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About 2579 days ago Computer Security

Service, Not Servers

Don’t tell Joe Walker that lightning doesn’t strike the same place twice. The headquarters of his company, Elcometer, a manufacturer of testing equipment for paints and coatings based in Rochester Hills, Michigan, was hit by lightning three consecutive years starting in 2001. In the first two cases, the resulting electrical surges knocked out the building’s power and completely fried every electronic device–including the company’s computer servers, which stored critical information such as inventory numbers and customer contacts. Both times, business ground to a halt for 10 days as the company’s tech team scrambled to restore the systems. In August 2003, yet another fierce electrical storm roared through southeastern Michigan. Once again, Elcometer’s electricity was out for days. But this time, commerce continued without a hitch. What was different? Six months earlier, Elcometer had gotten rid of its computer servers and instead began accessing all of its sales, inventory, and accounting data online. As a result, employees were able to work from home or from terminals at a nearby Kinko’s. “It was a huge difference,” says Walker. “All I had to do was get my Internet connection back up and running to get back in business.” Walker is on the leading edge of one of today’s most important technology trends–the transformation of software from a product to a service. While computer software has been growing faster and smarter, the industry’s business model has been pretty much stuck in about 1990. Developers ship out disks and CDs encoded with their latest release or upgrade, often charging hefty licensing fees. Customers install the software on their local servers, which must be constantly maintained and upgraded to run this ever more sophisticated software–a vexing game of catch-up that usually means keeping a team of tech pros on staff. And when the server goes down so does business.  But that process is becoming as outmoded as VHS recorders. Instead, software makers are making their tools available on the Internet on a pay-as-you-go basis for a monthly subscription fee. Known as on demand, or software as a service, this model has long been familiar to customers of companies such as NetSuite and Salesforce.com. But now nearly all software makers are offering on-demand versions, making it possible for businesses to abandon their servers and instead keep all of their data–from e-mail to e-commerce to human resources–on the Web. In 2005, companies spent more than $4 billion on hosted software, a number that is expected to grow to more than $10 billion a year over the next two years. While those numbers represent a small portion of the $190 billion global software market, the Yankee Group, a research firm in Boston, forecasts that more than 50 percent of the software purchased by small to midsize companies in 2008 will be from software-as-a-service providers. “This is an evolution in how companies use software, especially small and midsize companies that finally have access to applications they couldn’t afford before,” says Sanjeev Aggarwal, a senior analyst with Yankee. The key benefits of working with these on-demand providers are high speed and low cost. To buy and install a traditional accounting or customer-relationship-management system often means waiting months and spending hundreds of thousands of dollars. With software as a service, you can be up and running within days, or even hours, of signing a contract. Since the vendor is hosting both the application and the data, getting started can be as simple as typing in a username and password. What’s more, on-demand customers generally pay monthly subscription fees, rather than large, one-time licensing fees. A Yankee Group study found that the total cost of operating an on-demand software package is less than half that for an equivalent traditional system. In 1999, before the company experienced its first lightning strike, Elcometer used Great Plains, now owned by Microsoft, as its in-house accounting system. But with Y2K looming, Great Plains was requiring its customers to spend $1,500 for an upgrade. Elcometer also needed to upgrade its servers to handle the new software and hire an IT manager to manage it. “I was looking at spending $130,000, plus license fees,” says Walker. When he factored in the need to safeguard his company’s data from future lightning strikes–or other unexpected events–the decision became obvious. He switched to NetSuite, which charges an up-front fee of $5,000 plus $99 a month per user. “Now, we don’t have any servers, we don’t have to download the latest updates, and NetSuite fixes any bugs while I’m asleep,” Walker says. On-demand software is especially useful for companies that have computers and data spread out among multiple locations, since everyone from salespeople to CEOs can access their systems from any broadband Internet connection. Businesses that operate in different time zones or countries no longer have to worry about supporting their traveling employees around the clock. Managing an e-mail server, for example, was particularly troublesome for Fred Aryan, president of LaserShip, a delivery company in Vienna, Virginia. With 150 employees spread out among 15 locations along the Eastern Seaboard from Boston to Atlanta, keeping everyone’s computers up to date with the latest patches and spam filters was becoming a nightmare. That’s why he switched to HyperOffice, an on-demand provider of e-mail and collaboration software based in Rockville, Maryland. By adopting HyperOffice, which charges about $7 a user per month, Aryan figures he’s saving $80,000 a year between software license and hardware maintenance costs. “And that doesn’t count getting rid of all the service headaches,” he says. The downside of on demand, of course, is that your business becomes dependent on access to the Internet. Aryan says he struck a deal with HyperOffice to compensate him if his system experiences any downtime (see “What to Ask For in an On-Demand Software Contract“). Security is another concern. Keeping servers in-house may be a pain, but it also means that sensitive accounting or HR data can be locked down behind a firewall. Can the Web offer the same assurances? On-demand vendors insist it can. NetSuite and HyperOffice, for example, either maintain or partner with deluxe data centers complete with the latest in data security and backup technology. Employees can gain access only through secure logins. Elcometer’s Walker admits that he was nervous about keeping his data on the Web. But he’s thankful that the decision has saved him from worrying about the nagging problems of maintaining his hardware–not to mention the weather. Resources The consulting firm ThinkStrategies offers tips on making the switch to hosted software, as well as a list of vendors, at saas-showplace.com. The consultancy OpSource offers white papers, an ROI calculator, and other resources at opsource.net.

