‘SMB OS’: Expanding the Local Pie
Local has a new battleground: the SMB operating system (SMB OS). The idea is that the opportunity isn’t SMB advertising — a primary focus thus far — but all business functions. It more holistically fulfills SMB needs, while tapping a larger addressable market.
Like Salesforce is assembling in the enterprise, SMB OS includes a range of business services that traditionally fall outside of – but are related to – customer acquisition. It’s POS systems, supply chain, payroll, e-commerce functionality and CRM to name a few.
SMB OS isn’t a new concept, though it’s now emerging and crystallizing in new ways. Advancing it are supporting technologies like cloud computing, mobility and cash-flow friendly SaaS pricing. Much of this trickles down from enterprise world, as it often does.
And we’re seeing expansion all directions. Local media companies have launched different flavors of SMB OS, including pure plays like OpenTable, UpServe, Booker and Slice. Meanwhile, software giants have moved in, such as GoDaddy, Intuit and Cisco.
We believe this is the beginning of the influx, and Salesforce is the sleeping giant. Triangulating its expansion (Marketing Cloud) and acquisitions (ExactTarget), it’s already fusing advertising and operational support… it just has to move down market in earnest.
Incumbent local advertising and marketing companies – local media publishers, ad-tech vendors, search engines – should be wary of these entrants. But they should also see it as a call to apply incumbent strengths to beat them to the SMB OS punch.
The question is if SMB OS is a smaller leap for local incumbents or new entrants. Because local media companies have relationships with, and sales channels to, SMBs they could be natural candidates to deliver SMB OS. There are also product synergies.
For example, reservation systems can track redemption for local marketing and loyalty programs, thus informing attribution. Accounting software can expose real-time inventory for product searches or marketing campaigns that highlight available stock.
But SMB OS’ biggest advantage is its size. It expands local’s addressable market beyond the $150 billion advertising pie. Due to its breadth of components, SMBOS is three-to-four times larger, which we’re currently calculating for a Street Fight report.
There are also retention advantages, thus avoiding local advertising’s perennial churn issues. Multi-functional support engenders a sort of lock-in effect. It raises SMB switching cost and creates a greater perception of value through daily operational necessities.
ReachLocal CPO Kris Barton noted at LSA’s December 2017 Cloud Adoption Summit that SMB churn for advertising products is between 39 percent and 86 percent. Churn from SaaS-based operational tools is conversely between six percent and 22 percent.
But what are SMBOS challenges? There’s a question about trading addressable market (horizontal coverage) for specialized focus and execution (vertical coverage). Exemplars of the former are Square and GoDaddy, while the latter is shown by Slice and Booker.
There’s also a question of whether or not SMBs want to string together a patchwork of disparate products or have one unified dashboard. Though the unified approach can carry pricing benefits, a single dashboard isn’t always optimal for functionality.
“All in one solutions are not something that are vital to me.” Chris O’Donnell, Owner of Premium Sign Solutions said in an interview with LSA’s Charles Laughlin. “The signing in of multiple apps is not cumbersome. My browser allows me to have infinite tabs.”
Another key question is what should we call it? We’ve used the SMB OS acronym for brevity and descriptiveness. But should it only be used as an inter-industry term? It’s not the most marketable wording for SMBs, just like “CRM” and other jargon.
“CRM is too nerdy for small business, just like Saas and cloud,” said Broadly co-founder Josh Melick at Cloud Adoption Summit. Whatever it’s called, it could shape the next era of the local advertising and marketing sector, and present more dollars to chase.
A Street Fight report is in production to examine SMBOS in greater depth.
Mike Boland is Street Fight’s analyst-in-residence and author of the Road Map column. He covers AR & VR as 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.