• Chart: SBS 2003 Product Breakdown

Hoping to induce more small businesses to use servers and related server applications, Microsoft has dropped the price of its Small Business Server suite and improved its functionality. Small Business Server (SBS) 2003 comes in a new US$599 "Standard" Edition that includes only Windows Server, Exchange Server, and Windows SharePoint Services, which could open the product up to even smaller businesses than previous versions. However, under the covers, SBS 2003 is still a complex product, which means most customers will need the support of a service provider.

High Growth Potential in the Small Business Market

According to IDC, only 19% of U.S. "small" businesses (defined as having fewer than 100 employees) have one or more servers. However, another 11% have PCs on a peer-to-peer network without a server and 36% have two or more non-networked PCs. Because the number of small businesses is huge—these latter two segments represent 0.84 million and 2.73 million small businesses, respectively, in the United States alone—they are a tempting target for a low-cost, easy-to-use server. In addition to hoping to sell these businesses SBS, Microsoft sees substantial long-term opportunities to sell Microsoft Business Solutions products, such as accounting and CRM products aimed at small businesses, which all require a server.

Although multiuser accounting and line-of-business applications have traditionally driven small businesses to purchase servers, Microsoft’s market research indicates that there are now three other even more important drivers:

Data protection. Because of the Internet and the widespread use of laptops, data security has become much more of a problem today than it was a decade ago. Hackers, viruses, and thieves pose a serious threat to valuable small business data, which is harder to protect when stored on individual PCs. Because the volume of data is growing, performing backup properly becomes difficult when it is spread over multiple PCs, especially as few PCs have a tape drive or other removable storage device for backed up files.

A server can offer much greater data protection, and allows the cost of peripherals like tape drives and fault-tolerant disk drives to be spread over multiple users. It is also easier to secure physically; for example, it can be run out of sight in a locked closet.

Remote access. The ubiquity of the Internet, the dropping cost of laptops, and the popularity of home PCs potentially allow small business owners to work from home part of the time or spend more time at customer sites. However, unless the business is so small that only one user needs this level of portability, businesses wanting secure remote access to data and applications need to centralize it on a server.

Corporate e-mail. For many small businesses, e-mail has become nearly as important as telephone service. However, even when a small business obtains its own domain name, ISP-based mailboxes can limit the business value of the e-mail because of things like file attachment and storage restrictions and the lack of related services, such as shared calendars and e-mail routing rules.

Given these advantages of server-based networking, what’s holding small businesses back? The major problem is fear and uncertainty about the cost and complexity of the system. Most small businesses do not have any IT-savvy employees and are loath to risk spending an inordinate amount of time or money on something they have not needed in the past. In addition, because small businesses have so few employees, the cost-per-employee of full-fledged servers and server applications can become disproportionately high when compared with larger businesses. Furthermore, even when the initial costs of a server are acceptable, most business owners know that the upfront cost is only the tip of the iceberg. To get SBS into more small businesses, Microsoft must address these concerns; if it fails, it will limit sales of its other small business products.

Getting SBS 2003 into Small Businesses

With SBS 2003, Microsoft has paid particular attention to reducing both the upfront and maintenance costs, while adding new functionality.

Like its predecessors, SBS 2003 is a complex product, and most small businesses will require assistance to install, configure, and support it. However, by reducing the initial cost of the product, making it easier for service providers to support, and making it easier for users to do certain tasks themselves, administrative and service costs should be lower and more predictable.

Lowered Costs

The lower-cost Standard Edition, at US$499, is not only US$900 cheaper than the previous edition of SBS but it is US$400 less than a copy of Windows Server 2003 all by itself. (See the chart "SBS 2003 Product Breakdown".) A large percentage of small business customers won’t need the capabilities of the more expensive Premium Edition because they are not running an application that requires SQL Server, and they can use the basic firewall services in Windows 2003’s Routing and Remote Access Service or use a firewall built into their Internet access router.

Installation cost should be lower, since SBS 2003 can be preinstalled by OEMs and the remainder of the installation process can be completed within 15 minutes. Furthermore, various wizards and tools in SBS 2003 accelerate initial configuration and user setup.