About 3033 days ago Computer Security

Larry’s Kids

Al Mcgorry is a small-business man who thinks big. So in 2002, when this CEO of a 12-person software consultancy in Sacramento heard of a new, inexpensive service called Oracle Small Business Suite, he thought that Oracle’s CEO, Larry Ellison, was finally offering a scaled-down version of the software that its big, multinational customers use — at a cost of a quarter of a million dollars and up — to run their businesses. But unlike traditional Oracle products, this one was simple to use, integrated, delivered over the Web, and at only $49 per month, surprisingly affordable. McGorry was hooked. The fact is, it wasn’t an Oracle product at all. This innovative new business software solution was the work of a small San Mateo company called NetLedger (later NetSuite) that was launched in 1998 by Ellison and a young protege, Evan Goldberg. NetLedger got to use the Oracle name at a time when upstart Internet companies needed all the branding advantages they could get. In return, Ellison got a foothold in the small to midsize business space. It was an inspired partnership. So much so that NetSuite reached No. 12 on the Inc. 500 this year, with four-year growth of 5,763%. Its 2003 revenue was $16.5 million, and 2004′s number will approach $50 million. And if you ask Goldberg and his team, they’re just getting warmed up. “This is a massive, massive market,” he says, citing the nearly seven million small to midsize businesses in the U.S. alone. It’s a fact not lost on Ellison. At the same time he was funding NetLedger, he was also helping bankroll another Web-based software company targeting small and midsize businesses: SalesForce.com. And now, years later, Oracle has launched its own product — which bears more than passing resemblance to NetSuite’s — aimed at the small and midsize market. That gives Ellison a stake in three companies that are, or soon may be, fighting a turf battle for the small to midsize business dollar (he owns more than 50% of NetSuite; Goldberg, other employees, and venture capitalists own the rest). If you’re Larry Ellison, those are pretty good odds. And if you’re Al McGorry, the competition is pretty good for you, too. For McGorry, the NetSuite product, which started as a simple competitor to QuickBooks, delivering accounting software over the Internet via subscription, has made a huge difference in his business. Instead of buying software on disks that you (or well-paid engineers) load onto your computers, the software is accessed over a Web browser, allowing you to log on from anywhere. All of your employees can access real-time data, which is backed up every night on class A servers. There are no upgrades to buy, and there’s far less maintenance. And the software is constantly growing, adding the ability to manage contacts, keep appointments, track sales, manage employees and payroll, manage customer orders and inventory, and build and maintain a website. As the service evolved, the name of the company was switched from NetLedger to NetSuite to reflect its lineup more accurately. “Everything just fits together,” says McGorry, who had been using at least four different software programs — none of which were integrated like the Oracle Small Business Suite — to do the same thing. But then in 2003, McGorry’s annual cost for the suite doubled to $1,200 a year ($99 per month). And in 2004, he had to write a check to NetSuite for $7,200 ($399 per month for one user; $99 per month for each additional user). That figure allowed him to increase the number of users from one to three, but it’s still an eightfold increase in his annual payment, which is always required up front. An avid reader of Internet technology bulletin boards, McGorry says that many in the small-business community were apoplectic each time the price jumped. “People were ripping them apart in these user-community forums,” he says. “My God, there were a lot of defections.” Still, McGorry says NetSuite makes sense for his growing business, Capital Datacorp, which has annual revenue just shy of $5 million — especially since it has engineers who work almost exclusively in the field and other employees (including himself) who occasionally work from home or at a customer site. On a recent trip to the Alps, McGorry, thanks to NetSuite, was able to duck into a tiny Internet cafe and get up-to-the-minute sales figures. To goldberg and zach nelson, NetSuite’s CEO since 2002, customers like McGorry are proof that they’re on to something. Trying to keep up, they hired nearly 100 new employees in 2004 — most of them sales staff — bringing the total to about 300. They’re already expanding into Europe, Asia, and Australia, having established sales offices in Canada and the U.K. in the past year, and they’re working on translated versions for countries from France to China. In advance of an IPO planned for late 2005 or early 2006, they’re on a tear to grab market share, and their confidence is riding high. “This is a CEO’s fantasy product,” says Nelson, a nearly evangelical promoter of NetSuite. As he demos the software, his enthusiasm is infectious. When it comes to competitors, he patently dismisses them, regardless of their size (like Microsoft and its Great Plains product) or market share (Intuit’s QuickBooks, the 800-pound gorilla of small-business software). Nelson is, rather boldly, even dismissive of Oracle’s ability to move into the smaller market space. And yes, that’s his boss’s other company he’s talking about. NetSuite is like the Chihuahua that thinks it’s a German shepherd. But it’s a fast-growing Chihuahua, and NetSuite has one big advantage. While its competitors targeted specific slices of the market (QuickBooks focusing on accounting, SalesForce.com on sales-force automation), NetSuite was first out of the gate with all-in-one business software delivered over the Web. Is there even anyone else in the race? “No, believe it or not,” says Yankee Group analyst Sheryl Kingstone. “Not the way they do it.” Ultimately, the company’s greatest challenge may be its ability to retain its small-business focus. Can a company that’s owned by one of the wealthiest men on the planet, a company that’s growing spectacularly, expanding globally, and competing against the likes of Microsoft and Intuit, stay close enough to the small-business mentality of its customers to truly understand them? Goldberg says that one of the company’s advantages is that it’s run entirely on NetSuite software, which forces it to evaluate its own product daily in a real-life setting. But will NetSuite be a candidate for its own software if it keeps up this pace? “It’s an interesting question that we think about,” says Goldberg. “Will we still be using NetSuite when we have 10,000 employees?” Early in his career, Goldberg’s own focus was on big business. He went to work for Oracle as a database architect in 1987, right after earning his degree in applied mathematics