SURVEY - SUPPLY CHAIN MANAGEMENT: Eliminating risk is key to SME success: INTERVIEW: SAMIR ARORA OF NETOBJECTS by Mark Vernon: Minimising exposure to uncertainties has proved a powerful expansion strategy for the software company. It is also a philosophy it incorporates into the software it sell to SMEs
Financial Times; Jun 20, 2001
By MARK VERNON
When AOL, the internet service provider, did the deal to place its icon on the desktop of consumer PCs, it bought space on the most desirable billboard in the world. Business boomed.
California-based NetObjects, the provider of e-business services to small- and medium-sized companies (SMEs), has pulled off a similar coup though this time the icon will appear on the desktops of PCs sold to the small business sector. What is more, PC manufacturers such as IBM and Dell are paying NetObjects for the privilege of having it there. And business is booming. So what other tricks has Samir Arora, chief executive of this "AOL of SMEs", got up his sleeve?
Mr Arora is founder of NetObjects and has been chairman and chief executive since its inception in 1995. An IT veteran of 14 years, he even had a stint at Apple in 1986, working in the office of the chairman on "browsing-based applications".
NetObjects' focus is the massive but often technologically- challenged SME market. The company has two key products. The first, Fusion, is sold on a CD - mimicking the introductory packs of consumer ISPs - and connects the user to the NetObjects website from which software and services can be downloaded to kick start the SME into e-business.
The second, Matrix, is wholly online and takes the SME a stage further, providing an e-business platform, building tools and services that could, in theory, take the whole company into a web-based environment. More than 10m licences for Fusion have been sold worldwide and more than 6m of the world's websites are built with it.
The most dramatic area of growth has been in Germany, where 60 per cent of SMEs' online businesses are now built on NetObjects' software.
Eighteen months ago, Germany was an e-business laggard, with about 50,000 registered web domains, while the UK had around 500,000. Today the number of domain registrations in Germany has risen sharply to 2 1/2m, with up to 200,000 being added each month. NetObjects' sign-ups have risen sharply in that period too, from around 1,000 to 100,000 a month.
To participate in this transformation of the German market, Mr Arora clinched another deal, this time with Deutsche Telekom and two German ISPs, Strato and United Internet.
"The deal offered SMEs four things," Mr Arora explains. "An easy entry subscription-based service; a wide choice of services at different price points that could deliver immediate financial returns by saving money, making money and finding new sources of revenue; and a genuinely complete solution, that is all the pieces an SME needs for e-business.
"(Fourthly), we sold it with a heavy marketing campaign that was benefits based, not technical. It spoke their language. Clearly, there were some particular things about the German situation, notably that they were late. But even with that, the critical factor is that the marketing and price structures were correct and unique."
The right mix led German SMEs to cross the e-business chasm. And Mr Arora believes these four elements will also drive the worldwide adoption of e-business among SMEs, which is forecast by IDC, the IT research company, to grow sharply over the next two years.
"The important elements are now in place for SMEs," says Mr Arora. "The whole product is available since you can buy on subscription everything from domain reg istration, through hosting, to services. The benefits of being online are understood and hence the rate of adoption is increasing geometrically. And the hurdles that SMEs faced are coming down, notably in terms of a reduction in choice of services."
Mr Arora is a strong advocate of the advantages of having only a few dominant players in the web software and services space since he believes it is only under these conditions that the market can properly serve the needs of SMEs. Too many competitors and all SMEs see is confusion, whether in terms of the variety of vendors they have to deal with or the lack of de facto standards they can trust.
As to the charge that de facto monopolies might stymie technological progress - as someone from Apple might suggest - Mr Arora says the online space changes so fast that it creates its own intrinsic competition which keeps everyone on their toes.
Speaking the language of SMEs is another factor Mr Arora highlights. A wide choice of services at different price points does not mean talking about speed of access, web space or hosting services, it means presenting packages that evolve with the customer's e-business venture.
At the bottom level there is a starting pack, focused on e-mail. Next comes building a website. Then, selling on the web and promotion. And finally running a web-based business. "There is nothing particularly subtle about our categorisation. It just makes sense to SMEs," he says.
NetObjects might even claim to be creating a second generation ASP application service provider approach. "The first generation that took software online has proved too disjointed," Mr Arora says. "But now we are thoroughly web-based and so the icon on the desktop can become the shop front through which centrally updated services are sold."
Nonetheless, there are issues that need to be juggled correctly in this packaged services approach. For example, SMEs need to have it easy, but not so easy that they all start to look the same on the web and thus lose any competitive differentials they might wish to develop.
Hundreds of vertically focused templates and brand sensitive style designs are part of the NetObject's solution to getting the right balance, as is the ease with which the products can be customised.
So does anything make him lose sleep at night? Perhaps the share price falls which NetObjects has experienced along with the majority of IT companies over the past year - its shares were trading at 65 cents on Nasdaq last week, against a 52-week high of Dollars 10?
"We are confident that we are in a good space," says Mr Arora. "Further, we don't rely on investors and have cash in the bank. It is a CEO's responsibility to eliminate risk where possible. Relying on raising uncertain capital does not build the trust of shareholders." No doubt a few of his peers are coming to realise that too!
Copyright: The Financial Times Limited 1995-1998