IT'S COMPAQ VS. DELL FOR THE SMALL BUSINESS PC MARKET

Too tiny, too cheap, too slow. For years, that has been the computer manufacturers' rap against small businesses -- customers they neglected, and nearly forgot, in their frenzy to sew up the corporate and home markets.

Now, however, with technology spending by small businesses expected to grow 52% to $120 billion over the next four years, the big PC makers sniff opportunity, and are chasing the small biz market en masse. All that attention is good news for small companies, which can now watch rival PC makers duke it out -- and let the marvels of competition help improve products and lower prices.

The latest computer maker to venture down Main Street is Compaq Computer Corp., which on Nov. 11 announced a far-ranging strategy to woo small business owners to a new product line called Prosignia. The move in many ways puts Compaq's offerings in closer competition with those of rival Dell Computer Corp., which sold more than $1 billion in computers and services to small businesses in 1997 (accounting for nearly 10% of its total revenues.)

"There's a smorgasbord out there now," says Ray Boggs, a small business market analyst at research firm IDC/Link. "This allows small businesses to play the companies off one another."

Indeed, Compaq announced that it will begin selling its Prosignia series via the Web, mimicking Dell's long-standing direct-sales strategy. Direct sales account for more than one-third of total PC sales, according to Compaq chief executive Eckhard Pfeiffer. "We are not going to miss out on that opportunity," declared Pfeiffer at a news conference, as company officials compared prices and products on Compaq's Web site to those on Dell's. Prosignia prices range from $1,300 for a basic desktop machine to $4,200 for a top-of-the-line notebook.

While Dell and Compaq differ slightly in price, their machines' technical innards are virtually identical. That duplication, says Forrester Research analyst Eric C. Schmitt, means that computer manufacturers increasingly will differentiate themselves based on service, such as maintenance contracts and 1-800 help lines. Computers are a commodity, adds Schmitt. "We're shifting from products to services, and a home-business owner is not going to wait on hold for three hours," he adds.

Most computer manufacturers don't have a stellar reputation for service, however. And small businesses, which tend to ask complex questions about networking and customized software, have more often turned to their local computer reseller for guidance. To get the allegiance of small-companies, the giant PC sellers will have to make their service faster and simpler, says Boggs. "It's a challenge because all this can be bedazzling to less-knowledgeable small businesses," he adds.

Compaq is betting that small companies will want a certain level of advanced services, including data back-up, credit card processing, and electronic postage, all of which come pre-loaded on small-business computers.

While the market for such services is growing -- and is expected to reach $3 billion by 2001 -- there isn't yet a huge demand for them. For example, of 7.2 million American companies with fewer than 100 employees, only 40% have Web access. Only a quarter have a local area network or their own Web site, according to research firm Access Media International.

Of course, that's where Compaq and Dell see an opportunity. Small companies may be slow to act, and a pain to service, but they're a market that's too big to ignore.

By Dennis Berman, Staff Reporter, Business Week Online