SMB tech spending on the way up

Companies selling technology products and services to Canadian small and medium sized businesses (SMBs) should expect a brisk business this year, according to a study recently released by analyst group IDC Canada.

Global SMB tech spending is expected to amount to more than $471.3 billion this year, according to a report from IDC titled: The Reinvigorated SMB IT Market: Top 10 predictions for 2011. IDC analysts said the anticipated purchases represents a 6.8 per cent increase from 2010 figure and is far above the 3.7 per cent increase that IDC had earlier predicted.

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IDC’s findings differ from a recent survey conducted by ITBusiness.ca which indicated that as much as half of the SMBs in Canada will likely have a flat IT budget this year while another 23 per cent will spend even less on technology this year than they did in 2010. The ITBusiness.ca reported titled: The State of the Canadian SMB 2011, polled 181 SMBs across Canada in January.

Europe, Middle East and African countries (EMEA) are forecasted to account for 44 per cent of the $71.3 billion expenditures; the United States and Canada are estimated to account for 27 per cent; the Asia Pacific region, 23 per cent; and Latin America, six per cent.

“In 2010, we saw SMBs recover from decline in 2009. This year, especially in North America we see government stimulus spending kicking in,” said Ray Boggs, vices president, small/medium business and home office research for IDC.

IDC’s top 10 global SMB spend predictions are:

  • SMB IT spending will reach $500.3 by end of 2011
  • Spending gains will be close to traditional levels in developed regions – 5 per cent in North America and Western Europe and 0.2 per cent in Japan
  • Double-digit IT spending growth will occur in developing regions
  • Unlike last year, small business and medicum sized business will show similar spending gains or just over 6 per cent.
  • There will be greater SMB spending on networking equipment, software and IT services
  • Development of more advance technology will challenge SMBs and tech providers to maintain competitive edge
  • SMBs will invest more in virtualization and network resources
  • Smartphone adoption for remote workers will expand globally
  • Cloud adoption in mid-sized business in developed countries will reach critical mass but adoption will take longer in small businesses
  • Innovative distribution channels for technology will arise. For example app store will become source of technology for SMBs

In Canada, the small business sector will boost IT spending due to a trend towards the adoption of technology for strategic purposes, according to Paul Edwards, director of SMB and channels research at IDC Canada.

“For smaller businesses, those with 100 or less employees we see spending trends intensifying in terms of higher growth in hardware purchases and core infrastructure refinements,” he said during a Web cast about the report.

Edwards said SMBs will be spending more on cloud computing, virtualization and network resources including enhanced storage solutions.

He accounts the renewed interest in investing on technology to a realization by SMBs of how technology can improve business operations and boost profits. “There’s this shift way from a reactionary attitude to a more strategic outlook towards technology.”

Jumping on the cloud bandwagon

Edwards is optimistic that many smaller businesses will adopt the attitude of larger enterprises when in comes to adopting technology such as cloud computing to bolster productivity. “This focus on business needs will bring about higher spending on IT services and software,” he said.

Cloud computing essentially involves the provisioning of shared resources, software, and information as a service over the Internet.
The IDC report also predicted the development of alternative distribution channels for SMBs to access technology.

“Watch for disintermediation as more resources are sold online,” said the report. The IDC analysts predict there will be a shift from on-premise distribution of technology to online distribution through the use of “app stores”.

“If you’re already using cloud computing why not purchase your other services through the cloud,” the report said.

“Canadian impact is no different really than other regions except that Canadian SMBs do care whether the cloud solution they’re buying is being housed on a server in Canada,” said Edwards.

So the growth in app stores where Canadian SMBs can purchase cloud solutions also means that those companies will have servers (data centers) in Canada to support that, according to the IDC analyst.

“One example of a recent app store launch is Bell’s effort,” said Edwards.

 

In Canada, small business cloud adoption is growing faster than that in medium sized businesses, said Edwards.

Small businesses have three things that help drive cloud adoption, he said:

  • They have limited capital
  • Small IT staff (cloud services are supported for the most part externally)
  • No complex on-premise IT systems (SMBs do not need to have cloud services heavily integrated with on-premise systems)

Although there is now greater interest about cloud computing in the SMB space, fears over the security and stability of cloud systems remainsome critical barriers remain.

The reliability of cloud services was once again placed under a cloud last week when one the world’s largest cloud service provider Amazon suffered a two-day power outage last week. Among the notable Amazon clients affected were well known sites such as Foursquare, Reddit, Quora and HootSuite whose websites were temporarily knocked out.

The outage was a black eye for Amazon but an even bigger hit on the reputation of cloud computing, according to Ezra Gottheil, analyst for Technology Business Research. “It’s a pretty big hit. It’s a big hit and it’s public.”

“When you’re doing business on the Web, you don’t want to have your doors closed — ever. It’s tough for the sites,” he said.

Boggs of IDC however believes that business benefits offers by cloud services will be able to sway most SMBs. “Cloud services represent an opportunity for small business to reach far beyond their size.”

Nestor Arellano is a Senior Writer at ITBusiness.ca. Follow him on Twitter, read his blog, and join the IT Business Facebook Page.

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