Why It Won't Be Easy for Gates & Co.

The small-business software market is huge, but formidable obstacles stand in Redmond's way

Microsoft believes applications for small and midsize companies could add nearly $10 billion to annual revenue by decade's end -- more than rivals Oracle and SAP take in now (see BW Online, 4/10/03, "Is Small Biz Microsoft's Next Big Thing?"). But it faces a raft of challenges. Here are three of them:

Persuading customers to buy: Many small and midsize companies have gotten by with homegrown technology and a smattering of packaged applications. In a slow economy, Microsoft will be hard-pressed to persuade them to pay for new technology.

Keeping resellers happy: Microsoft plans to train 24,000 companies that already sell its software to handle these applications, too. That may threaten the 6,000 companies that sell small-biz technology, so they may start favoring products from Microsoft's rivals.

Handling software partners: Microsoft wants to create a base layer of technology, including order processing and inventory management, on which others would build specialized applications. But it's unlikely that rivals such as Intuit and SAP will use the base software, relegating them to niche markets.