at Harvard. Then, after eight years, Goldberg — with the blessing and backing of Ellison — set off with three other Oracle employees to create his own multimedia software start-up in San Francisco. An early, ill-fated competitor to Macromedia Flash, the company was called mBed. It never connected, but as Goldberg struggled with managing his fledgling operation, he began to sense a greater opportunity. He had gone straight from software genius to CEO and was now dealing with employees, sales, and all sorts of start-up issues. And he needed help. “The main thing I learned,” says Goldberg, “is that, if you were a small or growing business, the tools that were available to you were extremely limited.” Goldberg called Ellison in 1998 to suggest that they create small-business applications. Ellison encouraged Goldberg to focus on accounting but to do it, unlike QuickBooks, over the Web. “Larry really was, even at that point — and this is in 1998 — sure that this was how all software was going to be delivered,” says Goldberg. “And he was trying to transition Oracle to do that for big companies.” Goldberg wanted to pursue sales-force automation, but Ellison pushed for accounting first, arguing that that’s the core of all small businesses. Accounting it was. “The entire vision of the company,” says Goldberg, “came together in about five minutes.” Thus, NetLedger was born in late 1998 in a small office south of San Francisco above a hair salon and an Indian restaurant. Goldberg says that while the first four employees were all ex-Oracle, the next 50 were deliberately not. “We really knew,” he says, “that because we were delivering software for small and midsize businesses, we needed a different culture at the company. We needed different blood.” The company was launched on QuickBooks and stuck with the Intuit product — for the first two months. “I remember that day when we imported the QuickBooks file [to NetLedger's nascent online software program], and our business was sitting there, right on the Web,” he says. “We could see everything that was happening. That was a great moment.” The first product, also called NetLedger, debuted in 1999 at a cost of $4.95 per month. At that price, Goldberg got NetLedger in a lot of hands, which was the goal. One of those early customers was Rene Vandockum, a small-business man running a San Diego company called Racebolts.com, which imports and sells titanium nuts and bolts for motorcycles and racecars. Vandockum dropped QuickBooks because of NetLedger’s integration, tying together the front and back offices. But the software was hardly perfect. “Back then,” he says, “it was down a lot, awfully slow, and every time a new version came out, the whole thing crashed.” But it was cheap, offered good (and free) customer service, and was constantly improving and adding features. It was during this early phase that Goldberg was stunned to learn that his friend and former colleague at Oracle, Marc Ben-ioff, had decided to target the same market. “He came in three months after we started NetLedger and sheepishly said, ‘Yeah, I’m doing a company. I’m going to do sales-force automation for small businesses delivered over the Web.’ ” It was precisely the plan Ellison had talked Goldberg out of pursuing. Benioff’s business — launched in 1999 with a $2 million investment from Ellison — became SalesForce.com, which is now the market leader in the category and has a post-IPO market cap of $1.7 billion. “He went a different route,” says Goldberg of Benioff, “with a different approach that allowed him to get to market quicker — but focused on a more narrow area.” I’ve always allied myself with somebody who lives and breathes sales and marketing so I can live and breathe technology.” -Evan Goldberg The news brought a heightened sense of urgency. By 2000, NetLedger had launched its Web-store application. By 2001, it had delivered its own sales-force-automation application. With that came the realization that it no longer made sense for Goldberg to serve as both CEO and chief technology officer. “My whole career,” he says, “I’ve allied myself with somebody who lives and breathes sales and marketing so I can live and breathe the technology and product design.” He knew he needed a professional CEO. His first choice lasted just a year and is now a VP at Intuit. After Goldberg dispatched a headhunter to try again, the executive recruiter sent an e-mail to virtually every executive at Intuit with a subject head reading: “Larry Ellison.” The message said Ellison was starting a great company that was going to be huge. “I actually know some people over there,” says Goldberg, “and Steve Bennett [the CEO] wrote me and said, ‘Interesting way to recruit.” Despite the aggressive approach, no successful candidates turned up. In early 2002, Goldberg called Nelson. They had known each other at Oracle, and once they started talking, says Goldberg, “it was immediately apparent that this was exactly who I wanted — he was the yin to my yang. And he gets into the company in a way that makes it really, really fun to work here.” Five years older than Goldberg, Nelson, 43, had already been on the scene in Silicon Valley when Goldberg arrived from the East. A graduate of Stanford, Nelson had bounced from Motorola to Sun Microsystems and eventually to Oracle, where he became VP of worldwid. It started with obtaining the naming rights for Oakland Coliseum, where the A’s and Raiders play. Network Associates Coliseum proved to be an unpopular stadium name, but it was a marketing coup. In fact, the A’s are now a NetSuite customer, and Nelson has already negotiated for ad space behind home plate. But he doesn’t want to stop there. “Someday we’ll have our own arena,” he says. “That’s my goal.” At MyCIO, Nelson pulled off another stunt, draping the company’s entire 11-story building — a la Christo — in a billboard. “It was at the peak of the dot-com craziness,” he says. “We broke every ordinance known to man. You could see it from five exits away. It was beautiful.” Just before the company was set to go public, though, the bottom fell out of the market. So, here was Nelson, a former Oracle marketing whiz with CEO experience, looking for a new gig. And he had one other important advantage. Goldberg knew that any CEO he brought in would have to pass a crucial test: the Larry test. “And that’s a relatively high bar,” says Goldberg. “But Zach obviously had had a lot of exposure to Larry [at Oracle].” While Ellison rarely sets foot in the offices at NetSuite, he is a constant presence. The background image on Nelson’s PC is a photograph of Ellison at the helm of his America’s Cup boat. “When Larry calls,” says Nelson, “everything stops.” And he calls regularly, usually toward the end of the month as sales results are coming in. He often advises Nelson on topics such as sales structure and how to get to market. He calls Goldberg about products, especially the “dashboard” — the system’s front page, which brings critical bits of data such as new sales, year-over-year figures, appointments, etc., onto one easy-to-read and customizable page (see photo on page 69). “When we launched the dashboard [in 2002],” says Goldberg, “Larry called me and said, ‘Okay, now you finally have something in your product that I want to use.’ And ever since then, he logs on basically every single day to see how we’re doing. He’s effectively the product manager.” When Nelson joined NetSuite, he asked Ellison how anyone could run a business without such a product. “Larry said that CEOs historically have been able to make decisions based on 1% of the data that they actually need to make the decision,” says Nelson. “Here, we give you almost 100%.” Larry has a wealth of knowledge, and he’s not shy about sharing it. I call him belligerently consistent.” -Zach Nelson Sitting in Nelson’s spacious San Mateo office with a yin-yang glass coffee table in the middle of it, Goldberg says to Nelson: “I remember that the first thing you said to me when you got done talking to [Ellison about joining the company] was, ‘He takes this thing very seriously.” That would surprise no one who knows Ellison — or has watched Oracle’s pursuit of PeopleSoft. “Larry has a wealth of knowledge about what works and what doesn’t, and he’s not shy about sharing it,” says Nelson. “He’s very focused. I call him belligerently consistent.” All of which makes NetSuite’s evolution toward higher prices and bigger clients and Oracle’s turf even more interesting. As NetSuite works hard to broaden its customer base, seeking larger and larger clients, is there a danger of leaving smaller customers behind? Racebolt.com’s Vandockum certainly thinks so. With only one employee and annual sales of around $100,000, he’s stayed with NetSuite through years of missteps and growing pains but says its pricing structure is shutting him out just as the product is hitting its stride. Over five years, he’s seen his annual payments go from about $80 a year to $1,800 a year and claims NetSuite wants nearly $8,000 next year ($4,800 for the main user, plus $1,800 for a second user, and $1,000 for an annual live tech support package that used to be free). Vandockum is considering letting his contract with NetSuite expire in May and returning to QuickBooks Pro. One reason: He says computer-based, as opposed to Web-based, software means faster response times to questions when customers are on hold. QuickBooks Pro will be a one-time $250 purchase, and Caldera Volution, a Linux-based website builder he’ll use for his online store, will charge $70 a month. But he’s dreading the change. “The switchover is a big drag,” he says. “It’s a lot of work.” While Nelson is adamant that NetSuite is not abandoning small businesses, he emphasizes that the company is targeting “growing” businesses. Seventy percent of its customers have fewer than 100 employees, but NetSuite is also signing up 400- to 500-user customers that are divisions of companies such as Weyerhauser and DuPont. And it just landed its first 1,000-user account. Still, Nelson acknowledges that the price bumps have been tough on smaller customers. Of the $399-a-month fee, he says, “Most small businesses, we know, can’t afford that.” That’s why NetSuite introduced NetSuite Small Business in August — priced at $99 per month for the first user and $49 per month for each user after that. The product has been positioned for businesses that have outgrown QuickBooks, and the price does make it far more attractive to smaller users — but some longtime users will undoubtedly be disappointed. NetSuite has helped even the smallest of companies grow more sophisticated, and these clients have been conditioned to expect more. The Small Business version, for example, doesn’t satisfy Vandockum’s desire to customize his website. Capital Datacorp’s McGorry can’t see himself giving up the features he loves for the cheaper, scaled-down version either. Nelson is quick to say that he hopes to retain Vandockum as a customer and may consider offering some limited higher-level functionality, such as website customization, at a reduced price. “The last thing you want to do is see a customer leave,” he says. “I bet we’ll work it out.” But there are skeptics — especially at the competition. Although NetSuite recently built an ad campaign on poaching QuickBooks customers, Bill Lucchini, director of QuickBooks Enterprise at Intuit, says he doesn’t consider NetSuite to be a small-business company anymore. “I think of NetSuite as a midmarket company,” he says. “If you want to put 10 users on its system, you’re talking over $6,000 a year, and that’s just not a small-business solution.” Like NetSuite, QuickBooks is segmented into multiple products, depending on the size and needs of the businesses. They range from the new $99 SimpleStart program to the $3,500-a-year QuickBooks Enterprise software, which targets companies with 20 to 250 employees (with live tech support built into the price). And Intuit now offers its own Web-based small-business solution, called QuickBooks Online, for $19.95 per month. Nelson dismisses Intuit’s new offering as a “neutered version of QuickBooks Enterprise.” He is equally dismissive of SalesForce.com’s move into the midsize market. “There’s only one thing you can’t do with SalesForce.com: sell anything,” he says. “SalesForce.com is about managing leads and prospects. The minute they become customers, all that data leaves SalesForce.com.” For his part, Marc Benioff professes scant respect for the suite model. Which is all the more surprising because it’s a model that Oracle has embraced, and Ellison, of course, helped fund SalesForce.com and still retains a small stake — although he did step down from SalesForce’s board in 2001 because of product conflicts. At NetSuite, Ellison relinquished the title of chairman in March 2003 but remains on the board. But the sibling and oedipal rivalries may just be getting started. Last summer, NetSuite shed the last vestiges of the name Oracle Small Business Suite, which had been slowly reduced to about 5% of the company’s sales. Nelson says this was done to allow NetSuite to establish its own identity. But it also likely had something to do with the fact that in September, after years of testing it overseas, Oracle released its Oracle E-Business Suite Special Edition. Oracle is explicitly targeting small to midsize businesses with a full suite of integrated business software delivered, of course, over the Internet. The difference is that instead of renting the software in perpetuity, as with NetSuite, customers purchase a one-time license (the minimum order is for 10 users at approximately $2,000 each) and then pay local resellers to maintain the software. Nelson denies that there’s any real competition between the two Ellison-controlled companies, saying they only cross paths a couple of times a month. But with its first 1,000-user deal in the bag