SMBs Wielding Heavy Enterprise Dollars
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UPDATED: Small- and medium-sized businesses (SMBs) accounted for 44 percent of information technology spending in the United States, shelling out $320 billion in 2004, according to Forrester Research. This highlights the desire for companies with fewer employees and smaller budgets to expand.
The Cambridge, Mass., research firm expects IT spending in the SMB segment, which usually spans six to 1,000 employees, to grow 8 percent in 2005. Meanwhile, spending by larger enterprises with 1,000 or more workers will rise 6 percent.
According to a report by Forrester analyst Andrew Bartels, these figures represent a new trend in the IT market and can be accounted for with few reasons.
While enterprises have typically set the spending pace in the past, the SMBs are closing that gap because many of the larger businesses have acquired much of the core technology they needed since the technology recession of 2002. SMBs have been slower to pick up but are now making up for lost ground, Bartels said.
Another reason for the growth in IT spending by SMBs is that a lot of the applications and technologies initially developed for large enterprise are now being requested by smaller companies. On the flip side, many vendors are increasingly turning their attention to SMBs, having tapped most of the enterprise market.
While Microsoft and Dell, which traditionally focus on catering to SMBs, are thriving, others are trying to duplicate their success. For example, EMC recently launched a program to sell storage gear to SMBs, while HP unveiled a plan to bring blade servers to the little guys.
Bartels said that while it is true most analysts gauge only enterprise spending to project overall IT spending growth and that most vendors have tended to focus on the enterprise because that is "where the money is," attention should be paid to SMBs now that they account for 44 percent of total IT spending in the United States.
"True, the enterprise market is still bigger than the SMB market," Bartels said in the report. "It is also much easier to sell to -- or get data from -- a few thousand larger enterprises than it is to reach the hundreds of thousands of SMBs. Nonetheless, larger enterprises' spending on IT is growing slowly while spending by SMBs is growing quickly."
Despite the momentum of SMBs, larger companies continue to spend more than their smaller counterparts for obvious reasons -- more needs and more capital.
Enterprises shelled out $413 billion on IT in 2004, and are expected to spend $437 billion in 2005, outstripping IT spending by SMBs for both years. This is largely because of the scale of the areas where each segment spends money, Bartels said.
The analyst said companies in the financial services, telecommunications, government and utilities sectors have more than two-thirds of their spending concentrated in enterprises, with each of those segments representing a roughly $25 billion pocket. SMBs typically spend more in media, entertainment and business services.