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The consensus among software market analysts is clear: there is not a single provider of business applications to small and medium-sized businesses (SMBs) that need not be concerned about Microsoft's aggressive foray into their market.

With its acquisitions of two mid-market applications companies, US-based Navision in May 2001 and Denmark-based Navision in April 2002, Microsoft has furnished its Microsoft Business Solutions (MBS) division with an impressive software arsenal with which to attack the market.

Microsoft has many advantages over smaller suppliers - not least a lot of development resources, and the fact that most of its target customers are already big users of its products - Windows and Office.

To further encourage customers to consider MBS, it will ease any financial burdens in the financially sensitive mid-market. Through its Microsoft Capital programme, the company offers customers online approval for the financing of software, services and hardware. Additionally, partners will be paid in full immediately upon completion of deals.

Jennifer Chew, an analyst with IT market research company Forrester Research, says that Microsoft can - and most likely will - spend its way to success. Any lavish spending splash will come at a bad time for other software companies, many of whom expect a big uptick in the market, but who have recently watched licence revenue flatten or fall.

Other supplies in the market fall into two distinct categories: suppliers, such as SAP, Oracle, PeopleSoft and JD Edwards, that have historically targeted large multinationals and the largest of medium-sized companies but are now turning their attention to smaller customers; and software companies, such as Scala, Intentia and Mapics, that have traditionally focused on developing and selling business applications to mid-market companies.

That so many vendors are competing for SME sales is good news for prospective customers. Entry price points are certain to decline, making software more affordable for companies that have historically held back on applications spending.

Some traditional providers of applications to mid-market customers may find the competition too intense, however. An early casualty, German company Brain International, filed for insolvency in July 2002, leaving many of its customers, primarily European suppliers of automotive components, without a clear forward software strategy.

Meanwhile, mid-market software companies that can afford to are buying up rivals in order to increase their share of what is a highly fragmented market. SSA Global Technologies for example, bought the interBiz ERP business unit from Computer Associates in May 2002 and it bought ERP provider Infinium in October 2002. Likewise, Mapics bought rival manufacturing software company FrontStep (formerly Symix) in November 2002; and ERP company Epicor bought e-sourcing and e-procurement technologies from Clarus in December 2002.

Software companies that have traditionally targeted high-end companies (SAP, PeopleSoft, Oracle, JDE) face their own challenges. When Forrester Research recently evaluated the software and services provided to mid-market customers, says Chew, it found that none of these larger companies stood out as leaders - although some have produced arguments to the contrary.

Chew argues that they could all improve by building a reasonable channel to help service small accounts better and by providing better implementation tools to help small clients get up and running with minimal consulting, she says.

These high-end vendors, wary of protecting their larger customer, high-end business, have put some programmes in place, but are still working hard to make their products more palatable to SMEs. Enterprise resource planning market leader SAP, for example, is rapidly recruiting third-party partners to sell and implement its Business One package for companies with between 10 and 250 employees.

Business One is a more basic suite of applications than SAP's MySAP package. It was acquired in March 2002 with the purchase of Israeli mid-market software supplier TopManage. PeopleSoft and Oracle, meanwhile, are both offering SMEs their high-end applications, but with limits on use and scaled-back implementation programmes.

Mid-market customers are not finding it easy to make their choices - aware that the wrong choice can affect their business for a decade or more. Buyers, says the Meta Group analyst company, should carefully consider the future direction of their businesses, and buy a system that provides a platform for growth.