and another in the pipeline, there are sure to be more and more awkward moments in front-office waiting rooms when Oracle’s salespeople walk in and NetSuite’s walk out. “We’re going to continue to march upstream,” says Nelson, “still servicing small businesses but also reaching much larger companies over time.” But, according to the Yankee Group’s Kingstone, both NetSuite and Oracle have their work cut out for them. NetSuite’s challenge is that new customers have to dump years’ worth of expensive software to use them. And the bigger the company, the more entrenched they are. As for Oracle grabbing a slice of the small-biz pie? “They have never been able to pull that off,” says Kingstone. “In the back-office, yes, in the front-office, no.” Of course, Oracle’s new E-Business Suite is only just getting started here in the States. When big businesses want to innovate, what do they do? They take a bunch of guys, throw them out, and let them create a small business.” -Zach Nelson Ellison declined to be interviewed for this article, citing the desire to avoid any perception of conflict of interest, as his three kids duke it out in corporate boardrooms across America and beyond. It’s hard to know if he’s conflicted or overjoyed. But it’s even harder to imagine that any of his progeny would have set off down this path without at least his tacit approval. The executive overseeing marketing for Oracle’s small to midsize business market, Frank Prestipino, downplays any rivalry, but his words about NetSuite’s product aren’t entirely brotherly. “If financials are all you’ll ever do,” he says, criticizing NetSuite for not being as customizable as Oracle, “and you don’t care what your general ledger is going to look like, and you’ll take whatever comes, then great, that’s the thing for you.” He also suggests that NetSuite’s rental model is ultimately more expensive than buying the software outright, and points out the lack of manufacturing-systems software in the suite. But does he expect to see NetSuite pop up more frequently as a competitor, as NetSuite moves upmarket and Oracle moves down? “Yeah,” he says, “I would say so.” But for all NetSuite’s drive to go after bigger fish, Nelson zealously espouses the small-business model and its contributions to society. “When big businesses want to innovate, what do they do?” he asks. “They take a bunch of guys, throw them out of the building, and let them create a small business.” That, of course, is pretty much what Larry Ellison did with NetSuite and SalesForce.com. But how much longer will each one be happy serving its own niche? “That’s always been true with software,” says Nelson. “Everybody wants to be where they’re not.” Rob Turner, who wrote about celebrity entrepreneurs in Inc.’s December issue, can be reached at dashboard@inc.com.

About 3278 days ago Business Software

Bill’s Excellent Adventure

Many companies talk about getting close to the customer, but Microsoft pushed this idea to the extreme when it hired Nelle Steele to show up at 5 in the morning at the Milwaukee home of Tim Tucker. The owner of Air Engineering Inc., a supplier of industrial air compressor parts, is Microsoft’s model customer. Steele’s mission was to observe Tucker at close range, arriving as soon as he stepped out of the shower, then shadowing him until his workday ended at 10:30 p.m. Steele, a cultural anthropology Ph.D. student on leave from the University of Wisconsin, is one of five anthropologist-ethnographers (and the only one focused on entrepreneurs) that Microsoft hired full-time to conduct a field study. Called “Dawn to Dusk,” the study documents the work habits and thought processes of a species the software behemoth had never before tried to understand: owners and employees of small businesses. In tailing her quarry, Steele discovered, to her surprise, that small companies kept vital information in disconnected places — what she called “data silos” — from scribbled notes on scraps of paper to files on a PC that could be accessed by only one employee. This made it harrowing to try to answer basic questions like, “How did we do in the Northeast last quarter?” “I saw the pain that data silos caused day to day,” says Steele. Her work is part of Microsoft’s $2 billion research and development effort aimed at convincing these tribes of technological primitives to join the modern world. While most of that is earmarked to improve products, a lot of it is going to spreading the word. That’s in addition to two recent acquisitions — Great Plains and Navision business management software at another $2.4 billion — to enhance its offerings for small business. Even for Microsoft, with $50 billion in cash in the bank, that’s a major investment. Microsoft has started trying to care about these customers. Why us, you might ask, and why now? Partly it’s because “enterprise” customers, those that have more than 1,000 employees and 500 PCs, aren’t spending on tech the way they used to. So the industry’s top names, including IBM, Hewlett-Packard, and Dell, have started going after the littler fish. Even among this crowd, though, Microsoft’s push into small business is remarkably fervent and richly funded — and for a good reason: competition. There are two parts to the story that follows: the first is the challenge Microsoft faces and the criticism it has endured in the past. The second is what Microsoft is doing — with a degree of success — about both. Microsoft’s push into small business is remarkably fervent and richly funded — and for a good reason: competition. Today, 90% of small and midsize businesses run on the Microsoft platform, says Mika Krammer, an analyst at Gartner, a research firm. That’s a stranglehold on this enormous market of 8 million companies in the U.S. and 40 million worldwide. Globally, these companies pay almost as much for info tech — $400 billion a year — as America spends on defense. But despite its long history of dominance, Microsoft faces a looming threat from Linux and the insurgent open-source “free software” movement. Linux could do what the Justice Department couldn’t: end the era of Microsoft’s near monopoly and strip a sizable chunk of its sales and profits in the coming decade. Many industry analysts and media critics think that Linux is more secure and reliable than Windows, a prime target for hackers. Entrepreneurs have been paying close attention to the debate. Two of their biggest role models — Amazon and Google — now rely on Linux to run their websites. At a Yankee Group conference in San Francisco in March, small-business owners commiserated with one another about Microsoft’s disappointing customer support and their dislike of paying licensing and upgrade fees. They griped about how Microsoft’s new releases often seemed more like beta software — test versions with plenty of kinks — than reliable finished products, and they bemoaned the software’s vulnerability to viruses and the constant need for patches. With