SMB OS Operators, Part IV: Peter Krasilovsky

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In our most recent interview about SMB OS—the broader range of SMB functions that fall outside of, but dovetail with, marketing—we’re cheating and deviating from “operators.” Peter Krasilovsky, who publishes Local Onliner, is a leading thinker on SMB OS with years of analyst coverage in SMB payment processing and loyalty strategies.

In this recent interview, he gives us his take on the state of SMB OS today.

Street Fight: SMB OS isn’t a new concept in local but is gaining momentum. Where are the areas you’re currently seeing movement? What sticks out in terms of players that have recently expanded their local business offerings through investment, innovation, or acquisition?

Peter Krasilovsky: We have had platform services forever … where an anchor company would act as a sales and technology agent for a related company. That’s what AOL was. In a local context, Yahoo and some others were providing a broad platform for SMBs. But we first started talking about the SMB OS in 2003 or so, with two companies:

ReachLocal and Groupon. Both saw it to leverage their audience and SMB customers while also broadening their services. Since these companies are publicly owned, the SMB OS concept helped them show an avenue for possible growth. Neither of them saw very good results. But the short-term PR was helpful.

Since then, SMB OS growth has become more organic—largely thanks to the development of seamless cloud-based services. We see the obvious players, like the domain and website-hosting companies … GoDaddy and, for instance.

We are also seeing companies that once might have gotten left behind in their silos now become front and center. It has been amazing to see a company like DocuSign, once just a real estate tool for legal signatures, become a key part of ecommerce platforms for giants like UPS. The same holds true for accounting and expenses programs like Infor and Concur, who are now providing a suite of services for their clients, large and small.

Right now, I think we are at an advanced beginner stage of platforms. Internally, at the enterprise level, they are more interesting to CMOs than COOs. But we’ll see platforms become more and more integrated. One day, SMB OS may become as organic to companies as a messaging company like Slack that has added a load of extensions.

SF: SMB OS covers a wide range of local business operational functions, many of which are tied to local marketing. One of those areas is payments (payment processing, CLOs, promotions, etc.). You’ve been looking at this for a while: What’s the current state of the art in SMB payment processing, and who’s doing interesting things?

PK: I really focus on payments and transactions, because they hold the key to a lot of big data on how people shop and buy. They also engage customers at critical times. We sometimes call these efforts online-to-offline marketing. Look at Square—it not only processes payments but also [delivers] immediate feedback on service to its [business] customers. PayPal, MasterCard, Visa, American Express, and First Data are also working to add value to payments in a way that leads to more customer acquisition, engagement, and better targeting. So do CRM-oriented companies, like Five Stars and SignPost, although they struggle. Some concepts that would be a natural extension for these companies would be loyalty services that provide customers with cash back, points, or gifts. Restaurants have been early adopters here. But not enough of them, and no other verticals, really. A lot of work still needs to be done.

SF: Branching from the previous question, SMB OS continues to expand into more business operations. Analogous to Salesforce’s “horizontal” expansion throughout the enterprise (HR, payroll, marketing, etc.), where are next areas of expansion for SMB operational support?

PK: Vertical players have a nice head start if they have a good volume of customers, good sales engagement, and naturally intersect with other verticals and features. In this regard, the leaders in SMB OS have been coming from such verticals as website hosting, recruitment, software, hardware, loans, accounting … expense reports. I think what will define their success as a platform is whether they have the clout with their customers to provide them with services that are less related. This is where Groupon messed up … They were not a core company for their customers. They were the fourth- or fifth-ranked marketing solution. But sometimes, even a core company will stumble. We’ve seen companies like Intuit, boasting core products like Quicken, struggle with marketing extensions like Demand Force.

SF: One of the benefits of SMB OS is that it’s a much larger addressable market than going after local businesses’ advertising and marketing budgets. Local ad spending is on the order of $150B, which is a fairly mature market so is a zero-sum game with several “local” startups and media companies competing for it. Do you believe that expanding the focus to SMB OS presents a much larger “local” space and moves the boundaries of this industry you’ve been studying for years? How big is that opportunity in terms of addressable market?

PK: We like to cite $500 billion as the broad SMB OS opportunity—roughly 3.5 times the size of local advertising. This number takes into account the value of all of today’s support spending on hardware, software and services. But I think the end number has got to be many times larger. It will reflect the true business environment of the future, when all the synergies of SMB OS weigh in.

SF: You helped produce the B2SMB conference last fall (similar concept of SMB OS). What were some of the highlights, takeaways or a-ha moments for you?

PK: We had a very stimulating inaugural B2SMB Summit in Chicago this fall. About 250 senior leaders attended. It wasn’t about advertising solutions. We focused on how enterprise companies build their value chain for SMBs and support their general needs. Companies who spoke included leaders like Dell, Office Depot, Go Daddy,, Microsoft, Cisco, LinkedIn, DexYP, Yext, Indeed and DocuSign. For me, there were four key takeaways from the show:

1. In this environment, media and local audience targeting get less focus than usual. Yet media-oriented companies such as ReachLocal and DexYP can swing to SMB OS and emphasize holistic solutions.

2. Senior-level marketers at many enterprise companies don’t think very much about advertising—they are focused on how to engage and service the channel. Companies that DO sell advertising, like DexYP, are providing platform services as a separate entity.

3. The B2SMB world is split between those offering solutions to very small SMBs with less than 10 employees, and those offering services to SMBs with 100 or more employees. Many in the latter group consists of companies that are providing a downsized version of what they offer larger enterprises.

4. Most companies aren’t really set up to sell an independent third-party solution as part of their platform. It is much better to focus on providing an integrated solution. The cloud makes it easier, but nothing is automatic.

Author’s note: This interview was done before the B2SMB event earlier this month in San Francisco. Krasilovsky attended and has a separate but related set of takeaways for that show, which he’s outlined here

Mike Boland has been a tech & media analyst for the past two decades, specifically covering mobile, local, and emerging technologies. He has written for Street Fight since 2011. More can be seen at