Mumbai: The world’s second largest computer company, International Business Machines Corp. (IBM), might finally be getting its technology solutions business aimed at small and medium businesses (SMB) here right, and it may have shampoos to thank for it.

Last year, IBM, also known as Big Blue on account of the colour of its official logo and which ended the year with $104 billion (around Rs5 trillion today) in revenue, rolled out Smart Business, an information technology (IT) solutions package aimed specifically at SMBs—firms that hire up to 500 persons.

Illustration: Jayachandran / Mint

Results, however, began to improve after so-called “huddle sessions" pointed the way forward: affordable pricing and reach beyond metro cities through business partners. The firm now has 14 accounts nationwide.

In a way, IBM’s new strategy mirrors that of Indian consumer goods firms in the 1980s which changed the rules of the game with the now-ubiquitous low-priced shampoo sachet that allowed them access to a vast rural market through an elaborate distribution network.

It’s not just a coincidence that Anoop Nambiar, country manager (business partners) at IBM who runs the franchises in tier II and tier III cities, once worked in the consumer goods business, selling soap in Andhra Pradesh.

“Lessons I learnt in selling FMCG (fast-moving consumer goods) products did stay with me. Though we aren’t consciously adopting an FMCG model, my functioning may be informed by my past learnings," Nambiar said.

IBM’s SMB strategy hinges on affordable pricing—at least 30% cheaper than competition—and a robust distribution network, expanding from two to 22 locations in the past nine months.

“For IBM, small and medium is a big business," says Ramesh Narasimhan, director, general business for IBM India/South Asia.

New York city-based market research firm Access Markets International Partners Inc. (AMI) estimates IT spending by Indian SMBs engaged in manufacturing, banking, finance or insurance sectors at about $5 billion. IBM estimates that India has about 30,000 such entities.

IBM does not disclose India-specific revenue, but industry researchers estimate it generates about $1 billion in revenue from its India business.

IT magazine Dataquest estimates that IBM had revenue of Rs5,783 crore from domestic business in India for fiscal 2009, up from Rs4,242 crore in fiscal 2008 and Rs3,380 crore in fiscal 2007.

Although IBM follows a calendar year for reporting earnings, Dataquest’s estimates are based on an April-March earnings cycle.

For fiscal 2009, revenue from domestic market increased as a share of total revenue, which includes export revenue as well.

From 42% growth for fiscal 2008, it grew 48% for fiscal 2009, according to data from Dataquest.

A July 2009 report from Dataquest says that in the domestic IT services segment, IBM has an almost “unbeatable lead", and that it “gained massively" in the SMB space in 2009. According to the Gurgaon-based firm, IBM’s SMB client base doubled in 2009 and the segment contributed 30% to overall services revenue from India.

“SMBs want the same things as large enterprise clients: value and innovation. The difference is SMBs lack the resources to address those challenges." Narasimhan told Mint.

IBM’s new moves have not gone unnoticed. “In selling solutions to SMBs, competition will be from players like HP (Hewlett-Packard) and Dell," said Abhijeet Ranade, associate director, IT advisory service, PriceWaterhouseCoopers. “IBM is positioning itself really aggressively while the other players still seem to be waking up to the potential of that segment."

It was not always this way. When it launched Smart Business, IBM was only focusing on healthcare and manufacturing in Mumbai and Pune, without really going after the so-called tier II and tier III cities, where most of India’s SMBs are based.

Sector specialists say that tapping the SMB demand requires paradigm shifts in the way large IT vendors do business, as they are used to catering only to large enterprises.

“There is definitely a demand in that segment (SMB), but clients need to be made aware of the solutions available and the value proposition involved vis-a-vis how the investment will help them grow their business," said Kumar Parakala, head of global sourcing at audit and consultancy firm, KPMG.

“Monetizing the demand from this (SMB) space requires a paradigm shift in strategy because larger service providers are used to catering to large enterprises," Parakala added.

Nearly two quarters after launching Smart Business, the firm realized, based on sales team’s feedback, that the “pricing" wasn’t quite affordable for Indian SMBs.

IBM’s Innovation Center for Business Partners in Bangalore tests and customizes applications from independent software vendors on IBM platforms, enabling the firm to offer less expensive software options. IBM’s lower-priced solutions currently offered to SMB customers start at Rs1,800 per person annually.

Nambiar claims that competitors do not match its solutions portfolio—basic hardware, accounting, payroll, customer relationship management, and human resources management or supply chain management—and where they do, are at least 30% more expensive.

As part of its renewed focus on wider geographic reach, in September, called Geo Expansion, IBM has tied up with 1,200 “business partners" nationwide to sell the full range of its SMB service portfolio.

IBM is now, through such partners, present in cities such as Kochi, Chandigarh, Goa, Coimbatore, Lucknow, Nagpur, Bhopal, Jaipur, Jamshedpur, Nashik, Surat, Bhubaneswar, Madurai and Ludhiana.

However, Nambiar acknowledges that working with business partners was an uphill task as the “requirements of clients and the ability of business partners to identify client requirements" did not match as they only sold either hardware or software.

IBM addressed this by educating them in the nuances of selling solutions through educating their clients.

The Geo Expansion would appear to be working for IBM: it delivered its first result in late October, an IT solutions deal with a Jaipur-based firm valued at around Rs45 lakh.

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