mighty IBM putting its clout behind Linux, some small businesses are starting to convert, often with impressive results. Satellite Records, a 35-employee music retailer in New York City, made the switch after IT director Steve Shapero found Microsoft’s software simply too high-maintenance. “It’s like American cars and Japanese cars,” says Shapero. “Do you want a Chevy Impala or a Honda Accord? It’s great that Detroit and Microsoft are finally making things that don’t suck, but we’d rather have the state of the art.” Shapero said that Microsoft server software would require a full-time person to keep it running, which the company didn’t want. “As an independent consultant I like to set up a Linux box, deploy it, and ideally never hear from my client again,” he says. Other customers were motivated by cost savings from not having licensing fees. Westport Rivers Winery, a 20-person family business in Westport, Mass., cut its annual tech budget by 60% with Linux, according to an IBM case study. Rob Meyer, Internet director for Anaconda Sports, a 200-person sporting goods distributor in Lake Katrine, N.Y., says it saves around $3,000 a year on licensing fees now. What’s more, small-business owners still feel a residue of fear from Microsoft’s long history of abusing power in its quest for total dominance. They remember how the company tried to hijack their websites in 2001 with SmartTags, an aborted Windows feature that would have turned many of their own words into links to Microsoft’s sites and advertisers’ without asking their consent. And they read about Microsoft’s vendetta against guitar-string maker Ernie Ball, based in San Luis Obispo, Calif. Four years ago, the founder’s son and CEO, Sterling Ball, was a victim of a “nail your boss” campaign by the Business Software Alliance, a trade group that Microsoft co-founded. BSA raided the operation and found that a few of its 80 computers had unpaid copies of Microsoft products. Ball said it was an accident, a case of unused programs left over on old PCs when they were passed from engineers to clerks. But he still had to pay $90,000 in fines and legal fees. Microsoft sent the news clips to other small companies as a threat. Since switching to Linux, Ball has saved more money than he lost in the contretemps. “The money that I’m not spending on new versions of Office and on fighting viruses is going into marketing and R&D,” he says. Now that it fully grasps the Linux threat, Microsoft isn’t being so heavy-handed with small businesses. Instead, the company is trying shrewdly to make its own claims of parity or superiority. Executives dispute Linux’s claims of better security and reliability and point out that “free software” isn’t actually free because you need to hire people to install, maintain, and customize it. (That’s how rivals, particularly IBM, are looking to profit.) Still, Linux is “a real threat, and we take it seriously,” says Darren Huston, the Microsoft vice president who leads U.S. initiatives for small and midsize businesses. The stakes are stunningly high — a $400 billion-a-year global market! — and this is going to be an epic battle waged over a long time. Krammer says that Microsoft will continue to dominate that market for several years because smaller customers are often slow to switch to new software and most buyers won’t really consider Linux until it becomes more mainstream. Besides, there aren’t yet many business programs based on Linux, and those that are available, such as Sun’s StarOffice, aren’t as good as Microsoft’s offerings. Microsoft remains vulnerable, however, because small-business owners resent being captive to such a powerful force and not having viable choices. A January Yankee Group survey of companies with fewer than 500 employees found that 43% of them are concerned about becoming overly reliant on Microsoft’s products and services; of those respondents, 72% were actively seeking alternative vendors. “Microsoft’s challenge,” says Krammer, “is to go from being a necessary evil to something that small businesses like to invest in.” Improvements are being made, but there is always room for more. In April Microsoft launched a revamped and much easier-to-use Web portal at www.microsoft.com/smallbusiness. Still, you might have to wait half an hour when calling customer service. Even more frustrating is how Microsoft keeps smaller customers at arm’s length by forcing them to work through intermediaries — local consultants who sell Microsoft’s software, set it up, show buyers how to use it, or write their own software to work with it. There are some 325,000 of these folks, who go by awkward acronyms and names such as “VARs” (value-added resellers), “ISVs” (independent software vendors), and “certified partners” (individuals who have passed training courses run by Microsoft). Small businesses hook up with these “partners” mainly through word of mouth, but if you’re an entrepreneur with little tech savvy, it’s hard to know whether your accountant’s sister-in-law or your lawyer’s fraternity brother is the best person to apply software to the challenges of your business. To help, Microsoft’s newly redesigned Web page has a “partner finder” to identify local consultants and their areas of training and expertise. The cottage industry of Microsoft’s partners is getting some big new players. Both HP and Dell are starting to hawk their consulting services to businesses with fewer than 500 employees. IBM is reaching out to entrepreneurs too, but rarely dips below the 500- to 1,000-employee range. While all three companies embrace Linux, they also promote Microsoft’s products as part of their overall packages for clients. Although finding the right partner and setting up a new software system can be stressful, there’s a compelling reason for sticking it out: Microsoft now offers many extremely useful products for small and midsize businesses. Microsoft divides this huge market into two parts: The 7.5 million “small” businesses with fewer than 50 employees, with no more than 25 PCs and with a maximum of $5 million in annual revenue. The 330,000 “midmarket” companies with fewer than 1,000 employees have up to 500 PCs and up to $500 million in revenue. The smallest businesses probably don’t have a PC network or even a professional info-tech employee. These start-ups can benefit from Small Business Center (formerly bCentral), a set of Web-based services hosted by Microsoft on its own computers. The pitch is that it’s like hiring Microsoft to be your info-tech department for a monthly or annual rental fee, usually after a 30-day free trial. First developed in 1999, the services — aimed at businesses with fewer than 25 employees — have quickly become popular, attracting more than 2 million users in the U.S., Microsoft says. One of them is Jack Marshall, president of Pastry Chef Central in Boca Raton, Fla. His small family business sells baking and pastry tools through pastrychef.com. “It’s