As one network salesperson once said to me, “The trouble with the Fortune 2000 is that there are only 2,000 of them.” While the enterprise market has been the mainstay of private network equipment sales, it’s a market that’s not getting any bigger. It’s not surprising that vendors eager to add earnings and profits are looking more at the “small business”- whatever that is.
Cisco recently introduced Catalyst products targeted at small business, and its press material uses the same definition of a small business as the Small Business Administration – one with less than 500 employees. My projection from U.S. Census data is that there are about 5.7 million companies in the U.S. Of these, more than 99% are small businesses by the SBA definition. That’s certainly a big quantitative market, one that justifies vendor interest. On looking deeper, though, you might find that there’s less to small business than meets the eye.
How big does a company have to be to need a LAN or WAN? My research shows that businesses with 100 or more employees on-site have an almost 100% chance of running a LAN. If you look at businesses with between 20 and 100 employees, the odds go down to about 60%. Businesses with less than 20 employees have about a one-third chance of needing a LAN. On the WAN side, only about 16% of small businesses at the 100- to 500-employee level need multi-site networking, and this number drops to less than 10% in the 20- to 100-employee range, and to near zero below that. This is interesting because there are only about 86,000 firms in that sweet 100- to 500-employee slot. There are more than 500,000 in the 20- to 100-employee range and 5 million in the 1- to 20-employee range. My research model shows that there are about 2 million LAN prospects and about 82,000 WAN prospects. That’s a lot fewer than 5 million businesses.
Then there’s the “empowered employee” issue. LANs are used by workers who spend most of their time at their desks, which turns out to be only about 39% of small-business workers. This means that a top-tier, 100- to 500-employee company would need about 75 LAN ports. The 20- to 100-employee group would have an average of 25 LAN ports, and the low tier would have only five. The number of LAN ports needed by all groups is an impressive 24 million, but 42 million of this population is in firms that would never need more than 40 ports. More than 24 million would need fewer than 10 ports. How about the WAN stuff? Of the 82,000 more-than-Internet WAN users, nearly 70,000 are only VPN-over-the-Internet prospects. The remainder needs an access router with an average 2.3M bit/sec access capacity (about a T-1 and a half).
Not only are the capacity demands of small business small, but their feature needs are also small. Only 4.4% of the total small-business population have skilled technical people on staff. It’s very doubtful that any company in the lower two tiers would ever need network management; their LAN products could be over-the-counter stuff that costs about $350 for 24 ports. Well over half the small-business population would need only one such switch, and even the largest of the small business groupings would need an average of only three. In the WAN, the average retail price of a single access router, even for the largest of the small businesses, is also about $350.
This isn’t just an exercise in statistics; it’s an exercise in market direction. The “small-business market of the future” is not just a scaled-down version of the enterprise market. It’s uninterested in technical features, not suitable for direct sales tactics and as price sensitive as the dickens. If this truly is the way of the future, then the vendors are going to become more like 3Com, D-Link or Linksys than Cisco.
Do the new features of network products actually add value, or just add cost? Is it time to buy network gear as many already buy PCs – from discount retailers? Small businesses might be leading the market in a totally new direction.
