Round 2

Microsoft takes another swing at Windows Small Business Server 2003.

One of the most acclaimed Microsoft products of the last few years is Windows Small Business Server 2003 (SBS 2003). Developed for organizations with 75 or fewer seats -- and ideally for companies with fewer than 50 -- SBS has been a major partner opportunity. In the next few months, Microsoft will release a new version of Windows Small Business Server 2003 dubbed R2 (for Release 2). While it's only being called a minor release, R2 will provide a fresh opportunity for partners to push the product to small businesses.

SBS 2003 comes in two editions. The Standard Edition brings small companies file-and-print sharing, Internet access, e-mail via the integrated Exchange Server 2003 and fax services. The Premium Edition adds the SQL Server database and Internet Security & Acceleration Server firewall and caching.

One of the most important aspects of SBS 2003 is the wizard-heavy approach. While server maintenance is still a bit much for a part-time administrator, the wizards make the job of maintaining what would otherwise be several separate servers a far less time-consuming pursuit for small business administrators.

SBS 2003 was originally released in October 2003, about five months after the base Windows Server 2003 product. The delay was largely due to the integration work Microsoft did on top of the standard server operating system release and time spent creating the wizards for server setup and management. Such is the case again for the R2 release. Windows Server 2003 R2 released to manufacturing (RTM) in December 2005, while the SBS version isn't expected to RTM until the second quarter of 2006. General availability should follow by a month or two.

The decision to do SBS 2003 R2 following the general R2 release is a sign of Microsoft's commitment to SBS. It has long been a troubled product with a reputation for causing as many headaches as it solved. SBS matured with the Windows 2000 generation release, however, and Microsoft earned credit for having the formula down pat in the 2003 version. Already Microsoft is discussing plans for a major new release of SBS to follow Windows "Longhorn" Server sometime in 2007 or 2008. Code-named "Cougar," the Longhorn-era SBS will be the first 64-bit version of the small business-focused operating system.

Chip off the Old Block
The new SBS will be built around the most relevant features of the new server OS. Windows Server 2003 R2 is also billed as a minor feature update to Windows Server 2003. The main areas of focus include:
  • Identity and access management across security boundaries
  • Administration of file and print servers in branch offices
  • Storage setup and management

Those main functional areas are primarily enterprise problems, not major sources of concern for a 20-person shop making T-shirts, for example. SBS 2003 will soak up some of the smaller bore improvements in R2. For example, R2 includes an enhanced version of Windows SharePoint Services. While Windows Server 2003 didn't originally include SharePoint Services, Microsoft was able to include it by default in Windows Small Business Server 2003 because of the intentional release delay.

Still, the R2 version of Windows SharePoint Services is not only integrated with the base operating system, but it's also slightly improved. So it's part of Windows Small Business Server 2003, too. Another improvement in the R2 release that will make its way into Windows Small Business Server 2003 R2 is Microsoft Management Console 3.0.

Aside from the standard R2 improvements, SBS 2003 R2 will sport three main improvements:

  • Automated patch and update management for all products supported by Microsoft Update. Microsoft bills this change as important for security and as a way to lower the cost of supporting products on a Microsoft network.
  • Mailbox limits will increase by more than four times. Formerly capped at 16GB per user, the new version of the integrated small business package will allow each user to store 75GB worth of data in a mailbox. This productivity aid reflects the increasing storage capacity that is now commonplace.
  • More flexibility for growth in the Client Access Licenses (CALs) provided with SBS 2003 R2. Companies installing SBS 2003 previously could only use their special SBS CALs to access Exchange and SQL servers hosted on the physical SBS server. Microsoft will let customers use those CALs to access additional Exchange and SQL servers in the SBS 2003 R2 network.

Another major feature of the new release comes in the Premium Edition, where SQL Server 2000 Standard Edition is replaced by the recently released SQL Server 2005 Workgroup Edition. By swapping up to SQL Server 2005, the Premium Edition gets Common Language Runtime integration, SQL Service Broker support, Reporting Services, the end-user tool Report Builder and SQL Server Management Studio.

Independent sources say about a quarter of Small Business Server customers also use SQL Server, so this functionality -- and the new flexibility on CAL usage -- will be of interest to a limited set of customers.

Competitive Landscape
Because of the tight targeting of Small Business Server, it comes into competition with many products, but usually only at an angle. There's really no other integrated, all-in-one server for small business on the market. As is sometimes the case with Microsoft products, SBS faces some of its stiffest competition from other products offered by Microsoft itself.

The most significant internal challenger is Windows Server 2003 Standard Edition. Small Business Server's advantages for small business customers are substantial -- especially the tight integration with several other products and the intense engineering effort into making the product easier to set up and administer.