supercheap,” Marshall says of Microsoft’s “shopping-cart” services, which cost only $249 a year (excluding credit card verification fees, which are billed by a third-party partner). “You can’t beat it.” And even though Microsoft can’t give the little guy all the powerful features of an Amazon, “they’re moving toward that,” he says. Marshall particularly likes the new “order status link” that sends e-mail purchase confirmations to customers with Web links so they can check on delivery without having to contact the company: “That’s been a fabulous timesaver for us.” Besides time, there’s the money: Microsoft says that the top 100 customers for Small Business Center’s e-commerce service averaged $43,000 in revenue last December. Small Business Center also offers ListBuilder, which enables companies to send mass e-mails to customers to let them know about sales or other news. Microsoft handles the mailing, then tracks who opened the messages and were inspired to visit the sender’s website. The cost: $29.95 a month or $299 a year. Microsoft surveyed 100 ListBuilder clients and found that businesses sent e-mails to an average of 30,000 customers, though some had amassed lists of more than 100,000 names. (Microsoft says it does not keep e-mail addresses for its own use.) One of Microsoft’s most useful hosted Web services is SharePoint, which allows colleagues to share information and collaborate with one another and their customers. SharePoint is sadly underused by small businesses, but it’s a smart idea. In a Microsoft case study, Jeff Williams, president and owner of Carolina’s Choice, a furniture manufacturer in Rocky Mount, N.C., says SharePoint allowed his company to make up-to-date sales information available 24 hours a day to a network of 700 furniture dealers (the cost: $19.95 introductory price, then $39.95 monthly). As fledgling companies grow, Microsoft wants to wean them from paying monthly rental fees to investing in licensed software installed on PCs (which is how Microsoft has always made most of its money). The staple of the desktop PC has long been Microsoft Office (Word, Excel, Outlook, and PowerPoint), which boasts 400 million users worldwide. “Everyone I hire out of college can use it,” says Eric Meslow, president of Timbercon, a 30-person, $4.5 million fiber optics manufacturer in Portland, Oreg. That gives Microsoft a big advantage over Linux, which often requires training. The latest twist: Last October, Microsoft introduced Office Small Business Edition 2003, which lists for $449, while earlier Office users can pay an upgrade price of $279. The prices are up to $50 higher than the standard version, but Microsoft throws in two compelling programs. First, Business Contact Manager consolidates all the information you have about a customer, a dramatic improvement over the haphazard data silos discovered by Nelle Steele that could spell lost leads or missed sales opportunities. The program can identify long-neglected sales accounts or alert you to what’s coming up in the pipeline in the next seven days. Timbercon’s Meslow says that before his salespeople had this “sales funnel” feature, it took them an hour a day to monitor their accounts. Now it takes “about two minutes,” he says. Meslow figures that saves a total of 20 hours a month for his typical salesperson, who generates an average of $150 to $200 an hour. Office’s other addition, Publisher, is a tool for creating websites, e-mail newsletters, and other marketing materials so you don’t have to hire professional design firms or printers. Timbercon saved $72,000 in the first year by designing portions of its website and product data sheets. “Publisher was one of the larger surprises of the new line for us,” Meslow says. “Five years ago you could tell if something was created in Publisher. Now it looks professionally done, and it’s relatively easy to use.” It’s also fast, he says. A project that once took three weeks for outside firms to design and print can be created in-house within a week. “Five years ago you could tell if something was created in Publisher. Now it looks professionally done.” Terry Szpak, VP of marketing and sales at Telesystems West, an 18-person, $2.5 million company in Bellevue, Wash., that sells and installs phone systems, estimates sales rose $5,000 to $10,000 a month thanks to Publisher. Over its first dozen years, Telesystems had put together a database of 5,000 customers, but employees were too busy to create or manage promotions to sell additional products. With Publisher they were able to turn out flyers and e-mails. “It’s hitting people who already trust us,” Szpak says. “Marketing to our existing customer base has been a boon.” Office and Business Center provide benefits to companies with multiple PCs hooked up only through the Internet or what’s known as the “sneaker net” — people simply walking around, a likely scenario for a start-up. But as the business grows, even greater opportunities can come from setting up a PC network with a separate machine dedicated as a server. About 7 million of America’s 8 million small businesses still don’t have a server, according to Microsoft. It charges $599 to license its Small Business Server software for five users, and Dell and HP both sell the hardware with this software already installed for under $1,000. (Customers can later expand by licensing up to 75 users before they have to switch to a more capable product.) The investment usually pays for itself quickly. A server makes it easier to back up data that might otherwise reside on isolated PCs. It lets employees look at each other’s calendars and contacts, hook up to the network remotely, and share software for business functions such as accounting and inventory. Having a server enables a company to host a SharePoint intranet, which is how the Fischer Group changed the way it did business. The 23-person, $10 million Orange, Calif., food manufacturer representative firm had relied on old-fashioned paper files for purchase orders, contracts, contact information, and memos. They were often misplaced. Worse, employees could only get to the files during business hours. “Our biggest problem was wasting time and money physically handling job documents,” says Gene Austin, the company’s general manager. “It was like putting $100 bills in a pile and setting them on fire.” Once Fischer digitized this material, finding information and responding to customers became easier and faster. Small Business Server also provides security for a company’s network, an area where many small businesses are turning to Linux, including Timbercon, which runs its firewall on an open-source software server. Even though Microsoft still relies on its partners, it’s trying much harder to make direct contact with its customers. The company now offers free seminars for small businesses in 160 cities, many of them far-flung rural outposts like Casper, Wyo. Cynthia Bates, Microsoft’s general manager for