SAN FRANCISCO (Business 2.0 Magazine) -- The software that runs businesses' sales, finance, and operations, has never been the most exciting field - but lately, it's been downright sleepy. Thanks to a merger frenzy over the last few years, Oracle, SAP, and to a lesser extent Microsoft dominate enterprise software sales to the world's largest companies, and annual sales growth in this arena has slowed to a 3 percent trickle.

But look at smaller companies, and you'll find a fast-growing market - and a raging battle for those customers.

Small and medium-sized businesses - those with fewer than 1,000 employees - are expected to spend $575 billion on software of all kinds this year, and this market is expected to grow 12 percent by the end of 2006, according to Forrester Research. Large companies, by contrast, will only spend $500 billion on software - and the market is "flat" with 3 percent annual growth, says Forrester analyst Ray Wang.

"The new market that everyone is going after is really the mid-market," says Wang.

Smaller businesses are "the last great business application market," says Zach Nelson, CEO of NetSuite, a maker of Web-based accounting software. "Nobody has more than a 10 percent share of those customers, and because of that, there is the opportunity for someone to emerge as the SAP of the mid-market."

NetSuite is just one of the players hoping to emerge on top.

In this war, the incumbents include companies like Lawson Software, Sage Group, Infor, i2 Technologies (Charts), Deltek Systems and Ariba (Charts) - traditional software companies which have long served small and medium-sized businesses.

Additionally, there are the Web-based software companies like Salesforce.com and NetSuite, as well as giants like Oracle (Charts), SAP (Charts), and Microsoft (Charts), which are new entrants into the small-business arena, and are trying to take their business software downmarket.

There are several reasons why this fight is brewing just now. For starters, growth has slowed at the top of the business-software food chain. Large companies have already chosen their software vendors, gotten their software working, and are loathe to switch.

Smaller companies, by contrast, have only just begun automating their operations, in large part because of the expense and complexity of installing business software.

"These companies have all the same pressures as the largest corporations," Nelson says. "They are just as complicated to run. They just don't have the same money and manpower to throw at every problem."

The software outfits going after this market are pursuing a range of strategies.

Web-based software companies like NetSuite, RightNow Technologies, and Salesforce.com (Charts), for instance, are competing on ease of deployment. There's no software to install, since users access it through their Web browser, and companies just pay a monthly fee per subscriber.

Oracle, SAP, and Microsoft are slimming down their products, cutting license fees, and offering attractive financing terms to lure new customers.

Smaller software vendors like Unit 4 Agresso and QAD are sharpening their offerings to go after specific industries, like manufacturing, healthcare and government agencies, for example.

And Infor, taking a page from Oracle's playbook, has been vigorously engaging in some consolidation of its own, buying up rivals SSA Global Technologies and Extensity, to put together a company with $2.1 billion in revenue.

Still, as NetSuite's Nelson points out, no company has anything resembling a sizeable share of software's middle market. And prices are coming down fast as the competitors bid for more market share.

So it may be a while before we know the winner of this battle. But if you're running a small company and you're in the market for business software, now may be the time to engage in some war profiteering.