Harry Brelsford, a consultant and author who runs the SMB Nation conferences, says the price is usually the closer when presenting SBS versus Windows Server 2003 Standard Edition to customers. "What sells the product is the value equation. SBS Standard Edition is $599. Windows Server 2003 Standard Edition is $999. For darn near half the price, you get the core OS, plus Exchange, plus all this SBS functionality," Brelsford says. "Because of the price sensitivity in our space, I always save that argument for last. That closes the deal."

SBS does have limitations compared to the standard Windows server when it comes to the Active Directory. Only one computer can run Windows Small Business Server 2003 in a domain; some AD services cannot be moved from SBS 2003 onto another domain controller; and the SBS 2003 server must be the root domain in an AD, so you can't even consider using it as a branch server in a larger organization.

Windows Small Business Server 2003 R2 will also have installed base competition against existing implementations of Windows Small Business Server 2003, where it doesn't have much to add. Existing installations of Windows 2000 Small Business Server, on the other hand, could be ripe for an upgrade.

As is sometimes the case with Microsoft products, SBS faces some of its stiffest competition from other products offered by Microsoft itself.

A new category of internal competition also has the potential to step on SBS's turf -- the fledgling Office Live service that Microsoft is beta testing now. The ad-supported service is hosted by Microsoft and offers small businesses up to five free e-mail accounts, a domain, a Web site and other services. For now, this doesn't appear to threaten SBS, which starts becoming cost effective somewhere above the five-network user level in most cases. But services are an important focus that Microsoft is starting to execute upon, so the line dividing Office Live from Small Business Server may be pushed up to a higher number of seats in the future.

For customers whose primary concern is start-up cost, one other competitor is Linux servers. The technical know-how required to get an open source system running makes it rare that partners face potential SBS customers who are seriously considering a Linux alternative. However, some major vendors are pushing hard to improve the ease-of-use of Linux-based server offerings to make it an alternative for small business shops. Most notable is the Novell Linux Small Business Suite 9, released last year.

Marketing and Sales
To date, Microsoft has one key promotion in the works for Windows Small Business Server 2003. Starting this month, any customer who buys Windows Small Business Server 2003 can upgrade for free to Release 2 when it ships. The promotion will run until 60 days after SBS 2003 R2 ships. Called the Technology Guarantee Program, the upgrade offer will apply to any customer who buys the server via an Original Equipment Manufacturer or from a system builder.

Microsoft is also talking up the fact that small business customers who opted for Software Assurance with their SBS 2003 purchase are eligible to upgrade to the R2 version at no additional cost. In the price-conscious world of small business, however, indications are that Software Assurance didn't get much traction.

Usually when a product is released to manufacturing, Microsoft unveils the official pricing for the new version. Microsoft could potentially change SBS pricing in some way to influence sales.

During the SBS 2000 generation, Microsoft offered a channel service rebate incentive to spur sales at the product's mid-point -- which is roughly what the R2 release represents for SBS 2003. Microsoft doesn't seem to be gearing up for any specific promotions surrounding R2, however. "I don't believe we'll have anything additional to announce here," a Microsoft spokesperson said in a late January interview when asked about partner promotion plans for R2.

That said, Microsoft is currently engaged in a marketing effort around small businesses that should reinforce partner efforts to sell SBS R2 even without mentioning the update by name. The company is encouraging partners to become Small Business Specialists and is doing some advertising pointing small businesses to Microsoft partners. As part of this effort, Microsoft is also promoting Office 2003 Small Business Edition and Windows Small Business Server 2003. It appears the company will continue to publicly promote Windows Small Business Server 2003 as the main brand, while shipping the slightly improved R2 version. Partners will probably be left with the job of explaining the subtle upgrades in the R2 release.

The Final Word
For partners, the main opportunity of Small Business Server is having a shiny new release of the product to take to new customers. Realistically, there isn't enough in the release to go back to existing Small Business Server 2003 customers and try to sell them the new version. Except for the rare customer who signed up for Software Assurance, the new version with its incremental improvements will be a tough sell for cost-conscious small businesses, especially if their businesses are running fine on the original version. In some cases, the integrated patching infrastructure may make the product a fit for organizations that might have rejected it as too administratively intensive in the past.

As it did with Small Business Server 2003, Microsoft encourages partners to view the R2 release as an opportunity to move up the value chain with small businesses. Microsoft has done the heavy work of integrating Windows Server 2003 R2 with Exchange Server 2003 and, in the Premium Edition, with SQL Server 2005 Workgroup Edition and Internet Security & Acceleration Server 2004. The products are now wrapped together with a bow for small business in the form of wizards for ease of use. Without that integration work to worry about, a partner can use Windows Small Business Server 2003 R2 as the first part of a broader conversation about business problems the partner can help a small business customer solve.