U.S. small business, says that everyone on her team has to spend one day a month working for a customer’s company to see what daily life is like. “We want to humanize Microsoft rather than be the company in the backroom,” says her boss, Darren Huston. Meanwhile, our intrepid cultural anthropologist Nelle Steele has begun a new two and a half year study called Small Business Better Together, which is applying technology to three small companies in the Seattle area. The owner of one of the three didn’t want customers to wind up with voice mail; he insisted that an employee take a message. But these employees relied on sticky notes applied to computers or chairs. When these fell off, the customer’s needs would go ignored. Microsoft responded by buying new hardware and donating software. Now, Steele reports, “people are taking messages for each other in Outlook.” The notes haven’t gone away entirely. Some things stick for a long time, and no amount of technology will change that. Sidebar: Microsoft a la carte Info-tech options for your small business Small Business Center (formerly bCentral) What It Is: Online services for hosting e-commerce websites, processing customers’ orders, developing sales leads, and launching e-mail marketing campaigns Pros And Cons: Microsoft rents many useful Web-based services on a monthly or annual basis, though the other options — especially eBay — are popular with small merchants and with customers. Alternatives: Amazon, eBay, Yahoo Office Small Business Edition 2003 What It Is: Tools for creating and editing documents, spreadsheets, presentations, and marketing materials; managing e-mail and calendars; and tracking contacts and leads Pros And Cons: Everyone’s already trained on Microsoft’s excellent suite, the global standard with 400 million users, but OpenOffice is a viable option — and it’s free. Alternatives: OpenOffice, Sun’s StarOffice Small Business Server What It Does: Runs and provides security for PC networks Pros And Cons: It’s a good product. But Microsoft charges $599 for five users, while open-source rivals like Apache are free — and critics say they offer lower maintenance costs and better security. Alternatives: Apache, EmergeCore IT-100, Novell’s Small Business Suite, Red Hat Linux Alan Deutschman is a writer living in San Francisco and Roanoke, Va.

About 3399 days ago Computer Security

Hassle-Free Expensing

Like a drafty farmhouse in winter, a company can lose profits through a hundred cracks and crevices. And few things are leakier than expense reports. Although employee reimbursements are mostly related to travel and entertainment — airline tickets, gas, restaurant meals and such — they can also cover purchases of other items, from a pack of legal pads to an emergency car towing. One of the few things that every business owner will agree on is that they add up fast. The Aberdeen Group, a Boston-based research and consulting group, reported recently that “employee-initiated expenses can account for one in five operational dollars a company spends.” If you’re like most entrepreneurs, your gut says at least some of this money is squandered, either on expenditures of dubious necessity or on goods and services that could have been acquired more cheaply with a purchase order. But like the department store pioneer John Wanamaker who observed that “Half my advertising is wasted, I just don’t know which half,” you haven’t a clue what to do about it. Don’t give up! The answer lies with — you guessed it — technology. More than half a dozen companies, including Gelco, PayService.com, OneMindConnect and Microsoft Business Solutions, sell or rent software to rein in employee expenses and let more money flow to the bottom line. Tighter enforcement of spending rules is only part of the story. By eliminating one of the more inefficient and aggravating rituals of corporate life — hoarding receipts and writing numbers in tiny boxes — these systems can easily halve the time spent on creating and processing expense reports. Employees can get reimbursed twice as fast so they have less to complain about. Tidy and easily accessible records keep IRS auditors happy. And the computerized data can be endlessly sliced and diced to spot inefficiencies and strike better deals with vendors. And the cost — as little as $5 per month per employee for a Web-based hosted solution — won’t eat your savings. That’s about as close as you’re likely to get to a free lunch. Expense management is more than electronic forms. It involves four discrete activities: Reporting is the process of capturing transaction data, putting it into report form and obtaining management approvals. Typically, an employee uses a desktop, laptop or handheld computer to fill out the form online. In some cases, employees record expenses as they occur. A few systems even detect when a company credit card is swiped, be it at a hotel, restaurant or office supply store and fill in the blanks automatically. Once a report is filed, the system automatically reviews it, comparing it against travel policies, business rules, and spending limits, then emails department heads requesting online approval. Payment and reimbursement. Approved reports are automatically channelled into the accounts payable system, which makes a direct payment to the company credit issuer or electronically transfers money to the employee’s bank account — often within three days. Compliance is a second, closer look at the approved and paid report to insure that items are properly documented. Original receipts may be scanned and stored so that they can be easily produced in an audit. Analysis involves consolidating and sorting data and looking for useful patterns in products purchased, routes traveled and establishments frequented. This information can help spot wasteful practices and strengthen your hand when negotiating with airlines, hotels, car-rental agencies. An important consideration is how well the solution you choose interfaces with your company’s accounting system. OneMindConnect’s Expensable, for example, is designed to work well with Intuit’s Quick Books. Microsoft expense-reporting solutions work well as standalones and fit seamlessly into other Microsoft products. eExpense, a browser-based application typically accessed through a intranet running Microsoft Business Portal, works perfectly well on its own, but it is also designed to function as a module for the Microsoft Business Solutions for Human Resource Management Self Service Suite. It can also interact with versions of Microsoft’s Great Plains accounting system. Microsoft also markets a Time and Expense component for another popular application, Microsoft Business Solutions Project Accounting – Solomon. Employee-initiated expenses can add up fast, but getting a handle on them can be just as quick. The right software can better manage and streamline the process, while helping you spot inefficiencies that are draining profits from your business.