Ongoing maintenance costs should also be lower. SBS 2003 has better tools that let an authorized user easily perform certain routine tasks, such as adding a user to a group. Since SBS 2003 installs a Web site that is accessible from the Internet, a page called Remote Web Workplace makes it easier for authorized remote users to configure their virtual private network (VPN) connections or connect to Exchange’s Web-based client, Outlook Web Access, with little or no support.

However, SBS 2003 customers will still require occasional professional support services, such as when installing and configuring new applications or devices, correcting hardware or software problems, or responding to newly discovered security vulnerabilities. As with SBS 2000, SBS 2003 allows support providers to perform many support tasks remotely using the server’s Internet connection and a VPN. As long as the server is healthy enough to support a network connection, Terminal Services allows remote support technicians to maintain the server, and if the PCs at the small business are running Windows XP, support providers can perform maintenance on them as well using XP’s Remote Desktop service.

SBS 2003’s enhanced monitoring capabilities allow support providers to receive regular server health status reports via e-mail, and users can submit trouble tickets to an internal SBS Web site that can automatically e-mail them to the support provider.

Since support providers can do most customer support tasks remotely, they can use their people more efficiently, which in turn lowers the cost of support services while providing faster response to problems.

Increased Functionality

The majority of the improvements in SBS 2003 stem from upgrades to its three major components: Windows Server 2003, Exchange Server 2003, and Windows SharePoint Services. (See the Resources section below for links to previous articles and Research Reports that cover these products in depth.)

Windows Server 2003. Small businesses can benefit from Windows Server 2003’s significant performance, reliability, security, and stability improvements. The Volume Shadow Copy Service improves backups and allows end users to restore older versions of files. Windows Server 2003 also provides support for the Point-to-Point over Ethernet (PPoE) protocol, which is required by many broadband providers to establish an Internet connection.

Exchange Server 2003 and Outlook 2003. Outlook’s new cached-mode support improves both offline and online performance. A new protocol based on the Hypertext Transfer Protocol for Outlook to access Exchange eliminates the need to use a VPN when Outlook users connect to Exchange from the Internet. Other improvements include antispam features, Outlook’s user interface enhancements, and enhancements to the Outlook Web Access browser client. Wireless-enabled Pocket PC devices and Smartphones can synchronize Pocket Outlook with Exchange mailboxes using Exchange’s Outlook Mobile Access.

Windows SharePoint Services (WSS). WSS, a document storage and Web site hosting service for Windows Server 2003, provides a basic intranet site for a small firm, and the version in SBS comes with pages and "Web part" modules specifically tailored for the needs of small businesses. These Web Parts provide access to incoming faxes and a company vacation calendar, or the aforementioned trouble ticket forms, among other functions.

Marketing SBS Effectively

Microsoft’s direct sales force is far too small to reach the fragmented small business market. Instead, Microsoft is mainly counting on channel partners that serve small businesses, particularly those focused on accounting or on a vertical market, such as medical offices. The value-added resellers (VARs) and consultants that came along with Microsoft’s acquisition of Great Plains and Navision will be especially important, since they are well-versed on the Microsoft platform and on Microsoft Business Solutions products, for which SBS 2003 is an ideal base platform.

In fact, Microsoft hopes that the new pricing and functionality will help SBS 2003 become the de facto base platform for most turnkey solutions targeting small businesses.

OEMs will also be offering servers bundled with SBS 2003, and Microsoft anticipates that some bargain channels will be offering SBS 2003 Standard Edition servers for under US$1,000 (albeit without a tape drive or monitor). Even though it is unlikely that many small businesses will be buying and setting up SBS-based servers themselves, OEM marketing efforts will help grow business owner awareness.

Caveats Apply

Although the changes to SBS 2003 make it a particularly attractive package for small businesses, it still has certain drawbacks.

Artificial constraints. Like SBS 2000, SBS 2003 still has limitations that make it viable only for small businesses that do not plan significant expansion: only one SBS suite may be installed on any single network and it must be on a single machine with no more than two CPUs. SBS cannot establish a trust relationship with any other domain, meaning it is not practical to use in departments or branch offices of a connected enterprise. However, Microsoft has increased the maximum number of workstations that can connect to SBS from 50 to 75, which gives businesses more growing room before they must upgrade. Furthermore, customers can add additional servers running Windows Server to their network without also requiring Windows Server 2003 CALs (only the additional server license is needed).

