Building a Local Stack: The Rise of 'SMB OS' | Street Fight

Building a Local Stack: The Rise of ‘SMB OS’

Building a Local Stack: The Rise of ‘SMB OS’

Walking the Streets of New York — the embodiment of SMB density — I was recently reminded of local’s next primary battleground: The SMB Operating System (SMB OS). The idea is that local’s true opportunity isn’t SMB advertising, but all business functions.

This isn’t a new concept, though it’s now emerging and crystallizing in new ways. It stems from the SMB Trojan Horse that I wrote about in these very pages four years ago, as well as recent startup innovation and industry thought leaders like Neal Polachek and Upserve’s Angus Davis.

Like Salesforce is assembling in the enterprise, SMB OS includes the full range of business services that traditionally fall outside of – but are related to – advertising. It’s POS systems, supply chain, payroll, insurance, appointment scheduling, online ordering, CRM… even HR.

At Street Fight Summit, LSA’s Charles Laughlin presented data showing 25 percent of SMBs have moved payroll and HR to the cloud, while 33 percent have done so for CRM. This continues to be driven by cloud-based Saas models that make once-enterprise functions digestible for SMBs.

SMB OS also drastically grows local startups’ addressable market. Local advertising is a roughly $150 billion market in the U.S.. But SMB operational support is many orders of magnitude greater, considering the collective market sizes of its components.

Though not new, SMB OS’ emergence as the next primary local paradigm became evident when recently examining its arguably best exemplar: Slice. The company’s proposition is to empower and aggregate small mom-and-pop pizza shops with the technology, economies of scale and supply-chain prowess that Dominos enjoys.

And the real opportunity: 60 percent of the category is SMBs. By federating this fragmented market on one platform, SMBs can enjoy a “united front” as Slice Founder and CEO Ilir Sela calls it. But equally important, it’s about handling the things that they can’t or won’t do.

“We focus on driving convenience to the consumers [such as] customer service and CRM,” Sela recently told Street Fight. “That’s something local pizzerias want to do, and there are tools for them to do it, but the problem is they don’t know where to start.”

Another key SMB OS dynamic, when done right, is increasing customer value. And Slice is doing that through average order value and lifetime value. It accomplishes both by moving phone orders to online or mobile, and a slick customer ordering flow that boosts repeat business.

“[We’re] trading off phone customers, who spend on average $18 every time they order, [with] mobile customers who spend, on Slice, $30 per order and order frequency goes up.” Sela said.

But it’s also important to acknowledge that one of Slice’s biggest success factors — besides the inherent virtues of SMB OS — is its vertical focus. The company is applying deep knowledge, tactical refinement, network effect and best practices within one specific vertical.

Does that mean that larger local media companies are too horizontal to pull off SMB OS? The lesson is to discover Slice-inspired ways — in owned or partnered capability — to apply vertical specialty. And it’s likely manageable only in a handful of high-value categories. Choose wisely.

But for whoever pulls it off, the payoff is potentially huge: significantly deepened SMB relationships. Retention grows as a function of SMB switching cost for embedded operational functions; and greater perception of daily tangible value (let’s stick with the latter).

Lastly, SMB OS isn’t just a way to help SMBs run their shops, and retain their business. It can help local media companies collect large-scale data sets. That can lead to powerful insights for publishers to position themselves as a growth engine for SMBs across a given vertical.

“We are carrying so much data in terms of what people are ordering and when,” Sela said. “You start to understand exactly which customers need which orders at a specific time of day of the week. It is a way to streamline the business and make local pizzerias super-efficient.”

Michael Boland is chief analyst of ARtillry and SF President of the VR/AR Association. He has been an analyst in the local space since 2005, covering mobile, social and emerging tech.