A great blog post here by Zoli Erdos. He sums up how small and medium sized business are now an important part of software industry:
Back to the economics: if SMB´s could not in the past afford Enterprise Software, the same held true for the Software Industry: they could not afford SMB´s, since there was just no way to make the numbers work. The cost of customer acquisition vs. the very low license fees made it an uneconomical model, whether via direct or channel sales.
I definitely think Ray Ozzie recognized this in his “leaked” email to Microsoft employees.