Despite a small projected increase in Canadian enterprise IT spending, research firm Ipsos-Reid on Wednesday suggested vendors are missing an opportunity to generate more demand in the mid-market sector.
The company forecast large corporations will boost their technology investments by seven per cent, which is expected to offset an overall decline of four per cent in the mid market. Hardware is expected to take the hardest hit, with a 10 per cent decrease expected in the large and mid-market. Software, on the other hand, remains an area of steady growth for both sectors, with a combined 23 per cent increase in spending predicted for 2006, Ipsos-Reid said.
Small business spending is expected to remain flat, which in Canada’s case means most of the total market, according to the research firm. Ipsos-Reid says 97 per cent of firms here employ one to 99 employees, and only three per cent employ more than 100.
“Most, if not all, of the large IT vendors in this country target this one percent of the business community for a substantial percentage of what makes up their total revenue,” the research bulletin said. “This market segment gets even finer when we consider that most companies in the upper echelon are the ones with 1000-plus employees. Given the business demographics in this country, we are looking at less than one percent of the total business population that qualifies for this category.”
Lise Dellazizzo, Ipsos-Reid’s vice-president of information communications and technology, said it is important vendors start establishing the relationships they will need outside of the large enterprise.
“If you are playing in the IT space, it really makes a whole lot of sense to start thinking downstream. Even they only represent two per cent of the total market, (mid-sized firms) generate close to $23 billion in spending,” she said. “Very often, I don’t know how many companies realize that the business ecosystem in this country is made up of just over a million companies, and most of them are small.”
In a Webcast outlining its own annual predictions on IT spending last month, IDC Canada country manager Vito Mabrucco noted that geography, as well as the size of potential customers, made it difficult for vendors to find the right sales coverage model.
“The median size of organizations will be different with so many head offices in Ontario,” he said. “It can be as hard to sell to company with 500 employees as 5,000.”
It’s not unusual that vendors would spend most of their resources chasing the same tiny set of users, Dellazizzo said, because if they succeed the payoff is significant.
“You may decide, ‘I’m going to spend six months closing this deal, but it will make three times more money.’ There are relatively few companies that meet that criteria,” she said, adding that many of those same products and services would be compatible in the mid-market. “IT vendors are getting very excited about performance management, business rules and processes as Canada realizes it has to come to terms with issues around governance. Those are mid-market issues too.”
A total of 254 companies in the medium and large enterprise segments were selected to participate in the Ipsos study, with data collected from October to end of December. An additional 121 small companies were also included.