Small business spending more on IT, but not hiring new staff

For Canadian solution providers targeting the small and medium-sized business (SMB) market, reports of stable IT budgets and general health within that market should seem promising. But as the trend toward mobile technology and the cloud continues, SMBs are still looking to do more with less.

“Our view is that the market’s doing well,” said James Alexander, senior vice-president with London, Ont.-based Info-Tech Research Group. “We see an increase in spending in the SMB marketplace, although perhaps not in the traditional infrastructure areas.”

According to IDC Canada research, IT spending by companies with fewer than 499 employees will reach nearly $10.5 billion in 2012. In 2013, that will increase to $10.9 billion, representing year over year growth of nearly five per cent.

Overall, the SMB market accounts for about 27 per cent of all IT business spending in Canada, according to IDC. As of April 2012, IDC also found that a greater proportion of medium-sized businesses, or those with between 100 and 499 employees, were planning to spend more in the next year compared to smaller or larger businesses.

Where IT dollars are going

IT budgets have grown over the past six months.

On a global level, SMBs are still spending on internal hardware. According to Spiceworks Inc.’s global State of the SMB report for the first half of 2012, desktop and laptop computers are still the top two areas of budget allocation for new purchases or upgrades, with an average of 40 per cent of the IT budget being put toward refreshing or investing in hardware.

“They’re buying IT that helps streamline operations and reduce costs,” said Michelle Warren, principal at MW Research and Consulting. Spending on tablets and PCs will continue, as well as on maintenance contracts. SMBs will still invest in hardware as long as it can help streamline business, she said.

However, the trend toward mobile technology, as well as hosted and cloud services, is also continuing from previous years, creating opportunity for managed services, according to Tony Olvet, group vice-president of research at IDC Canada. “We see the desktop PC market tapering quickly and growth in SaaS at the expense of on-premise licensing,” he said.

Virtualization is one of the most significant growth areas.

Mobile collaboration technologies are also moving to the forefront as areas of investment for SMBs, according to Alexander. “Those are the kind of big, high impact things that they’re spending a significant amount of their budget on.”

In the first half of 2012, virtualization and cloud adoption rose among SMBs globally, according to Spiceworks. Virtualization has grown 18 per cent in the last year among SMBs, and 64 per cent of those businesses are now using the technology.

Canadians slower to adopt cloud

While in the last six months IT budgets have grown, most SMBs will keep their IT staff the same size, according to Spiceworks. “It’s not so much about investing in IT, it’s about investing in platforms and solutions that will support the way you have to do business,” Alexander said. While Canadians are about 12 months behind the U.S. in terms of cloud adoption, SMBs are beginning to invest less in internal infrastructure and more in services-based delivery of applications and infrastructure.

“What I’m finding is they’re investing more in automation and less in people,” said Ted Garner, CEO of Brampton, Ont.-based solution provider IT Weapons Inc. Cloud and managed services is one way SMBs can avoid the headache of IT. “They’re really looking to do more with less.”

By now, many SMBs have some understanding of the cloud from major companies such as Google and Microsoft, Garner said. However, messaging from those companies can be confusing and many smaller companies will still gravitate toward local solution providers that can articulate what cloud computing can do for their business, and how.“People like to deal with people,” he added.

The vendor community is also investing more in their SMB strategies and providing incentives for solution providers to target smaller businesses. The SMB market is a “promised land” for vendors, Alexander said, so it’s not surprising to see more tech giants creating SMB-centric products and channel specializations.

“The thing about SMBs is, there’s a lot of them and they may be small, but their problems aren’t small,” Alexander said. Large vendors need partners to target those opportunities. McAfee’s SMB specialization, for example, has seen strong uptake among its channel partners.

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