the current system allows, but ask yourself, how much “value” has all that customization created, particularly if value is defined as advantages minus headaches, heartaches, and moments of near-suicidal desperation.  Unless computing is core to its competitive advantage strategy, a VSB should be more than happy to make these trade-offs.

The key point is, software as a service is unlikely to come from Dell, and certainly not from Apple, both of whom are strongly ensconced in product models.  In the shrot term it is showing up from the likes of Salesforce,com, but in the long run, because of their superior reach, it looks again like the Yahoos and Googles of this world will be the service providers of choice, with the AT&T’s and Verizons grumbling in the background about how they are getting money for nothing and using their pipes for free.

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Comments

Carlos Leyva

Geoff,

Yeah software as a service is part of the solution as well as utility computing. I wrote about what the lack of these services did to small businesses in New Orleas post Katrina and why it could have been prevented.

http://web-tones.typepad.com/home/2005/12/disaster_recove.html

Brian Halligan

Geoff.
I spent many calories at MIT studying the economics of the enterprise software industry. Some of my findings are related to your entry, so I thought I would share it...

http://www.brianhalligan.com/Portals/33/docs/ISV%20Go%20To%20Market%20Strategy2.pdf

Chris Church

Geoff,

I'm not sure I'd count Apple out of the Software as Service game just yet. I think we'll see them partnering in this arena.

.Mac is a form of Software as Service today, and it works. Granted, it works for the consumer. And, if I had to guess, I'd think some might consider iTunes as a form of software as service, albeit stretching the model.

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