Should a small business customer outgrow SBS and want to move to discrete Microsoft server products that have no artificially imposed limits, the customer can purchase a "transition pack" that will move them from SBS Standard to Windows Server 2003 and Exchange Server 2003 without losing their investment in SBS. The cost of the transition pack is the price of the individual components minus the price of SBS. The first five CALs that came with the SBS Server are covered in the server transition pack, and any additional SBS 2003 CALs can be converted to Windows Server Standard and Exchange Server Standard CALs at no additional charge.

SBS 2003 Premium customers can purchase a transition pack that includes similar provisions for SQL Server 2000 and ISA Server.

Upgrade path uncertain. Customers buying SBS 2003 Premium get the same versions of SQL Server and ISA Server that are in SBS 2000. New versions of these products are due in 2004, but SBS 2003 does not come with coupons for those components. Although in the past Microsoft has granted special free upgrades to certain SBS components, it has not announced any such program for SBS 2003 so far. Customers who purchase Software Assurance (SA) for SBS 2003 will definitely get these upgrades (and SBS purchased alone meets the minimum requirements to qualify for volume licensing, which allows them to buy SA). Customers who purchase SBS 2003 bundled with OEM hardware or as part of a turnkey solution can also buy SA if they do so within 90 days of purchase.

No Terminal Services Application Server mode. Although SBS 2003 supports remote administration using the Windows Terminal Services’ Remote Desktop mode, customers cannot use Terminal Services’ Application Server mode—a feature that allows regular users to run desktop applications on the server and interact with them in a window on their PC desktop. This drawback is particularly significant for customers who need remote access to business applications, such as Microsoft’s Solomon product line, that require client-side components. The alternative—installing client-side components on a remote machine and using a VPN to connect to the SBS server—could perform poorly over low-bandwidth connections and could require another license for the remote client.

No antivirus. SBS 2003 has no built-in antivirus protection; Microsoft leaves it up to the reseller channel to bundle SBS systems with third-party antivirus products, such as those from McAfee, Symantec, and Trend. Although running SBS 2003 without antivirus protection would be foolish, bundling an antivirus product is not a requirement, and price competition could cause the reseller to drop it or make it optional. Although Microsoft purchased GeCAD, a small, privately held Romanian antivirus company, to integrate antivirus protection into products such as Windows, the company has not announced if, when, or how native antivirus protection will show up in its products.

Complexity lurks under the covers. Even though SBS 2003 has wizards and special user interfaces to shield installers, administrators, and users from much of its complexity, make no mistake: these are full versions of the component products, each of which requires the people servicing it to have substantial skills, experience, and product knowledge. Given that many users cannot even manage a Windows XP desktop without help, SBS 2003 (like its predecessors) is designed to be installed and initially configured by a VAR or consultant. Furthermore, each component requires upkeep, especially since virus and hacker threats demand frequent application of patches and service packs. This could provide significant service opportunities for resellers as long as SBS's relative complexity is not misrepresented.

Resources

For more information on SBS 2003, see www.microsoft.com/windowsserver2003/sbs.

For more information on the new features and benefits of Windows Server 2003, see "Performance Improvements in Windows Server 2003" on page 10 of the Aug. 2003 Update, "Windows .NET Server Supports Enterprise Storage" on page 3 of the Dec. 2002 Update, and the Apr. 2003 Research Report, "Improving PC Management with Windows Server 2003."

For more information on the new features and benefits of Exchange Server 2003 and Outlook 2003, see the July 2003 Research Report, "Exchange Server 2003, Outlook 2003 Enhance Mobility, Scalability, Security."

For more information on the new features and benefits of Windows SharePoint Services, see the Sept. 2003 Research Report, "Collaboration and Portal Strategy Built on SharePoint."

For more information on ISA Server, see "ISA Server Steps onto Internet" on page 11 of the April 2001 Update.