Top 5 Tech Segments SMBs Will Spend Money On

After all, solution providers say, every dollar spent on IT equipment is hard-fought and needs to show an almost immediate return.

"Small-business owners are tighter than a ... well, I'm not going to finish that. It was something I learned in the Navy," laughed Art Torres, owner of Post Computer Systems, a Wilbraham, Mass.-based solution provider, when talking about the challenges selling into that market. "I'll just say budgets are tight, and IT is less considered in the overall budget."

But the situation is improving, according to the CMP Channel Quarterly Business Spending Survey. A majority of small businesses surveyed are planning to increase IT expenditures over the next 12 months, and about 60 percent of those increasing their IT budgets will do so by more than 10 percent. Fifty-six percent of these SMB IT decision-makers expect to spend more on IT solutions in the next year, while 38 percent said they expect to spend about the same amount of money. Only 6 percent said they plan to decrease IT spending for the same period.

Also, 62 percent of small businesses polled strongly agreed with the statement "technology is something that can create a genuine competitive advantage for my company." That's incentive for solution providers to show their small-business customers how technology translates to a competitive advantage, several resellers said.

Among the group of respondents that said they expect IT spending to increase, 28.1 percent said they expected spending to increase 6 percent to 10 percent, which is in line with many analysts' projections for the overall market. However, 27.2 percent of respondents expect their IT spending to increase by more than 20 percent. In contrast, only 13.2 percent expect IT spending to increase from 1 percent to 5 percent.

Those who plan to increase spending expect to spend an average of $13,000 on IT equipment over the next year.

The respondents highlighted five technology categories where they have sought or received help the most from solution providers: network security, archiving and backup, client and desktop security, network infrastructure, and accounting and supply-chain applications (see "Upsell Opportunities," page 38). These five areas now present key opportunities for upselling in the SMB market.

Next: Network Security 1: NETWORK SECURITY
Network security is always a concern of small-business end users and that should continue in the next year, says Audrey Levi, president and owner of Altek Computer Group, a Miami-based solution provider. Indeed, nearly one-third of respondents said they had sought or got a solution provider's input for this technology.

"It's definitely big in the higher end of small business. We're seeing a lot of SSO [Single Sign-On] and adoption of [Cisco's] ASA [Adaptive Security Appliance]. At the small-business level, you're going to see a lot of Active-X type technology, antivirus, content filtering. Those are still hot," Levi says.

Small businesses are employing more people in the field, or allowing them to work from home, which has led to increased security sales around VPN, Levi says. In addition, the refresh of a company's network security is a lower-cost capital expenditure for a small company, she says, which could drive more sales in that area.

"Even a nicely loaded ASA is $5,000 or $6,000. That's not what you'd spend on a server with virtualization or a SAN," Levi says.

2: ARCHIVING AND BACKUP
Of all storage solutions, backup and recovery technologies remain the strongest storage seller for VARs this year, according to a VARBusiness State of the Market survey. In fact, nearly three-quarters of VARs responding to the survey said they planned to sell backup and recovery products this year, and the CMP Channel survey showed that nearly one-quarter of SMBs said they sought a VAR's help in this area.

When shopping for backup and recovery technologies, SMBs cite cost, lack of in-house IT staff and the complexity of solutions as reasons for their hesitancy about implementing these solutions. Fortunately for value-added resellers, two out of three of these barriers are easily solved, as resellers can help SMBs choose from the variety of solutions available on the market and can even manage the processes for them.

Post Computer's Torres says small-business customers are now much more interested in backup and archiving information than in the past. "I'm selling more Iomega REV drives and more optical drives," he says. "It's technology that's been out there for several years, but they're starting to talk about it now."

Brian Okun, a regional sales director for security services consulting firm Prevalent Networks, says that a lot of the SMBs he sees have backup and recovery systems in place but that the businesses have no idea whether or not the systems are effective.

"They have no plans for the testing and verification of data, or they might have older technologies that might not be up to snuff, or might not understand if they have regulations or requirements around data, or don't know what to do with their data. This creates a great opportunity for us to educate our existing client base as well as [creates] new opportunities," Okun says.

