Key Points:

They employ the majority of hardworking Kiwis, but small and medium-sized businesses have largely been neglected when it comes to online and IT services aimed at making it easier to run their businesses.

That may change as local web-based software makers and the country's large telecoms providers, Telecom and Vodafone, gear up to better serve these companies.

Wellington web-based accounting software maker Xero this week launched Xero Network, an initiative to encourage software-as-a-service vendors to make their products compatible with each other and therefore easier to use by small business owners.

"Have small businesses really had technology applied to them yet? We think no," said Xero chief executive and founder, Rod Drury.

"They've had to muddle along with un-integrated, un-intuitive solutions."

Telecom took the unusual step last month of meeting software-as-a-service providers to discuss partnering with them in an online venture aimed at its small and medium-sized customers.

The details of the Wellington meeting aren't being disclosed, but in broad terms, Telecom has a three-pronged strategy for serving the business market that includes new broadband packages and modems, a new suite of services separate to the YahooXtra internet platform and unified communications products that will be offered through a tie-up with Microsoft.

Suggestions for an online business directory for New Zealand businesses that could include social networking elements for New Zealand businesses were also canvassed.

The aim is that small businesses can go to Telecom for IT services like web hosting, network security, email and online back-up as well as broadband and phone products.

Vodafone is also strengthening its business IT services offering through an agreement with business internet service provider Bizo.

"Today IT services are offered through individual silos of technology, each solving individual IT problems," said Vodafone spokesman Paul Brislen.

"We believe that the approach offered by Bizo allows Vodafone to deliver IT as a service which could eventually be delivered across our network as we continue our investment strategies."

Drury, who attended the meeting held by Telecom business marketing head Victoria Crone, has welcomed the company's new openness to working more closely with software-as-a-service vendors.

"Rather than selling lines and connections to small businesses, they need to move up the value chain. They're not going to get there building things themselves, they need to partner," he said.

His own venture, Xero Network, wouldn't seek exclusive arrangements with software makers but would be a community of "loosely-coupled" companies keen to integrate with each other's products.

"There'll be multiple payroll providers, multiple CRM [customer relationship management] makers. It's not just about one solution."

Xero is already integrated into locally made online software services like iPayroll, and job management software maker Workflow Max and is looking to work with other software makers through Xero Network.

iPayroll executive director Cary Thomson said the integration between his product and Xero saved customers time organising payments to staff.

"I hope Xero has burst the dam on this, it's something I've been keen on seeing happen for the last six years ever since iPayroll has existed."

IDC software Analyst Ullrich Loeffler said web-based software was currently used by less than 10 per cent of small and medium-sized New Zealand businesses.

"There's a huge market opportunity in New Zealand. There are a lot of one-man bands out there that have hardly any IT knowledge."

SME LAND GRAB

* Listed accounting software maker Xero has formed Xero Network to encourage web-based software vendors to make their products compatible, saving small businesses time and money.

* Telecom is undertaking an overhaul of its business ISP services with new broadband plans and modems, online partnerships with local software makers, and better web hosting, online back-up and email services aimed at small businesses.

* Vodafone is moving into the managed IT services space with the same target market in mind through a tie-up with business ISP Bizo.