Moving SMBs from backup- and-recovery solutions to archiving technologies also presents a great upselling opportunity for resellers, Okun adds.

The VAR finds that the market is ripe for services opportunities, such as backup-and-recovery assessments. In fact, the reseller's archiving and backup business now comprises about 15 percent of the company's revenue and is growing, he says.

Online backup services is also an area where resellers are starting to see increased interest in the SMB market, and vendors are now better enabling resellers to offer such services as part of their managed services portfolios—opportunities that can help them lock into recurring revenue streams.

Next: Client/Desktop Security 3: CLIENT/DESKTOP SECURITY
With security continuing to be a major concern for businesses of all sizes, nearly one-quarter of SMBs surveyed in the CMP Channel spending survey said they had sought help from solution providers for their client and desktop security needs.

Many VARs are now starting to move deeper into providing managed security services, which can relieve smaller businesses of the need to have in-house staff capable of managing systems and which also provide resellers more of a recurring revenue stream.

"There definitely continues to be strong demand on the security side, and actually we're seeing an increase in conversations around outsourcing that security as well," says Jon Whitlock, vice president of market development at CBE Technologies, an IT solution provider in Boston. "Traditionally, security has been focused on processes around perimeter security, but we're seeing more and more interest around using our outsourced managed services for client security, for antivirus and spyware."

Small businesses' ever-present need to reduce costs is actually one of the main factors driving such security sales, as managing the security of endpoint devices requires knowledgeable staff and valuable man-hours, Whitlock says.

"Reducing IT costs is still the No. 1 driver in the sub-500 seat business, while security and the creation of policies around security is No. 1 in that 500 to 1,000-seat bucket, although reducing costs is still in the top three for them," Whitlock says.

Also driving the need for client-side security services is the increasing mobility of small-business workforces, he adds.

4: NETWORK INFRASTRUCTURE
Network infrastructure will be a top priority for small-business customers over the next year because, primarily, it hasn't been for the last couple of years, according to Frederick Johnson, president and CIO of Ross-Tek, a Cleveland-based solution provider. "A lot of our clients have put [infrastructure] on the back burner and now they're playing catch-up," Johnson says.

Small business purchasing on network infrastructure had backed up because too many small businesses still tend to operate in a "if it's not broke, don't fix it" mentality, Johnson says. Now, companies are ripping out old hardware and replacing it with new equipment, as well as making sure service contracts are in good order, he says. Customers realize how critical infrastructure is to their business, he says, so they're willing to spend to update it. Nearly 20 percent of respondents to the CMP Channel survey said they've sought a VAR's help in this area.

Many small businesses are also ripping out their DSL-based networks in favor of faster T1 lines because the cost of T1 has dropped precipitously over the last couple of years, Johnson says. "There's a transition in changing those things over. Clients with remote facilities are also looking to tie those in [to a headquarters]. Another key component is licensing, keeping their licenses current," he says.

5: ACCOUNTING/SUPPLY-CHAIN SOLUTIONS
Nearly 20 percent of SMBs surveyed said they had tapped VARs' expertise in implementing supply-chain solutions, and solution provider AXIS Integrated Solutions is proof of that growing market demand.

In just its second year of business, the accounting and supply- chain-solution specialist raked in $4 million in revenue last year and was named one of Sage's top-producing business partners.

The company's founding partner and CEO Manny Buigas actually began his career as a CPA in an accounting firm, but after serving as the firm's de facto in-house software expert, Buigas decided to spin off his own IT consulting practice. Now, his company is seeing the most growth among SMBs in supply-chain solutions, such as warehouse management, CRM applications and business analytics, Buigas says.

"On the CRM side, everybody wants to improve relationships with all of their stakeholders; you know, the old saying that it's a lot easier and cheaper to keep an existing client than finding a new client. It's all about getting better information to upsell and strengthen relationships," Buigas says.

And upselling is definitely something this small VAR understands quite well.

"Every SMB is very cost-conscious, but if they can spend a dollar and make two, they'll do it."